CNBC published a report this week that said that the multifamily realty sector is in the midst of an "acute crisis". The article surmises that the top end of the market for luxury is over-built and prone to a flattening or market correction. In fact, apartment developers in the top 150 US cities delivered 395,775 new housing units last year, which marks a 46% increase Y-o-Y. Of the new units of housing, about 75-80% of them are classified as luxury communities. ,Click here.

I've seen a lot of major developments being built at a rapid pace when I lived in Boston over the last few years. The majority of these properties are luxury homes that most people cannot afford. In actuality it was the Spotlight Team at the Boston Globe recently published a number of articles that focused on the growth of the "Seaport" neighborhood. The article highlighted the lack of affordable housing, as well as an overabundance of luxury housing that does not cater to the diverse population in the city.

Are these multifamily developments an imminent threat to the multifamily industry? If the market is flat, there is a risk for Class A new construction. However the existing Class B & C multifamily communities can withstand market fluctuations and imbalances. Let's take a look at the motives for this luxury boom, and what happens if the boom comes to an end.

The demand for luxury goods is high.

There are two main reasons of the growing demand for luxurious homes. Millennials and empty nester baby boomers are making their way to cities like Boston, Austin, and Denver with a discerning palate for luxurious finishes and amenities-packed properties. One of the main reasons for this growth is that many double income households, as well as empty nesters with the money to buy are choosing to rent. Facilities like top-of-the-line gyms, concierge services and pet spas that are full-service are becoming standard. It seems like there is an appalling amount of amenities being offered with every new construction. These kinds of modern amenities are being included in the projects of developers at a rapid pace and aren't cheap.

New construction is expensive

Luxury housing is the main reason that the majority of new developments you see on the market are high-end. This is because of the increasing cost of construction labor. Construction labor is highly sought-after and the materials are at their highest ever price. Toby Bozzuto is the CEO of Bozzuto Group. He says, "The two-by four doesn't care if it's in luxury buildings or affordable buildings." It's priced the same." It costs the same." To ensure affordable housing cities are enforcing rules that require developers to incorporate affordable units in construction plans. Typically between 10%-20% depending on the number of units and the location. But, on their own, these rules won't result in a significant growth in affordable housing.

If Affordable Housing Isn't Built, what is the Alternative? Click here.

There have been numerous cycles of boom and bust in the construction industry over the decades. You will find many apartments constructed between 1970 and 1990 in various cities across the country. While they may seem outdated compared to current construction, the "bonesare still in good condition. Buildings built during this time frame have been constructed with contemporary materials and techniques, and typically require only surface renovations with wear items replaced. These apartment communities, and the secondary markets that they're in are well-positioned to counterbalance the influx of luxury new homes and to maintain housing that's reasonably affordable. The Class B homes are able to perform in any economic climate. If the economy is flourishing Class C tenants can move up into Class B properties . When the economy is suffering the Class A tenants will find it difficult to justify the extravagant rents and typically move down to Class B properties. Investors can typically buy these homes for less than the cost of building and can thus provide a comfortable home, but keep the rents at a level attractive for tenants with different income levels.
There are no comments on this page.
Valid XHTML :: Valid CSS: :: Powered by WikkaWiki