20231124

No, Really. Building More Housing Can Combat Rising Rents

But a review of recent research into the link between new housing production and apartment affordability offers new evidence that the rules of supply and demand do apply to housing: Building more can slow rent growth in cities and free up more affordable vacant units in surrounding neighborhoods, without causing significant displacement.

The analysis, conducted by three faculty directors at New York University’s Furman Center, speaks directly to these so-called supply skeptics. It cites dozens of studies and explains how their findings consistently debunk or complicate concerns that building more housing could do more harm than good to housing affordability.

One central disagreement between supply boosters and skeptics is whether building more market-rate apartments depresses or boosts nearby rents. Looking at new research, the analysis reaffirms the finding of past studies that new construction can drive rents down — at least across entire cities or regions.

Of course, rents have still gone up in expensive cities around the world, even those that have been adding new supply. What these studies show, the authors say, is that rents would have risen more if not for new supply. Some supply skeptics dispute this, saying that allowing denser development simply makes the land under housing more expensive and opens the door to “land price speculation.”

How new housing affects prices in individual neighborhoods, however, is more difficult to measure. Because new housing tends to come to neighborhoods that are already heating up, it’s hard to disaggregate the local effect of new apartment buildings from other factors that lead neighborhoods to get more expensive, such as the development of new amenities. “Part of the problem with the research here is developers go where the demand is,” said Been, at a media briefing this month.

Recent studies confirm that new construction can indeed usher in the neighborhood change that many people think of as gentrification: Where housing is built, higher-income and more-educated people tend to follow.

But fears that this new housing will drive out lower-income residents are overstated, the researchers conclude. In fact, new construction “either mitigates displacement or elevates it quite modestly,” they write.

Even for those persuaded of new housing’s beneficial impact, there is debate around how to build enough of it. Zoning reform has become an increasingly popular response. But the studies reviewed by researchers found that while most of these upzoning efforts do lead to more new housing, it’s typically a fraction of what they were meant to unlock.

“You cannot just rely on the market, because some incomes are just too low to pay a rent that will keep the lights on,” said Been. “And so you’ve got to have other other mechanisms,” like housing subsidies, that fill the gaps. Tenant protections and rent regulation can also reduce housing instability; the way such policies interact with new supply is still being studied.

EK: The reasons for the rents to increase in areas with more supplies could be endogeneity.