The week before, CNBC published an article which suggested that "There is a crisis of extreme proportions headed towards us" in the multifamily real estate market. The article suggests that the upper end of the market for luxury is over-built and prone to flattening or a market correction. Apartment developers in the top 150 US towns constructed 395 775 housing units last fiscal year. This is an increase of 46% over previous years. The majority of the new homes are in high-end communities. ,Click here.

In my time in Boston over the past few years, I've witnessed numerous major developments being constructed in a rapid manner. It's not surprising that the vast majority of these homes are luxury homes that the average person can't afford. The Boston Globe's Spotlight Team recently published a series of articles on the growth of the "Seaport" neighborhood. The article pointed out the absence of affordable housing as well as an overabundance of luxury housing which does not serve the diverse population of the city.

With the emergence of all these multi-family luxury properties, does this put the entire multifamily industry at risk of collapse or flattening? If the market is flat it could be a problem of a collapse for Class A new construction. However, the existing Class B & C multifamily communities can stand up to market corrections and imbalances. Let's examine the causes for this luxury boom, and what happens if the boom is over.

The demand for luxury goods is high.

There are two main reasons for the rising demand for luxurious apartment. Millennials and empty-nester baby boomers are moving into cities like Boston, Austin & Denver with a desire for luxurious finishes and amenities-packed properties. The rise in popularity is due to the fact that empty nesters and households with double incomes are opting to rent instead to purchase. Perks such as high-end gyms, concierge services, and pet spas that are full-service are becoming the standard. There is an inordinate number of amenities offered with every new construction. These types of modern amenities are being included in the projects of developers rapidly and aren't cheap.

The cost of construction can be expensive.

The reason the majority of new housing complexes you see being put up for sale is luxurious is because of the increasing cost of construction labor and building materials. Construction is a high-demand industry and materials are at their most expensive ever. Toby Bozzuto is the CEO of Bozzuto Group. He says, "The two-by four doesn't matter if it's in luxurious structures or in affordable ones." It's the same price. It costs the same." Cities are having to enact rules that require developers to create the right amount of affordable homes within their construction projects. The number of units and the location determines how the developers will be able to charge. This will not cause an increase in housing for the poor.

What alternatives are there to affordable housing? Clicking here.

There have been numerous cycles of boom and bust within the building industry over the years. In numerous markets across the country, you'll find a large number of homes built between the 1970's-1990's. While these properties may feel very out of date when compared to the buildings that are being built today however, they're "bones" are quite good. These buildings constructed in the frame were constructed using modern techniques and materials. They typically require only surface renovations with the replacement of wear and tear items. These apartment communities, and the secondary markets that they're in are well-positioned to take on the flood of new luxury apartments and provide housing that's fairly affordable. The best part about Class B homes is that they generally are able to perform well regardless of the economic conditions. When the economy is thriving Class C tenants can shift to Class B properties . When the economy is in decline, Class A tenants can not afford the high rents, and they typically shift to class B properties. Investors can usually purchase these properties at less than the cost of building they can offer a wonderful place to live yet still ensure that rents remain in a range that is appealing for tenants with different income levels.
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