Glut of Luxury Buildings Blamed for Rising Rents

Laura Kusisto notes that developers are building more luxury multi-family units than any other multi-family residential typology:

"Of 370,000 multifamily rental units completed from 2012 to 2014 in 54 U.S. metropolitan areas, 82% were in the luxury category, according to CoStar Group Inc., a real-estate research firm. The firm defines luxury buildings as those that command rents in the top 20% of the market. In some places, including Denver, Tampa, Baltimore and Phoenix, virtually all new apartment construction has been targeted to high-end renters. In Atlanta, about 95% of new apartments have been in the luxury category."

According to the article, in the past such building booms at the upper end of the market would have alleviated demand for older buildings, and by extension, lowering the cost of the middle of the market. According to Kusisto, "[that] pattern isn’t occurring in the current cycle, say economists, due in part to a supply shortage."

As that sentence implies, the article mixes rhetoric with its reporting. By the conclusion of the article, Kusisto explicitly recommends a supply-side action to mitigate the trend of rising rents:

"Cities should also look at loosening many of the zoning and other regulatory restrictions that make development so costly and lengthy and have kept rates of new rental construction low in many places, experts said. Allowing developers to build smaller, micro-units, can also help keep rents more affordable to young professionals."