CNBC issued a report this week that said that the multifamily real estate sector is experiencing an "acute crisis". According to the report, the luxury market's upper end is crowded and prone to market corrections or flattening. Apartment developers in the top 150 US towns constructed 395 775 new housing units last fiscal year. This is a 46% increase over the previous year. Of the new units of housing, about 75-80% of them are classified as luxury communities. ,Find out more.

When I lived in Boston in the last few years, I've witnessed several major developments being constructed at a breakneck speed. Not surprisingly, the overwhelming majority of these properties are luxurious luxury residences that your average citizens cannot afford. The Boston Globe's Spotlight Team recently published a series of articles on the growth of the "Seaport" neighborhood. The article highlighted its lack of affordable housing, as well as an overabundance of luxury housing that does not cater to the diverse population in the city.

With the emergence of all these new luxury multifamily properties, does this put the entire multifamily market at risk of a collapse or flattening? The threat to Class A new construction is obvious if the market flattens but the the existing Class B & C multifamily communities are uniquely placed to withstand market imbalances as well as corrections. Let's examine why there has been such a luxury boom and what will happen when demand slows.

The demand for luxury goods is high.

There are two main reasons to the increasing demand for luxury homes. Millennials and empty-nester baby boomers are flocking to city centers like Boston, Austin & Denver with a discerning taste for luxurious finishes and amenities-packed properties. One reason for this boom is that a lot of double-income households, as well as empty nesters that can afford to purchase are choosing to rent. Facilities like top-of-the-line fitness centers, concierge services, and pet spas that are full-service are becoming standard. There's an inordinate amount of amenities being offered in every new building. Developers are aggressively incorporating modern amenities in their developments, however it's not inexpensively.

New construction is expensive

High-end housing is the primary reason for the fact that most developments on the market are high-end. This is because of the rising cost of construction labor. Construction labor is in high demand and the materials are at their most expensive ever. Toby Bozzuto is the CEO of the Bozzuto Group. He says, "The two-by four doesn't care if it's in luxury structures or in affordable ones." It's the same price. Because of the high prices for labor and materials as well as the rising value of the natural resources, developers are required to construct luxury homes due to the fact that the numbers do not make sense to construct any other kind of building. To provide affordable housing, cities are enforcing regulations which require developers to build affordable units in their new construction projects. Most often, between 10% and 20% based on unit count and location. This will not cause an increase in affordable housing.

What alternatives are there to housing that is affordable? Learn more.

Throughout the decades there has been building booms and busts. In many areas across the country, you will see a lot of apartments constructed between the 1970's and 1990's. While they may seem old-fashioned compared to modern construction but the "bonesare still in good condition. Buildings built during this time frame have been constructed with contemporary materials and techniques, and generally only require surface rehabilitation with the replacement of wear and tear items. These apartment communities, and the secondary markets they're located in are well-positioned to counterbalance the influx of luxury new homes and provide housing that's reasonably affordable. The Class B homes are able to perform in any economic climate. If the economy is robust, Class C tenants move into Class B properties. When the economy is struggling Class A tenants have to shift to Class B homes. Investors can usually buy these homes for only a small portion of the cost to build they can offer a wonderful home, but maintain rents in a range that is appealing for tenants with different income ranges.
There are no comments on this page.
Valid XHTML :: Valid CSS: :: Powered by WikkaWiki