CNBC published a report this week stating that the multifamily real estate sector is in the midst of an "acute crisis". According to the article the upper-end of the luxury market is overcrowded and susceptible to market corrections or flattening. Apartment developers in the top 150 US towns constructed 395 775 housing units during the fiscal year. This represents an increase of 46% over the previous year. In these new units of housing, about 75-80% of them are considered to be luxury communities. ,Visit.

I've seen many major developments built at breakneck speed while living in Boston over the last few years. A majority of these developments are luxurious luxury residences that most people cannot afford. The Boston Globe's Spotlight Team recently published a series of articles on the progress of the "Seaport" neighborhood. The article highlighted the lack of affordable housing and the overabundance of luxury homes that do not meet the needs of the diverse population in the city.

Are these multifamily developments an imminent threat to the multifamily industry? 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 volatility and market imbalances. Let's examine 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 high.

There are a couple of major factors driving the increasing demand for luxury homes. Generation Y and baby boomers who are empty-nesters are descending on city centers such as Boston, Austin & Denver with a keen interest in high-end finishes and amenity-packed structures. One of the main reasons to this increase is that lots of double-income households of millennials and empty nesters with the money to purchase are choosing to rent. Perks such as high-end gyms, concierge services, and fully-service pet spas are now the norm. It seems like there is an astonishing quantity of amenities available in every new building. Developers are rushing to incorporate these modern perks into their projects; however they're not at a cost.

The cost of construction can be expensive.

The reason the vast majority of the new homes being put up for sale is luxury is due to the ever-rising price of construction labor and building materials. Construction labor is in high demand and the materials are at their highest ever price. According to Toby Bozzuto, CEO of Bozzuto Group puts it, "The two-by-4 doesn't matter if it's in a luxury building or in a budget-friendly construction. It's the same price." It's the identical." Cities are forced to pass laws that force developers to construct a certain number of affordable units within their construction projects. The number of units and the location determines how much they will charge. The regulations won't cause an increase in the number of affordable homes.

What are the alternatives to housing that is affordable? Going here.

There have been many boom and bust cycles within the construction industry over the years. In numerous markets across the country, you'll notice large numbers of apartments constructed between the 1970's and 1990's. Although they may seem outdated in comparison to the modern buildings being constructed today however, they're "bones" are in good shape. These buildings were constructed with modern techniques and materials. They generally need only surface repairs and wear and tear items can be replaced. These communities, as well as the secondary markets they're located in are well-positioned to take on the flood of luxury homes being built and to maintain housing that's fairly affordable. The great thing about these Class B homes is that they tend to 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 struggling and Class A tenants are unable to find it difficult to justify the extravagant rents and typically move down to class B properties. They are typically available for less than the cost of building. This allows investors to offer an ideal property to live in and still maintain attractive rents that tenants with different income levels can afford.
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