CNBC issued a report this week that said that the multifamily realty market is in the midst of an "acute crisis". The article concludes that the upper tier of the luxury market is overbuilt and vulnerable to flattening or a market correction. Developers of apartments in the largest 150 US towns constructed 395 775 housing units last financial year. This is a 46% increase over the previous year. About 75-80% of these new homes are in luxurious communities. ,Learn more.

I've seen a lot of major development projects being constructed at an incredible pace during my time in Boston over the last few years. The majority of these properties are luxury homes that most people cannot afford. In fact it was the Spotlight Team at the Boston Globe recently released a set of pieces that focused on the creation of the "Seaport" neighborhood. The article highlighted the city's deficiency of affordable housing, as well as the overabundance luxury housing that doesn't cater to the diverse population of the city.

With the emergence of all these luxury multifamily properties is this putting the entire multifamily sector at risk of a collapse or flattening? The risk to Class A new construction is obvious if the market flattens but the the existing Class B & C multifamily communities are uniquely positioned to withstand market imbalances and corrections. Let's go through why there has been such an increase in luxury and what happens when demand slows.

Demand for luxury is on the rise

There are two major reasons to the increasing demand for luxurious apartment. Generation Y and baby boomers who are empty-nesters are flocking to city centers such as Boston, Austin & Denver with a discerning taste for high-end finishes and amenity-packed properties. The rise in popularity is due to the reality that empty-nesters and families with double incomes in the millennial generation are choosing to rent rather than purchase. Luxury gyms, concierge service and spas with full-services for pets are all becoming regular. With every new development it appears that there is an amenities arms race. Developers are actively incorporating modern amenities into their projects; however they're not inexpensively.

The cost of construction can be expensive.

High-end housing is the primary reason for the fact that most developments on the market are high-end. This is due to the rising costs of construction labor. The demand for construction work is at an all-time high, as is the cost of materials is at their highest ever been. Toby Bozzuto is the CEO of the Bozzuto Group. He says, "The two-by four doesn't need to be in high-end buildings or low-cost ones." It's the same price." Because of the high materials and labor costs and the appreciation of the natural resources, developers are required to construct luxury homes since the numbers don't work to build any other kind of building. To make sure that affordable housing is available cities are now enforcing laws that require developers to incorporate affordable units in construction plans. The typical range is between 10 and 20%, based on unit count and location. The regulations won't cause an increase in the number of affordable homes.

What are the alternatives to affordable housing? Learn more here.

Through the years, there has been building boom and bust cycles. There are many apartments constructed between 1970 and 1990 in various areas across the country. Although these homes may appear old-fashioned when compared to the buildings that are being built today, the "bones" are good. These buildings constructed in the frame were built with contemporary materials and techniques, and generally only require surface rehabilitation and wear-related items replaced. These communities, as well as the secondary markets they're in are well-positioned to counterbalance the influx of new luxury apartments and to maintain housing that's fairly affordable. The benefit of these Class B homes is that they typically are able to perform well regardless of the economic conditions. When the economy is strong Class C tenants can are able to move into Class B homes. When the economy is in decline Class A tenants are forced to move down to more affordable Class B properties. They are typically offered for less than the price of construction. This allows investors to offer a great place to call home and still maintain appealing rents that tenants of different income levels can afford.
There are no comments on this page.
Valid XHTML :: Valid CSS: :: Powered by WikkaWiki