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My colleague @mc_lens beat me to it, but he, I, and Mike Manville have a research summary on the effects of market-rate development on neighborhood rents. This was a question with very little evidence one way or another until just the past few years! https://www.lewis.ucla.edu/research/market-rate-development-impacts/
It's very well-established that building more housing helps with affordability at the metro level, but it's been an open question about whether this was true at the neighborhood or block level.
Which is stronger? The "supply effect," which lowers nearby rents by increasing the availability of housing and increasing competition among landlords, or the "demand effect" which increases nearby rents via new amenities, signaling, or other mechanisms? No one really knew.
However, thanks in large part to new data sources that let us see rents at the individual building and unit level, this research is just now becoming possible. At least six papers have come out since 2019 that address the question pretty directly, with fairly consistent findings.
Before talking about the findings, let me thank and celebrate all the authors of these papers:
1) Brian Asquith, Evan Mast, Davin Reed
2) Evan Mast
3) Kate Pennington
4) Xiaodi Li
5) Andreas Mense
6) Anthony Damiano, Chris Frenier
Bonus: Yonah Freemark.
Thank you for this work!
1) Brian Asquith, Evan Mast, Davin Reed
2) Evan Mast
3) Kate Pennington
4) Xiaodi Li
5) Andreas Mense
6) Anthony Damiano, Chris Frenier
Bonus: Yonah Freemark.
Thank you for this work!
The findings, in summary, are that market-rate development tends to keep rents lower than they'd otherwise be if that development hadn't been built (not the same as lowering rents in absolute terms, to be clear!). The supply effect seems to be stronger than the demand effect.
A really important question that some of the papers ask is not just whether nearby rents are lower overall, but how different housing submarkets are affected—particularly the least expensive units where lower-income people are most likely to live.
On this point findings are mixed, though still generally positive. One paper that studies Minneapolis finds rents go down for nearby higher-end units but up for nearby lower-tier units, relative to the same tier units not located near new MR development. This is bad news if true.
As we note in the research summary, there are some reasons to doubt these Minn. findings (read to see why!) and their broader applicability, and a few of the other studies have contradictory findings. But as researchers are fond of saying, more research is needed and welcome.
Although a few of the papers find rents go down across the income distribution, not just on average, a consistent finding is that rents are held down *more* for high-end units than low-end ones. This makes sense since MR development competes more directly with high-end units.
That's not really a bad thing so long as rents are being held down for everyone, and MR development is private investment so it'd be unrealistic to hold it to a standard that it benefit poorer households disproportionately, but it's still very important to note.
We're careful to emphasize, as are many of the authors, that this doesn't mean you can or should just build MR development willy-nilly, regardless of context or potential harms. Where and what you build matters, and what you replace matters. And it's not enough by itself.
That said, this is good news. New housing is too expensive and needed in quantities too great for subsidized housing to solve the problem by itself. The fact that MR housing seems to lower rents means it can complement other affordability strategies, not undermine them. Yay!
To close this out, I just want to note that these studies are all in the "working paper" stage. Even where we're critical, we're cheering them all on for peer review and publication. These are tough issues and every new bit of evidence helps us understand them a little better.
