A Surge in Luxury Apartment Construction

Summary

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WSJ Your Money Briefing: A Surge in Luxury Apartment Construction

Date: January 15, 2020
Host: Charlie Turner (Wall Street Journal)
Guest: Will Parker (Wall Street Journal housing industry reporter)

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Episode Overview

This episode explores the dramatic increase in luxury apartment construction across the United States in 2020. Host Charlie Turner interviews housing reporter Will Parker to discuss why so many luxury units are being built, the forces driving this construction boom, its impact on the broader housing market—including affordability issues—and what it means for renters and developers.

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Key Discussion Points and Insights

1. Scale of the Construction Boom

• Major Increase in New Apartment Units
  • 2020 projected to see a 50% jump in new apartment completions compared to 2019.
  • Builders are expected to deliver 371,000 new apartment units in 2020 ([01:26]).
  • Certain metro areas like Houston, Los Angeles, and Boston are seeing new builds double over last year's numbers ([01:42]).

2. Drivers Behind New Construction

• Demand Outpaces Supply
  • "Cities had under built for many decades. So a lot of what you're seeing now is cities playing catch up and a lot of planning."
    — Will Parker ([01:55])
  • Many projects opening in 2020 were initiated back in 2015, when rents were rising quickly ([01:55]-[02:16]).

3. Luxury Dominates New Supply

• Predominance of High-End Units
  • "Anywhere from 75 to 80% of the new buildings are going to be what the real estate industry calls class A properties."
    — Will Parker ([02:20])
  • Class A designates the top 25% of the market in terms of price ([02:34]).

Affordability Challenges

• "For the average renter, these new buildings, they're not going to be affordable."
  — Will Parker ([02:41])

4. Why Are So Many Luxury Units Being Built?

• Profit and Market Segmentation
  • Building luxury enables higher profits for developers ([02:44]-[02:54]).
  • Rising single-family home prices and decreased availability are pushing high-income earners to rent, fueling demand for upscale rentals
    ([02:54]).

5. Debate Over the Impact of Luxury Development

• Broader Effects on the Rental Market
  • "One of the big debates in housing is how big increases in luxury apartments affect the cost of housing for everyone else." — Will Parker ([03:21])
• Criticism:
  • Concerns about gentrification and pressure on rents for existing tenants ([03:28]).
• Alternate View:
  • Some analysts argue that expanding high-end supply frees up older, lower-cost units for less affluent renters ([03:49]):
    • "Increasing even the high end apartment supply...gives people in the middle...new apartments to move into and then opens up their old apartments...to renters that may not have as much money."
      — Will Parker ([03:49])

6. Oversupply and Market Pricing Pressure

• Possible Rent Discounts
  • Facing potential oversupply in luxury units, developers may start offering deals:
    • "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."
      — Will Parker ([04:06])

Advice for Prospective Renters

• "So maybe it's worth waiting for a price cut if you're a prospective buyer."
  — Charlie Turner ([04:17])
• "That sounds like decent advice."
  — Will Parker ([04:21])

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Notable Quotes & Memorable Moments

• "Builders are expected to open 371,000 apartments just in 2020."
  — Will Parker ([01:26])

• "For the average renter, these new buildings, they're not going to be affordable."
  — Will Parker ([02:41])

• "One of the big debates in housing is how big increases in luxury apartments affect the cost of housing for everyone else."
  — Will Parker ([03:21])

• "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."
  — Will Parker ([04:06])

• "So maybe it's worth waiting for a price cut if you're a prospective buyer."
  — Charlie Turner ([04:17])

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Important Timestamps

• [00:37] — Episode begins with an overview of the apartment construction boom.
• [01:26] — Will Parker cites the 50% year-over-year increase in new apartment completions.
• [02:20] — Discussion of the high proportion (75-80%) of new luxury developments.
• [03:11] — Exploring whether luxury growth will boost affordability for other renters.
• [04:06] — Explanation of why rent discounts may be prevalent in the luxury segment.
• [04:17] — Advice on waiting for possible rent reductions on new luxury units.

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Tone & Language

The episode maintains an informative and analytical tone, focused on delivering data-driven insights while remaining approachable to general audiences interested in personal finance, real estate trends, and the evolving rental market.

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Summary Takeaways

• The U.S. is seeing its largest wave of apartment construction in decades, primarily in the luxury segment.
• The boom addresses years of underbuilding and follows market shifts such as rising house prices and changing renter demographics.
• Most new developments target the top-tier of renters, raising concerns about affordability for the average household.
• While luxury-focused growth can result in gentrification, some experts believe it will eventually free up housing for lower-income renters as high-earners “move up.”
• Possible oversupply could drive short-term rent reductions or incentives for renters in luxury units—worth considering for those seeking a new lease.

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For more details and financial insights, listen to the full episode of WSJ Your Money Briefing.

Transcript

[Small Business Owner]

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[Small Business Owner]

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[Retail Industry Representative]

they need while increasing megastore profits. They deserve it, don't they?

[Electronic Payments Coalition Spokesperson]

Tell Congress, stop the Durbin Marshall money grab for corporate megastores. Paid for by the Electronic Payments Coalition.

[Charlie Turner]

With your money briefing. I'm Charlie Turner for the Wall Street Journal. Developers in the US Are building more rental apartment units than they have in a long time.

[Wall Street Journal Reporter]

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.

[Charlie Turner]

We'll talk with the Wall Street Journal's Will Parker in just a moment. The market for apartments in the US 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?

[Will Parker]

That is. New apartment completions are expected to be 50% higher this year. So builders are expected to open 371,000 apartments just in 2020.

[Charlie Turner]

And in some major metro areas, it's even higher than that.

[Will Parker]

Yeah, 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.

[Charlie Turner]

Why are so many rental apartment units being built?

[Will Parker]

There's a lot of demand and the general consensus is that cities had under built 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.

[Charlie Turner]

But isn't most of the new supply coming from luxury developments?

[Will Parker]

Yes. So the company that is making this projection, they're showing that anywhere from 75 to 80% of the new buildings are

[Wall Street Journal Reporter]

going to be what the real estate industry calls class A properties. And really what that means is these

[Will Parker]

are the rentals at the top 25% of the market by how much they cost. So for the average renter, these new

[Wall Street Journal Reporter]

buildings, they're not going to be affordable.

[Charlie Turner]

Why are so many new luxury developments being built? I assume this is how builders make their profit.

[Wall Street Journal Reporter]

That does present a Big opportunity for

[Will Parker]

profit and there's a market for them.

[Wall Street Journal Reporter]

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. And so you're seeing a lot of that as well.

[Charlie Turner]

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?

[Will Parker]

Yeah.

[Wall Street Journal Reporter]

One of the big debates in housing is how big increases in luxury apartments

[Will Parker]

affect the cost of housing for everyone else.

[Wall Street Journal Reporter]

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 to renters that may not have as much money.

[Charlie Turner]

But since most of the new rentals being built come from the luxury end, you know, it's an oversupply in luxury apartment rentals. Won't that put pressure on developers as far as prices are concerned?

[Will Parker]

It will.

[Wall Street Journal Reporter]

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.

[Charlie Turner]

So maybe it's worth waiting for a price cut if you're a prospective buyer,

[Wall Street Journal Reporter]

that sounds like decent advice.

[Charlie Turner]

Wall Street Journal reporter Will Parker. Thanks a lot.

[Wall Street Journal Reporter]

Thank you.

[Charlie Turner]

And that's your money briefing. I'm Charlie Turner for the Wall Street Journal.

[Small Business Owner]

Access to affordable credit helps me pay my employees, but I don't really need it.

[Retail Industry Representative]

Inflation is killing me, but who cares? Big retailers are making record profits. That's why we support or the Durbin Marshall credit card bill.

[Small Business Owner]

See banks and credit unions help small businesses make payroll. This bill would cut the vital resources

[Retail Industry Representative]

they need while increasing megastore profits. They deserve it, don't they?

[Electronic Payments Coalition Spokesperson]

Tell Congress stop the Durbin Marshall money grab for corporate megastores paid for by the Electronic Payments Coalition.