Strong Projected Gains for Luxury Rental Market in 2020

The new year is projected to be a good one for the multifamily sector. Builders are projected to finish more new apartments in a year than they have since the 1980s. But don’t expect this increase to alleviate the affordable housing shortage, as up to 80 percent of the new supply will be in luxury developments. It makes sense: Land isn’t cheap, so building high-end apartments helps offset the development costs. As rents rise and the housing shortage deepens, some companies are taking a bet on building affordable units, but a majority are not willing to take that risk.

Builders are on track to finish more new apartments in 2020 than in any year since the 1980s, a new study shows, with developers across the U.S. chasing after the more affluent tenants.

An additional 371,000 new rental units are expected to hit the U.S. market this year, which is a 50% increase over the number of new units completed in 2019, according to an analysis from real-estate analytics firm RealPage.

In some of the largest metropolitan areas, like Houston and Los Angeles, the number of new rentals in 2020 will more than double last year’s figures for new supply.

State and local governments are grappling with how to create more rentals to combat the rising cost of housing for middle- and lower-income families. But as much as 80% of new supply this year will come from luxury developments, or what the real-estate industry calls “Class A” properties, said RealPage chief economist Greg Willett.

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