Friday, June 7, 2019

Housing: Part 352 - Building market rate homes helps make housing more affordable

Nolan Gray has a great write-up at CityLab about a new working paper that attempts to empirically measure the process by which substitutions across housing markets work.  This is one process by which new high-end units can help create broad affordability.

Gray's piece is about a new working paper by Evan Mast.

The take-away:
Building 100 new luxury units leads 65 and 34 people to move out of below-median and bottom-quintile income neighborhoods, respectively, reducing demand and loosening the housing market in such areas. These results suggest that increasing housing supply improves housing affordability in the short run.
Keep in mind that the status quo in the Closed Access cities is that tens of thousands of households of lesser means move away each year because of affordability issues.  This work only measures moves up-market, not the cessation of outmigration.

In the extreme, where high-end housing demand is inelastic and low-end housing demand is very elastic, one might expect new supply to lead mostly to an expansion of high-end quantity demanded with little or no expansion of low-end quantity.  That is effectively what is happening on the margin today.  As high-end demand continues to grow, demand at the low end is reduced by substituting out of the metro area.  The migration data tells us this is the state of demand.

So, functional substitution between housing sub-markets could still lead to better affordability even if there was not an expansion of quantity demanded among low-tier tenants.  It would still be an improvement if lower rents simply allowed them to remain in the units they have.  It would be an improvement simply to stop that distressed outflow.

Mast's findings are a bonus.  Not only can the new supply stop the outflow.  It can even lead to low-tier increases in quantity demanded.


  1. When a developer on the West Coast says he wants to build a 50-story luxury condo tower, city planners should say, "We will give you a permit, but only if you build it 60 stories high."

  2.  All this is to say: If the lighting in your home isn't up to snuff and you find yourself fixing your makeup outside or once you get to wor built in makeup vanity