The week before, CNBC published an article which suggested that "There is an urgent crisis coming our way" within the multifamily real estate market. According to the report the market's luxury end is crowded and prone to market declines or flattening. Apartment developers in the 150 largest US towns delivered 395 775 housing units in the last financial year. This is an increase of 46% compared to previous years. Of the new homes, around 75-80% are considered luxury communities. ,Homepage.

In my time in Boston during the last couple of years, I have witnessed several major developments being constructed at a breakneck speed. As a result, the overwhelming majority of these homes are luxury homes that your average citizens are unable to afford. The Boston Globe's Spotlight Team recently published a series of articles on the progress of the "Seaport" neighborhood. The article highlighted the city's deficiency of affordable housing and the excess of luxury housing that don't meet the needs of its diverse population.

Do these multifamily developments pose an imminent threat to the multifamily market? The risk to 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 look at the reasons for this boom in luxury, and what happens if it ends.

The demand for luxury goods is strong

There are two important factors that drive the rising demand for luxury apartments. Generation Y and empty nester baby boomers are moving to cities like Boston, Austin, and Denver. They have a keen taste for luxurious finishes and amenities-packed structures. One reason for this boom is that many double income households of millennials and empty nesters that can afford to buy are choosing to rent. High-end gyms, concierge services and spas with full-services for pets are becoming more regular. With every new development, it seems as though there is an amenities arms race. Developers are aggressively incorporating these types of modern perks into their projects; however they're not at a cost.

New Construction is costly.

The main reason for the fact that most new developments you see on the market are expensive. This is due to the growing cost of construction work. Construction labor demand is at an all-time high, as is the price of building materials is at their highest ever been. Toby Bozzuto is the CEO of the Bozzuto Group. He says, "The two-by four doesn't care if it's in luxury buildings or low-cost ones." It's the same price. It's the identical." Cities are having to enact laws that force developers to create an amount of affordable units in their new construction projects. Most often, between 10% and 20% based on the unit count and the location. The regulations won't cause an increase in affordable housing.

If Affordable Housing Isn't Built, What is the alternative? Home page.

Throughout the decades there has been building booms and busts. There are many apartment buildings built between 1970 and 90 in various areas across the country. Although these properties might seem out-of-date compared to the current construction however, the "bonesare still in good condition. Built during this period were constructed using advanced materials and techniques. They typically only require surface rehabilitation and wear-related items are able to be replaced. These communities, as well as the secondary markets that they're in, are positioned well to counterbalance the influx of luxury new homes and to maintain housing that's relatively affordable. The Class B homes are able to succeed in any economic situation. If the economy is flourishing Class C tenants are able to shift to Class B properties . When the economy is struggling, Class A tenants can not afford the high rents and are typically forced to move to Class B properties. Investors can usually purchase these properties for a fraction of the cost of building and can thus provide a great home, but keep the rents affordable for tenants with different income ranges.
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