CNBC published a report this week that stated that the multifamily realty market is in the midst of an "acute crisis". According to the report, the market's luxury end is too crowded and vulnerable to market fluctuations or flattening. Developers of apartments in the top 150 US towns built 395 775 housing units during the fiscal year. This is an increase of 46% compared to the previous year. Nearly 75-80% of these new homes are in luxury communities. ,Visit.

I've witnessed many large development projects being constructed at an incredible pace while living in Boston over the last few years. A majority of these developments are luxurious luxury residences that the majority of people are unable to afford. In actuality, the Spotlight Team at the Boston Globe recently released a set of articles that focused on the development of the new "Seaport" neighborhood. It highlighted the city's lack of affordable housing and the overabundance luxury housing which doesn't accommodate its diverse population.

With the arrival of all these new multi-family luxury properties is this putting the entire multifamily sector at risk of a flattening or collapse? If the market is flat it could be a problem of a collapse for Class A new construction. However existing Class B & C multifamily communities are able to withstand market volatility and market imbalances. Let's go through why there has been such an unprecedented growth in the luxury market and what could happen when demand slows.

Luxury Demand is Strong

There are two important factors that drive the rising demand for luxury apartments. Generation Y and baby boomers who are empty-nesters are descending on city centers like Boston, Austin & Denver with a discerning taste for high-end finishes and amenity-packed structures. One specific reason for this growth is that a lot of double-income households of millennials and empty nesters with the money to buy are opting to rent. Benefits like high-end fitness centers, concierge services, and pet spas that are full-service are becoming standard. It seems like there is an inordinate quantity of amenities available with every new construction. Modern amenities are being incorporated into developers' projects in a fast-paced manner, but it isn't cheap.

New Construction is Cost Prohibitive

The primary reason for the overwhelming majority of new housing complexes you see coming on the market are luxury is due to the increasing cost of construction materials and labor. Construction labor is in high demand and the materials are at their highest ever price. Toby Bozzuto is the CEO of the Bozzuto Group. He says, "The two-by four doesn't care if it's in luxury buildings or affordable buildings." It's the same price." Because of the high prices for labor and materials as well as the appreciation of the natural resources developers are being obliged to build luxurious products because the numbers simply don't make sense to construct any other type of construction. To ensure affordable housing, cities are enforcing regulations that require developers to include affordable units in new construction projects. The average unit count and the location determines how much they charge. But, on their own, these rules will not provide a meaningful growth in affordable housing.

What are the alternatives for affordable housing? Learn more.

Through the years, there have been several building booms and busts. You will find many apartments built between 1970 and 90 in various markets across the nation. Although these properties might seem old-fashioned compared to modern construction, the "bonesremain in good shape. The buildings built in the frame have been constructed with modern techniques and materials. They typically require only surface renovations with the replacement of wear and tear items. These communities, as well as the secondary markets they're located in are strategically placed to take on the flood of luxury new homes and maintain housing that is relatively affordable. The Class B homes can thrive in any economic environment. When the economy is strong Class C tenants can move into Class B properties. When the economy is weak Class A tenants are forced to move down to more affordable Class B properties. Investors can usually purchase these properties at less than the cost to build, which allows them to provide a great living space, yet ensure that rents remain in a range that is appealing to tenants of many income ranges.
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