The Shifting Landscape of Apartment Living from Low-Rise to High-Rise Buildings

Overview

For a lot of people, the word apartment conjures up an image of a high-rise building in a city. After all, one of the most memorable TV theme songs from The Jeffersons show in the ‘70s referenced “Moving on up to a deluxe apartment in the sky.”

But all apartments aren’t in downtown high-rises. In fact, a decade ago, two-thirds of apartments were garden style apartments that max out at four stories. Today, two-thirds of apartments being built are midrise or high-rise buildings. That’s a big shift in a short time.

At Bonaventure, our typical apartments are four stories or less with elevators and surface parking. So, let’s talk about why we’re bucking the trend – and where the trends are headed.

The factors that drive our decisions include population and employment trends that push demand, construction and labor costs, and the cost of capital.

Let’s start with costs. Midrise and high-rise buildings typically cost more to build, partly because they require steel and concrete. Low-rise apartments can be built with wood – as long as they’re four stories or less – which is a less costly way to build. A 2-by-4 is always cheaper than steel and concrete. So why would someone opt for the more expensive way to build? It’s more of a necessity than a choice when you own a smaller piece of land and are building in a more urban area. The cost of land is so high in those locations that it only makes sense to go vertical to get the density needed to make the numbers work.

The ebbs and flows of apartment styles depend heavily on perceived population trends as well as the return requirements of capital. Prior to the pandemic, institutional investors wanted to be in urban gateway markets like New York, Washington, D.C. and Los Angeles.

But now that the pandemic brought on a disconnect between the place you work and the place you live, people can move to suburbs where the cost of living is lower such as in the Southeast, where’s there more land and it costs less. Our sweet spot has typically been garden-style and mid-rise apartments in attractive suburban locations, so we were ahead of the curve on this trend.

It remains to be seen whether apartment styles will shift again, but given the acceleration of construction costs, people will have to find more affordable ways to deliver housing.

That could mean we’ll begin to see more low-rise, lower density multifamily communities, at least in suburban areas. Either way, we’ll stick with our strategy. Our residents don’t need an apartment in the sky, just a home where they know they’re well taken care of and can live the lifestyle they want at a comfortable price.