Recent studies indicate that the construction of new market-rate housing, even luxury apartments, can decrease local housing prices. For example, a 2019 study on low-income census tracts found that new market-rate rentals led to a 5% to 7% reduction in rents for nearby buildings. A 2021 study by economist Kate Pennington, focusing on San Francisco, observed a 2% drop in rents while also noting that new development lessened displacement and evictions of existing residents. The research challenges the common belief that luxury developments only cater to the wealthy and exacerbate housing issues.
Despite public opposition often expressed by NIMBY groups, American cities are not building enough luxury apartments and condos. The underlying principle is a 'filtering effect' where new, higher-end units eventually become more accessible as they age and newer stock is built. This process helps to free up older housing for lower and middle-income residents. Therefore, an increase in supply across the housing spectrum, including luxury units, contributes to a more affordable overall housing market.
Cities like Seattle are exploring alternative approaches to address housing affordability. Seattle's newly established Seattle Social Housing Developer (SSHD) recently acquired the Elara apartment building for $61 million. This initiative aims to convert existing market-rate units into social housing for low and middle-income individuals, with plans to provide over 1,000 apartments and build 600 new units within five years. This social housing model, inspired by Vienna where a significant portion of residents live in government-subsidized homes, targets households that earn too much to qualify for traditional affordable housing lotteries but too little for market-rate rents. This contrasts with the private development approach favored by some other cities and states relying on deregulation to incentivize construction.
