The week before, CNBC published an article suggesting that "There is an urgent crisis headed towards us" in the multifamily real estate sector. According to the report, the upper-end of the luxury market is overcrowded and susceptible to market fluctuations or flattening. In fact, apartment developers in the top 150 US cities built 395,775 new housing units in the last year, which marks a 46% increase Y-o-Y. The majority of the new housing units are luxury communities. ,Find out more.

While living in Boston in the last few years, I have witnessed several major developments being constructed in a rapid manner. 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 which doesn't accommodate the diverse population of the city.

With the arrival of all these luxury multifamily properties is this putting the entire multifamily market at risk of flattening or collapse? The threat of Class A new construction is apparent if the market flattens but the the existing Class B & C multifamily communities are uniquely placed to stand up to market imbalances and corrections. Let's take a look at the motives for this boom in luxury, and what will happen if it ends.

The Demand for Luxury is High

There are a couple of major factors driving the rising demand for luxury apartments. Generation Y and baby boomers who are empty-nesters are moving into cities such as Boston, Austin & Denver with a keen interest in high-end finishes and amenity-packed properties. This boom is due to the trend that empty nesters and families with double incomes in the millennial generation are choosing to rent rather than buy. Facilities like top-of-the-line fitness centers, concierge services and fully-service pet spas are becoming standard. There is an inordinate number of amenities offered with each new building. Developers are actively incorporating modern amenities into their plans, but, it doesn't come at a cost.

The cost of construction can be expensive.

The reason the vast majority of the new housing complexes you see that are on the market is luxurious is because of the increasing cost of construction materials and labor. Construction labor demand is at an all-time high and the cost of building materials is the most they have ever been. As Toby Bozzuto, CEO of Bozzuto Group puts it, "The two-by-four isn't concerned about whether it's in a luxury building or in an affordable construction. It's priced the same." Due to the high cost of prices for labor and materials as well as the rise in the value of raw land developers are forced to build luxury products due to the fact that the numbers do not work to build any other type of construction. Cities are forced to pass rules that require developers to build the right amount of affordable homes within their construction projects. The typical range is between 10 and 20%, based on the unit count and location. But, on their own, these rules won't result in a significant growth in affordable housing.

If Affordable Housing Can't Be Constructed, What's the alternative? Visit website.

There have been numerous cycles of boom and bust within the building industry throughout the years. In many areas across the country, you'll find a large number of apartment buildings built in the 1970's-1990's. While they may seem outdated compared to current construction, the "bonesremain in good shape. Buildings built during this time frame were constructed using contemporary materials and techniques, and typically require only surface renovations with the replacement of wear and tear items. These communities and the secondary markets they serve are well-positioned to offset the flood of luxurious apartments. They also offer affordable housing. The Class B homes are able to perform in any economic climate. When the economy is strong, Class C tenants move into Class B properties. If the economy is in decline, tenants of Class A have to shift to more affordable Class B homes. Investors can typically purchase these properties at less than the cost to build, which allows them to provide a comfortable home, but keep the rents in a range that is appealing for tenants with different income levels.
There are no comments on this page.
Valid XHTML :: Valid CSS: :: Powered by WikkaWiki