Builders are on the path to complete more new apartments in 2020 than in the past 40 years. In that feat, they’re increasingly targeting the luxury sector for adding new apartments.
About 371,000 new rental units are set to arrive across the country this year, a 50% increase over the number of new units that were completed last year, according to an analysis from RealPage. About 80% of that new supply is expected to come from luxury developments.
“A lot of these properties are competing for a small group of renters,” Greg Willett, RealPage chief economist, told The Wall Street Journal. “A typical renter can’t afford this brand-new product.”
Developers say that the rising costs of land and construction have forced them to cater to more affluent renters to maximize their profits. “It’s very difficult financially to make sense of building a cheaper product,” Cyrus Bahrami, a managing director of Alliance Residential, a Houston developer, told WSJ.
Some housing analysts, however, believe the focus on the luxury sector of apartment construction isn’t necessarily a bad thing for lower-income renters. The analysts say that the additional units may encourage more renters to move up to better apartments and, therefore, free up some more affordable apartments in the market.
High-end buildings (or what the industry refers to as “Class A” properties) are about $500 higher than just one lower class down for rentals, WSJ reports. That gap is about $300 higher than a decade ago.
Source: “Aiming at Wealthy Renters, Developers Build More Luxury Apartments Than They Have in Decades,” The Wall Street Journal (Jan. 15, 2020) [Log-in required.]
