New working paper and policy brief (with @basquith827 and Davin Reed): “Supply Shock Versus Demand Shock: The Local Effects of New Housing in Low-Income Areas”
WP: research.upjohn.org/cgi/viewconten…
Brief: research.upjohn.org/cgi/viewconten…
Key results below:
WP: research.upjohn.org/cgi/viewconten…
Brief: research.upjohn.org/cgi/viewconten…
Key results below:
1/ This is a controversial topic. Some think that large new apartment buildings (we study 50+ units) in low-income areas increase nearby rents by making the area more attractive to high-income households. Others say buildings will absorb demand, reducing pressure on rents.
2/ Both stories are plausible, so the net effect is an empirical question with high policy importance. We investigate with address-level data on new construction, listed rents, and migration histories for 11 major cities. We always focus on low-income neighborhoods.
3/ We start by showing that although more high-income people move into the neighborhood after a building is completed, the increase is totally absorbed by the new building. The arrival rate to nearby units does not seem to change. 
4/ Next, we estimate the causal effect of new buildings. Rents near a new building go down by about 5-7% relative to rents slightly further away or near the sites of future construction. Note this means rents are lower than they would be, not that rents go down year-over-year.
5/ Less expensive units may be underrepresented in our rent data (provided by Zillow). However, we show that new buildings also increase the number of households from other low-income neighborhoods who move into the area. This suggests that rents also fell in these units.
6/ One explanation for why rents don’t go up: we show that new buildings typically go into already-changing areas, limiting how much they can affect amenities or reputation. The snowball is already rolling by the time big buildings arrive.
7/ Overall, it seems like the story that new apartment buildings drive up nearby rents is not, on average, true. This worry may have too large of an influence on housing policy, preventing the construction of new housing that can improve both local and regional affordability.
8/ Some caveats. We study only big rental buildings in large, strong-market cities. We also are only able to consider 3-7 years after construction. Finally, our average results could disguise examples where a building did push an area over a tipping point and increase rents.
