CNBC issued a report this week that said that the multifamily realty market is experiencing an "acute crisis". The article concludes that the top end of the luxury market is overbuilt and susceptible to a flattening or market correction. Apartment developers in the 150 largest US towns constructed 395 775 new housing units last financial year. This is a 46% increase over previous years. About 75-80% of these new housing units are luxury communities. ,Click here.

In my time in Boston over the past few years, I've seen numerous major developments being constructed at an incredibly rapid pace. Not surprisingly, the overwhelming majority of these are luxurious luxury residences that the average person can't afford. In fact there is a reason why the Spotlight Team at the Boston Globe recently published a series of articles that focused on growth of the "Seaport" neighborhood. The article pointed out the absence of affordable housing as well as an overabundance of luxury housing that does not cater to the diverse population in the city.

With the arrival of all of these new multi-family luxury properties is this putting the entire multifamily sector 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 existing Class B & C multifamily communities can stand up to market fluctuations and imbalances. Let's go through why there has been such a luxury boom and what will happen if demand subsides.

The Demand for Luxury is High

There are two important factors that drive the demand for luxury apartments. Millennials and empty-nester baby boomers are descending on city centers such as Boston, Austin & Denver with a desire for luxurious finishes and amenities-packed structures. One of the main reasons for this growth is that lots of double-income households of millennials and empty nesters that can afford to purchase are choosing to rent. Facilities like top-of-the-line fitness centers, concierge services, and pet spas that are full-service are now the norm. With every new development, it seems as though there's an arms race. Modern amenities are being included in the projects of developers at a rapid pace and aren't cheap.

The cost of construction can be expensive.

The primary reason for the majority of new housing complexes you see that are on the market is expensive is because of the increasing price of construction labor and building materials. The demand for construction labor is at an all-time high, as is the cost of building materials is the most they have ever been. Toby Bozzuto is the CEO of the Bozzuto Group. He says, "The two-by four doesn't matter if it's in luxurious buildings or low-cost ones." It's the same price." It's the same." Cities are being forced to adopt rules that require developers to create a certain number of affordable units in their construction projects. The typical range is between 10 and 20%, based on the unit count and the location. However, these regulations alone will not provide a meaningful increase in the number of affordable housing.

If Affordable Housing isn't Built, what is the Alternative? Home page.

There have been numerous boom and bust cycles within the building industry over the years. There are many apartments constructed between 1970 and 1990 in various markets across the country. While these properties may feel old-fashioned when compared to the buildings that are being built in the present however, they're "bones" are in good shape. Built during this period were built using the most advanced materials and techniques. They generally just require minor repairs, and wear-related items are able to be replaced. These communities, as well as the secondary markets they're located in are well-positioned to take on the flood of new luxury apartments and maintain housing that is fairly affordable. The best part about Class B properties is that they tend to are able to perform well in all economic climates. When the economy is strong Class C tenants are able to are able to move into Class B homes. If the economy is struggling, Class A tenants are forced to relocate to more affordable Class B homes. These homes are usually available for less than the price of construction. This allows investors to offer the perfect location to live in and still maintain attractive rents that tenants of different incomes are able to afford.
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