In the last week, CNBC published an article which suggested that "There is an urgent crisis coming our way" within the multifamily real estate industry. The article suggests that the upper end of the luxury market is overbuilt and vulnerable to a flattening or a market correction. Developers of apartments in the 150 largest US towns constructed 395 775 new housing units last financial year. This is an increase of 46% over previous years. The majority of the new housing units are luxurious communities. ,Get more info.

In my time in Boston over the past few years, I've witnessed numerous major developments being constructed at an incredibly rapid pace. As a result, the overwhelming majority of these properties are high-end luxury apartments that the average person are unable to afford. In actuality there is a reason why the Spotlight Team at the Boston Globe recently published a series of pieces that focused on the development of the new "Seaport" neighborhood. It highlighted the city's shortage of affordable housing, as well as the inordinate supply of luxury homes that doesn't cater to its diverse population.

With the arrival of all these new luxury multifamily properties is this putting the entire multifamily market at risk of a collapse or flattening? The threat to Class A new construction is evident if the market is flat but the existing Class B & C multifamily communities are uniquely positioned to withstand market imbalances and corrections. Let's look at the reasons for this luxury boom, and what will happen if it ends.

The Demand for Luxury is High

There are a few important factors that drive the increasing demand for luxury homes. Baby boomers and empty nesters are descending on city centers like Boston, Austin & Denver with a keen interest in luxurious finishes and amenities-packed properties. This growth can be attributed to the trend that empty nesters and families with double incomes in the millennial generation prefer renting rather to purchase. Facilities like top-of-the-line gyms, concierge services, and fully-service pet spas are becoming the standard. Every time a new construction is completed it appears that there is an amenities arms race. Developers are aggressively incorporating these modern perks into their plans, but they're not inexpensively.

New construction is expensive

The reason the overwhelming majority of new homes being put up for sale is luxurious is because of the increasing costs of construction labor and materials. Construction labor demand is at an all-time high, and the cost of building materials is at their highest ever been. As Toby Bozzuto, CEO of Bozzuto Group puts it, "The two-by-4 doesn't matter if it's in a luxury structure or in a low-cost building. It's priced the same." As a result of high prices for labor and materials as well as the appreciation of the raw land developers are being forced to build luxury products since the numbers don't allow for building anything else. To ensure affordable housing cities are now enforcing laws that require developers to include affordable units in their new construction projects. The average number of units as well as the location will determine much they charge. These regulations will not cause an increase in affordable housing.

What are the alternatives to affordable housing? Going here.

Through the years, there have been building boom and bust cycles. You will find many apartments built between 1970 and 90 in various markets across the United States. Although they may seem outdated in comparison to the modern buildings being constructed nowadays but the "bones" are quite good. The buildings built in the frame have been constructed with contemporary materials and techniques, and typically only need surface rehabbing with the replacement of wear and tear items. These communities, as well as their secondary markets are well placed to counteract the overflow of luxurious apartments. They also offer affordable housing. The benefit of these Class B properties is that they tend to excel in all economic climates. When the economy is strong, Class C tenants move into Class B properties. When the economy is struggling Class A tenants have to shift to more affordable Class B properties. These properties are often offered for less than the cost of building. This allows investors to offer a great property to live in and still maintain attractive rents that tenants of different incomes can afford.
There are no comments on this page.
Valid XHTML :: Valid CSS: :: Powered by WikkaWiki