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Market Conditions Challenge Multifamily Housing Development

market conditions

Digested from Multifamily Executive

For many developers, market conditions have proven to be less than favorable.

Shortages in skilled laborers and rising construction costs have made it challenging to produce successful multifamily developments. 

Kyle Bach, CEO and President of The Annex Group, encountered such challenges in 2018 after closing financing on a new development in Bloomington, Ind. Shortly after, groundbreaking was put on hold after the discovery of a bat cave housing Indiana bats, an endangered species extremely sensitive to hibernation disruptions. 

With the delay period, which lasted seven months over the initial construction time frame, construction costs significantly increased.

"It's going to end up being our biggest year ever, but we have critical concerns about construction costs. Tariffs are driving up material prices, and our No. 1 challenge in every single one of our markets is finding qualified labor," said Bach.

In the U.S., construction costs increased by 5.7 percent in 2018, with the worst inflation in Chicago (7.6 percent), Portland, Ore. (7.1 percent), San Francisco (6.7 percent), Phoenix (6.7 percent) and Washington D.C. (6.5 percent), according to the Rider Levett Bucknall North American Quarterly Construction Cost Report.

Despite the rise in costs, Richard Broder, Founder and CEO of Broder & Sachse Real Estate, says the labor scarcity is a bigger challenge.

"There's simply an absence of laborers, including labor that fled during the recession and labor that is retiring, and it could be an issue that we deal with for a generation," said Broder. "In the short term, what can be done to attract labor to our business when everyone in the country is already working? And what, on top of that, is going to lure them back to Detroit? Probably nothing."

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