The Center for Urban and Regional Affairs at the University of Minnesota has just released a study on the impacts housing rents, when new housing is developed in a community. It is entitled, Build Baby Build?: Housing Submarkets and the Effects of New Construction on Existing Rents.
Its Introduction includes this anecdotal quotation.
“My landlord does nothing to improve this 3 bedroom apartment we’ve been living in for 7years, but every year he raises the rent. This year he tried to raise it twice in a year. I asked him why he was raising it without doing anything; he replied, "have you seen what apartments are going for on Craigslist?" So basically he was just saying ‘BECAUSE I CAN’.”–Debi(TenantsTogether—Tenant Voices Project, n.d.)
The Preface of the study reads as follows,
"There is vigorous debate amongst policy makers, scholars, and activists about the role that new market-rate apartments play in alleviating housing affordability issues. Prior research suggests that new market-rate construction may result in more affordable housing in the long-run, but much less is known about how this type of new development affects neighborhoods in the short-run.
"This study evaluates how new construction affects rent for nearby apartments soon after anew market-rate building is completed. We use a panel of building-level rents in Minneapolis, MN from 2000-2018 and a difference-in-differences study design to compare rent trajectories of units within 300 meters of new construction to a comparison group 300 to 800 meters away. While we find no effect in the single market model, our sub-market approach suggests that lower-priced rental housing close to new construction had 6.6 percent higher rents compared to the comparison group.
"New construction had the opposite effect on higher-priced housing; rents were 3.2 percent lower close to new construction.This study reiterates the importance of understanding housing as a collection of sub-markets rather than a singular market. Our findings are important for planners and policymakers who seek to balance growth and protect existing lower-income communities."
This study confirms what might be called the common sense understanding of how markets work, but it's helpful that this has now been documented and backed up by real data. This data also helps explain why the recent push for more and more unregulated development in California, by the Sacramento Legislature and political lobbyists, has been challenged at both ends of the spectrum, by both suburban and inner city communities, on these very grounds.
As several writers on the Marin Post have noted in their recent investigations into California housing laws, the reality presented by this Study continues to be completely ignored by state policymakers.