CNBC released a report last week that stated that the multifamily realty sector is facing an "acute crisis". The article surmises that the upper tier of the luxury market is overbuilt and vulnerable to flattening or a market correction. In reality, apartment builders in the 150 largest US cities constructed 395,775 brand new housing units last year, which marks an increase of 46% year-over-year. Of the new homes, around 75-80% of them are classified as luxury communities. ,Home page.

I've seen a lot of major development projects being constructed at an incredible pace when I lived in Boston in recent years. The majority of these properties are expensive luxury apartments which the majority of people can't afford. The Boston Globe's Spotlight Team recently published a series of articles on the growth of the "Seaport" neighborhood. The article highlighted the city's deficiency of affordable housing, as well as the inordinate supply of luxury homes that don't meet the needs of its diverse population.

Are these multifamily developments danger to the multifamily market? If the market slows down and the risk of collapse increases, it is for Class A new construction. However, the existing Class B & C multifamily communities are able to withstand market fluctuations and imbalances. Let's look at the reasons of this luxury boom and what will happen if it is over.

Luxury demand is strong

There are two key drivers behind the demand for luxury apartments. Generation Y and empty nester baby boomers are moving into cities such as Boston and Austin as well as Denver with a discerning palate for high-end finishes and luxurious buildings. One reason to this increase is that many double income households, as well as empty nesters who can afford to purchase are choosing to rent. The latest gyms, concierge services and full-service spas for pets are becoming more commonplace. There is an appalling amount of amenities being offered with each new building. Modern amenities are being incorporated into developers' projects at a rapid pace and aren't cheap.

New construction is expensive.

The reason the majority of new residential developments coming on the market are expensive is because of the rising cost of construction materials and labor. Construction labor is in high demand and the materials are at their most expensive ever. Toby Bozzuto is the CEO of Bozzuto Group. He says, "The two-by four doesn't need to be in high-end buildings or low-cost ones." It's the same price. Due to the high cost of prices for labor and materials as well as the rising value of the natural resources developers are obliged to build luxurious products due to the fact that the numbers do not allow for building any other kind of building. To provide affordable housing cities are enforcing rules that require developers to incorporate affordable units in construction plans. The typical range is between 10 and 20%, based on unit count and location. But these rules alone do not guarantee a significant growth in affordable housing.

If Affordable Housing Can't Be Built, What is the alternative? Homepage.

There have been numerous cycles of boom and bust in the building industry throughout the decades. In many markets around the country, you will see a lot of apartments constructed between the 1970's and 1990's. Although these properties might seem outdated compared to current construction but the "bonesare still in good condition. These buildings were built using the most modern techniques and materials. They generally just require minor repairs, and wear items can be repaired. These communities and the secondary markets they serve are well-positioned to counter the influx of luxury homes. They also offer affordable housing. The Class B homes can perform in any economic climate. When the economy is strong Class C tenants can are able to move into Class B homes. If the economy is in decline and Class A tenants are unable to no longer justify the luxury rents and typically move down to more affordable Class B properties. Investors can typically purchase these properties for a fraction of the price of construction, which allows them to provide a comfortable home, but keep the rents affordable to tenants of many income ranges.
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