CNBC released a report last week stating that the multifamily realty market is experiencing an "acute crisis". According to the report the market's luxury end is crowded and prone to market fluctuations or flattening. In actuality, apartment developers in the top 150 US cities delivered 395,775 new housing units last year, which is an increase of 46% Y-o-Y. Of these new homes, around 75-80% of them are considered luxury communities. ,Click here.

While living in Boston during the last couple of years, I have witnessed many major developments being built in a rapid manner. The majority of these properties are luxury homes that the majority of people are unable to afford. In reality it was the Spotlight Team at the Boston Globe recently released a set of pieces that focused on the creation of the "Seaport" neighborhood. It highlighted the city's shortage of affordable housing as well as the overabundance luxury housing which doesn't accommodate the diverse population of the city.

With the advent of all these new luxurious multifamily homes is this putting the entire multifamily sector at risk of collapse or flattening? If the market slows down, there is a risk of a collapse for Class A new construction. However, existing Class B & C multifamily communities can stand up to market fluctuations and imbalances. Let's look at the reasons for this luxury boom, and what happens if the boom comes to an end.

Luxury Demand is Strong

There are two main reasons of the growing demand for luxury apartments. Millennials and empty-nester baby boomers are flocking to city centers such as Boston, Austin & Denver with a keen interest in high-end finishes and amenity-packed properties. This growth is due to the fact that empty nesters and households with double incomes prefer renting rather than purchase. Luxury gyms, concierge service and spas with full-services for pets are becoming more the norm. With each new building, it seems as though there's an arms race. These kinds of modern amenities are being incorporated into developers' projects at a rapid pace however, it's not cheap.

New Construction is costly.

The main reason why the majority of developments on the market are high-end. This is because of the growing cost of construction work. Construction labor demand is at an all-time high, as is the cost of building materials is at their highest ever been. Toby Bozzuto is the CEO of Bozzuto Group. He says, "The two-by four doesn't need to be in high-end buildings or affordable buildings." It's priced the same." It costs the identical." Cities are forced to pass rules that require developers to build an amount of affordable units in their new construction projects. The average number of units as well as the location determines how the developers will be able to charge. This will not lead to an increase in the number of affordable homes.

If Affordable Housing Can't Be Built, What is the Alternative? Read more.

There have been numerous boom and bust cycles in the construction industry over the years. There are many apartment buildings built between 1970 and 90 in various markets across the United States. While these properties may feel outdated when compared to the buildings that are being built in the present however, they're "bones" are in good shape. Built during this period were constructed with advanced materials and techniques. They generally need only surface repairs and wear-related items are able to be replaced. These communities as well as the secondary markets they serve are well-positioned to counteract the overflow of luxury homes. They also offer affordable housing. These Class B properties can thrive in any economic environment. When the economy is strong, Class C tenants move into Class B properties. When the economy is weak, tenants of Class A are forced to move down to Class B properties. These properties are often available for less than the price of construction. This allows investors to offer a great location to live in and still maintain appealing rents that tenants of different incomes are able to afford.
There are no comments on this page.
Valid XHTML :: Valid CSS: :: Powered by WikkaWiki