Luxury Apartment Glut in South Florida
Developers are racing to build more luxury rental apartments in South Florida, threatening to create a glut at the higher end of the market despite the stream of affluent new residents still pouring in.
Multifamily construction has been soaring across the U.S., particularly in the Sunbelt. It has been especially robust in South Florida. The Miami metropolitan area, which consists of Miami-Dade, Broward and Palm Beach counties, has more units under construction as a share of inventory than any other major market in the country, according to real-estate data firm.
The luxury sector’s vacancy rate will rise to 11% over the next two years, according to a forecast from Juan Arias, CoStar’s director of market analytics in South Florida.
Developers feel pressure to rent units quickly because their brand-new properties are empty and many tenants don’t want to live in ghost buildings. Many of these new buildings are offering one or two free months. Other concessions include smaller deposits, which in some cases have been slashed by more than 80%.
“A lot of that is not because you can’t rent them—it’s because you need to rent fast,” said Eli Beracha, director of the Hollo School of Real Estate at Florida International University.
Developers say they are all piling into luxury because it is tough to turn a profit on anything cheaper. The prices of land, labor and construction have all soared in recent years, especially in South Florida. Construction costs increased by double digits in 2021 and 2022 nationally, according to CBRE, although this year the firm forecast a more modest increase of 6.3%.
In addition to the recent new development, Arias says many units were under construction before the pandemic. But these became bottlenecked because of supply issues, adding to the incoming glut of luxury multifamily units.
Not all the news is bad for Miami’s rental market. Home prices in the area have increased by more than 50% since 2020. Those high prices coupled with high interest rates are keeping would-be home buyers in the rental market pool.
While much of the new product coming online is expensive, South Floridians have been paying a large percentage of their income in housing for years, says Beracha.
“If you’re looking at how much people are spending on rent, almost anywhere in Florida they spend about 10% to 15% more of their income on rent today compared with just a decade ago,” he said.
The Miami metro area has the highest share of “cost-burdened renters” of any major metropolitan area in the U.S., according to a report this year by the Joint Center for Housing Studies at Harvard University. That strain, however, has pushed some residents out, leading Miami-Dade County to experience its first population drop in decades.
The Live Local Act, a new law passed by Gov. Ron DeSantis, aims to help fill the affordable housing void by offering incentives to developers who build affordable housing or incorporate affordable units into their developments.