Why Are Developers Building Luxury Condos in Cities Facing an Affordable Housing Crisis?

Housing developers in America’s most popular metro areas face disproportionately high costs for residential land and strict zoning laws that ultimately restrict the supply of affordable housing. Rather than building inexpensive units, those developers are adding a large share of luxury condos due to higher demand and bigger profits, Forbes reports.

Those new development plans contradict the true reality of housing in most American cities, which continue to battle a worsening affordability crisis. The U.S. is short 7.3 million housing units for low-income renters, according to the National Low Income Housing Coalition.

In pricey coastal markets, residential land is expensive. For instance, an empty piece of land in San Jose can cost up to $500,000. A new building would need to sell for more than $1 million in order for the developer to break even after factoring in the price of construction labor, building supplies, and obtaining permits. And as the cost of land in the downtown’s of migration destinations like Austin and Orlando increase in value, these formerly affordable cities see more luxury development too.

Given the dire need for affordable housing, a new luxury building, soaring above more modest single story homes, can seem like a sign we are heading in the wrong direction. But today’s luxury buildings are tomorrow’s affordable option.

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