Construction costs are hitting record highs, and developers say they can't afford not to build luxury rental units, even though that market is overbuilt. One developer says "there is an acute crisis [on the rental market] headed our way".
"In our portfolio of about 70,000 units mostly in the luxury space, we're seeing that our renters are spending a relatively low amount of their income on rent despite rents being perceptively high," says Toby Bozzuto, president and CEO of The Bozzuto Group, a multifamily management and development company, CNBC reports. "It is a tale of two cities. In the middle income and the lower income markets, people are spending proportionally more on their rent."
Investors, according to Bozzuto, are now moving away from new construction and instead rehabbing older rental stock. These so-called value-add projects just raise the rents on current tenants even more. There are some government programs that offer developers financial incentives to build lower-income housing, but they don't meet the needs.
