In a recent report, only 30 to 40 percent of those polled in a national survey of urban and suburban residents believed a 10 percent increase in housing production would result in lower home prices and rents. Against that backdrop, however, a research team at New York University issued a report last month arguing that there is clear evidence that boosting supply is the key to lowering or moderating housing costs.
“All the evidence shows that it does reduce housing costs,” said Vicki Been, director of the NYU Furman Center for Real Estate and Urban Policy. The report by Been and two NYU colleagues attempts to look at all the evidence available from studies of the question.
“In sum,” they write, “significant new evidence shows that new construction in a variety of settings decreases, or slows increases in, rents, not only for the city as a whole, but generally also for apartments located close to the new construction.”
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One thing the report authors, state housing officials, and supply skeptics agree on is that building more housing alone will not solve the housing crisis facing people at low incomes.
Increasing the supply of housing is necessary, said Been, but “it’s not sufficient because there will always be people who do not make enough money or can’t work for whatever reason and don’t have enough income to pay for housing.” She and her co-authors said robust housing subsidy programs are crucial for those households.
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In an interview, Been said new housing development tends to have two effects, pulling in opposite directions. Increasing the supply of housing tends to lower its cost or slow the rate of cost increase, but new development often also brings new amenities to a neighborhood – restaurants, shops, better maintained parks – that push prices upward.
“Which of those two things is going to predominate is the critical question,” she said. “Under what circumstances would the amenity effect swamp the supply effect?”
It can differ depending on the particular circumstances, she said, while adding that across the breadth of studies that have been conducted, “the supply effect seems to be predominating.”
Because housing growth tends to come in places experiencing high demand and upward pressure on prices, Been said it’s not unusual to see rent increases in an area along with a development boom.
“You don’t know what the counterfactual is,” she said, referring to what would have happened to rents in the area had the development not taken place. One study cited in her report found that the average new apartment building lowers nearby rents by 5 percent to 7 percent “relative to the trend rent growth otherwise would have followed,” a change that the authors said translated to savings of $100 to $159 per month.