Luxury apartment building will boom in 2020, experts say

American building firms are set to construct the highest number of apartments in 2020 for more than 40 years, according to a new analysis from property management software firm RealPage.

Many of those new apartments are targeted at the luxury home sector, RealPage added.

In total, around 371,000 new rental apartments are expected to be built in the U.S. in 2020, up 50% from the number of new units built last year. Around 80% of those properties will be luxury ones, RealPage said.

“A lot of these properties are competing for a small group of renters,” Greg Willett, RealPage’s chief economist, told The Wall Street Journal. “A typical renter can’t afford this brand-new product.”

Builders say they’re being forced to cater for more affluent renters due to the rising costs of land, labor and construction materials.

“It’s very difficult financially to make sense of building a cheaper product,” Cyrus Bahrami, a managing director of Alliance Residential, a Houston developer, told the Journal.

However, some analysts say this focus on high-end luxury apartments could actually benefit lower-income renters. They claim that the growing availability of luxury apartments Downtown may encourage some renters to upgrade, thereby freeing up more affordable apartments for those with smaller rental budgets.

High-end buildings (or what the industry refers to as “Class A” properties) are about $500 higher than just one lower class down for rentals, WSJ reports. That gap is about $300 higher than a decade ago.