CNBC published a report this week that said that the multifamily realty market is facing an "acute crisis". According to the article, the luxury market's upper end is too crowded and vulnerable to market fluctuations or flattening. Apartment developers in the top 150 US towns constructed 395 775 housing units in the last financial year. This is an increase of 46% over the previous year. Nearly 75-80% of these new units of housing are high-end communities. ,More info.

I've seen many major developments built at breakneck speed while living in Boston for the past few years. Most of these homes are luxury homes that the majority of people are unable to afford. In reality, the Spotlight Team at the Boston Globe recently published a series of articles that focused on development of the new "Seaport" neighborhood. The article highlighted the lack of affordable housing as well as the overabundance of luxury homes that do not meet the needs of the diverse population in the city.

Do these multifamily developments pose an imminent threat to the multifamily industry? If the market is flat and the risk of collapse increases, it is of a collapse for Class A new construction. However, existing Class B & C multifamily communities are able to withstand market volatility and market imbalances. Let's go through the reasons behind why there's been an unprecedented growth in the luxury market and what could happen in the event that demand declines.

The demand for luxury goods is strong

There are two main drivers for the rising demand for luxurious apartments. Baby boomers and empty nesters are flocking to city centers like Boston, Austin & Denver with a desire for high-end finishes and amenity-packed properties. One specific reason for this growth is that a lot of double-income households, as well as empty nesters who can afford to buy are opting to rent. Luxury gyms, concierge service and full-service spas for pets are all becoming commonplace. There is an astonishing quantity of amenities available in every new building. These kinds of modern amenities are being incorporated into development projects in a fast-paced manner, but it isn't cheap.

New Construction is Cost Prohibitive

The reason the vast majority of the new housing complexes you see being put up for sale is expensive is because of the increasing costs of construction materials and labor. Construction is a high-demand industry and materials are priced at their highest ever price. Toby Bozzuto is the CEO of the Bozzuto Group. He says, "The two-by four doesn't matter if it's in luxurious structures or in affordable ones." It costs the same." It costs the same." Cities are forced to pass laws that force developers to construct the right amount of affordable units within their new construction projects. The average unit count and the location will determine how much they will charge. However, these regulations alone won't result in a significant increase in the amount of affordable housing.

What are the alternatives to housing that is affordable? Read this.

Throughout the decades there have been several building booms and busts. You will find many apartments built between 1970 and 90 in various cities across the country. While these homes may appear out-of-date compared to the current construction, the "bonesremain in good shape. The buildings built in the frame have been constructed with modern materials and techniques and typically only need surface rehabbing with wear items replaced. These communities and their secondary markets are well-positioned to offset the flood of luxurious apartment buildings. They also provide affordable housing. The great thing about these Class B homes is that they tend to excel in all economic climates. If the economy is robust Class C tenants are able to move into Class B properties. When the economy is struggling Class A tenants have to shift to more affordable Class B homes. Investors can typically purchase these properties at a fraction of the cost of building and can thus provide a great living space, yet keep the rents at a level attractive for tenants with different income ranges.
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