There’s simply too much supply entering the market, which means that rents are bound to plummet.
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On any given corner in today’s America, you’ll see ambitious construction sites that are fueling the luxury apartment crash. After the Great Recession, the rental market heated up, and developers rushed to build fancy apartments with loads of amenities for a demographic that would have likely bought a house in any other era. Post-recession America created a perfect storm for a robust rental market that is now coming to a grinding halt. Now, just as developers put the finishing touches on these lovely projects, demand is disappearing.

The problem they face today is simple: developers in major cities have flooded the market with luxury units, and they don’t have enough well-to-do people to fill them. For instance, in New York City, while a whopping 30,000 apartments are coming online this year (double the historical average), the Wall Street Journal points out that roughly 85 percent are luxury units. This presents a major mismatch between supply and demand, as housing is scarce in the Big Apple, but relatively few people can shell out more than $5,000 a month for rent.

Treadmill to hell

These new luxury apartment complexes are, without a doubt, posh places to call home. Endowed with such amenities like gyms, pools, and well-appointed rec rooms, most people would be exuberant to call these hip places home. Unfortunately, 88 percent of the units currently under construction require renters to make $75,000 dollars a year. So unless you’re a doctor, lawyer, or a finance maven, good luck qualifying for one of these plush pads.

Good idea becomes bad idea

There was a mad dash to build as many apartments as possible in recent years, constituting a gold rush for developers. Seizing on the idea that cultural and economic norms had shifted in favor of renting, these apartment complexes were built to deliver exactly what millennial consumers want in life.

Now, reality is setting in for developers and financiers alike. Chic urbane living is great if you have the cold, hard cash, but today these apartment developers have fully exhausted demand pandering to a relatively few monied elite millennials. The likely case scenario at this point is that prices will start to tumble, allowing a broader demographic into these newly minted luxury units.

Incentives, price drops, and empty apartments.

Politics aside, the economy has stabilized, the job market has improved, and household incomes appear to be finally rising for the first time in decades. Still, most millennials do not have the money to afford these luxury apartments, and they will continue to face severe affordable housing shortages in most cities where jobs are plentiful.

This means that developers will have to readjust their expectations for their luxury apartment complexes, and that could mean stupendous deals for rentals. If you’re shopping around for an apartment, don’t overlook the new hot developments in your area: The deals in those nice places could become competitive with older housing in the near future.

Takeaway: This is all good news for you

Developers and their financial backers are going to lose a boatload of money on their forays into luxury apartments. It’s mind boggling that everyone thought it was good idea to build unaffordable apartments seemingly everywhere, but that’s exactly what has happened. Now, in order to fill up these lovely places, landlords are going to have recalibrate their lofty expectations — and give you a deal.

As millennials age and start to have children, buying a home becomes more and more tempting. After all, in many metro areas, buying is still a much more financially prudent decision than renting, especially if you don’t plan on moving for long periods of time. As people finally take the plunge, move to the suburbs, and purchase a home, this will leave even more of these rental apartments without takers.

The bottom line: the luxury apartment crash is a dream scenario for consumers. Watch apartment prices closely, and you could find yourself living it up for much less than anyone ever expected.

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Posted 01.03.2017 - 11:29 am EST