In the last week, CNBC published an article in which they claimed that "There is a crisis of extreme proportions coming towards us" in the multifamily real estate sector. According to the article, the luxury market's upper end is too crowded and vulnerable to market fluctuations or flattening. In fact, apartment developers in the top 150 US cities constructed 395,775 brand new housing units last year, which represents an increase of 46% year-over-year. The majority of the new units of housing are luxurious communities. ,Get more info.

When I lived in Boston in the last few years, I've seen several major developments being constructed in a rapid manner. As a result, the overwhelming majority of these homes are high-end luxury apartments which the average citizen 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 as well as the inordinate supply of luxury homes which doesn't accommodate its diverse population.

With the emergence of all these new luxury multifamily properties is this putting the entire multifamily industry at risk of flattening or even a collapse? The risk to Class A new construction is obvious if the market flattens but the the existing Class B & C multifamily communities are uniquely placed to withstand market imbalances and corrections. Let's take a look at the motives of this luxury boom and what happens if the boom comes to an end.

The demand for luxury goods is high.

There are a couple of major factors driving the demand for luxury apartments. Millennials and empty nester baby boomers are moving into cities such as Boston Austin, Boston, and Denver with a discerning palate for luxury finishes and amenities-packed buildings. The rise in popularity can be attributed to the fact that empty nesters and households with double incomes are opting to rent instead than purchase. Luxury gyms, concierge service and full-service spas for pet owners are now commonplace. It seems like there is an inordinate amount of amenities being offered with every new construction. Modern amenities are being included in the projects of developers in a fast-paced manner and aren't cheap.

New Construction is costly.

High-end housing is the primary reason why the majority of new developments you see on the market are expensive. This is because of the rising costs of construction labor. Construction labor is highly sought-after and the materials are at their highest ever price. 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 cost. It's the identical." To provide affordable housing cities are enforcing rules that require developers to incorporate affordable units in their new construction projects. Most often, between 10% and 20% based on the number of units and location. But these rules alone will not provide a meaningful growth in affordable housing.

What are the alternatives for affordable housing? More info.

Through the years, there have been several building booms and busts. You will find many apartments constructed between 1970 and 1990 in various markets across the country. While they may seem old-fashioned compared to modern construction however, the "bones” are still good. Built during this period were constructed using advanced materials and techniques. They usually only require surface rehabilitation and wear and tear items can be repaired. These communities and their secondary markets are well placed to counteract the overflow of luxurious apartment buildings. They also provide affordable housing. The great thing about these Class B homes is that they typically are able to perform well regardless of the economic conditions. When the economy is thriving, Class C tenants move up into Class B properties . When the economy is suffering, Class A tenants can find it difficult to justify the extravagant rents and are typically forced to move to Class B properties. These homes are usually available for less than the cost of building. This allows investors to offer an ideal place to call home while still offering attractive rents that tenants of different incomes are able to afford.
There are no comments on this page.
Valid XHTML :: Valid CSS: :: Powered by WikkaWiki