A Surge in Luxury Apartment Construction
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What is the main topic discussed in this episode?
With your money briefing, I'm Charlie Turner for The Wall Street Journal. Developers in the U.S. are building more rental apartment units than they have in a long time.
As the cost of buying a single-family house gets higher and there are fewer of them available, that pushes a lot of high-income earners into renting.
We'll talk with The Wall Street Journal's Will Parker in just a moment.
The market for apartments in the U.S.
How many new rental apartments are expected to be completed in 2020?
is booming. The Wall Street Journal says builders are on track to finish more new apartments in 2020 than in any year since the 1980s. Will Parker covers the housing industry for the Wall Street Journal and joins us now. Will, I understand that the projected number of new rental units for this year is way up from last year's levels. Is that right?
That is. New apartment completions are expected to be 50% higher this year.
Which U.S. cities are seeing the biggest spikes in apartment completions?
So builders are expected to open 371,000 apartments just in 2020.
And in some major metro areas, it's even higher than that?
Yeah, in places like Houston, Los Angeles, Boston. In those places, the number of new apartments is going to double versus how many came to market last year.
Why are so many rental apartment units being built?
Why is most of the new supply concentrated in luxury (Class A) rentals?
There's a lot of demand, and the general consensus is that cities had underbuilt for many decades. So a lot of what you're seeing now is cities playing catch-up and a lot of planning. When rents were rising really quickly back in 2015, we're starting to see apartments that were put into the planning process open now.
But isn't most of the new supply coming from luxury developments?
Yes. So the company that is making this projection, they're showing that anywhere from 75% to 80% of the new buildings are going to be what the real estate industry calls class A properties.
Will expanding luxury apartment supply make housing more affordable for others?
And really what that means is these are the rentals at the top 25% of the market by how much they cost. So for the average renter, these new buildings, they're not going to be affordable.
Why are so many new luxury developments being built? I assume that this is how builders make their profit.
That does present a big opportunity for profit. And there's a market for them. There's different reasons as to why. One thing that is discussed a lot is that as the cost of buying a single family house gets higher and there are fewer of them available, that pushes a lot of high income earners into renting.
How might an oversupply of luxury rentals affect pricing and incentives?
And so you're seeing a lot of that as well.
Don't some developers that you've talked to think that there will be a broader impact from this development of luxury rentals that more lower-rent apartments will end up being built anyway?
Yeah, one of the big debates in housing is how big increases in luxury apartments affect the cost of housing for everyone else. A lot of people are very critical of them. They talk about gentrification and how it puts pressure on the rents of existing tenants in neighborhoods where a lot of development is happening. A lot of other housing analysts, however, think that increasing even the high-end apartment supply, that gives people in the middle that are economically mobile new apartments to move into and then opens up their old apartments to renters that may not have as much money.
But since most of the new rentals being built come from the luxury end, it's an oversupply in luxury apartment rentals. Won't that put pressure on developers as far as prices are concerned?
It will. And a lot of the pricing for these apartments will be kind of aspirational. So they will offer renters special discounts or deals in order to fill up their buildings as fast as possible.
So maybe it's worth waiting for a price cut if you're a prospective buyer. That sounds like decent advice. Wall Street Journal reporter Will Parker, thanks a lot. Thank you. And that's your Money Briefing. I'm Charlie Turner for The Wall Street Journal.
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Chapters
6 chapters
1
What is the main topic discussed in this episode?
0:05–0:35
2
How many new rental apartments are expected to be completed in 2020?
0:35–1:00
3
Which U.S. cities are seeing the biggest spikes in apartment completions?
1:00–1:24
4
Why is most of the new supply concentrated in luxury (Class A) rentals?
1:24–2:01
5
Will expanding luxury apartment supply make housing more affordable for others?
2:01–2:37
6
How might an oversupply of luxury rentals affect pricing and incentives?
2:37–3:59
Speakers
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