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New Market-Rate Housing Lowers Rents for Everyone, According to New Research

A study published by a German researcher adds ammunition to the cause of improving housing affordability by legalizing and building new supply.
December 15, 2020, 6am PST | James Brasuell | @CasualBrasuell
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Dmitrii Iarusov

Joe Cortright shares news of new research that ties the amount of new rental housing to the cost of rent—the "tortured" supply and demand debate that defines housing policy in expensive areas of the United States.

"In our view, its [sic] been a growing demand for cities and urban living, running headlong into a relatively fixed, or at best slowly growing supply of urban housing that’s been the principle reason for affordability problems in many cities," writes Cortright. "But many housing advocates refuse to believe that increasing housing supply will have any beneficial effect on rents."

Andreas Mense, an economist at the University of Erlangen-Nuremberg, recently published a paper that agrees with Cortright's opinion on the matter. The paper finds that new supply has an effect throughout the market—not just at the top. According to Cortright, the findings of this paper add to a growing body of research showing that "new market rate construction triggers a chain-reaction of moves and price adjustments that rapidly propagate through an entire housing market and ultimately benefit low income households."

Notably, the paper also gives quantitative estimates of how much additional housing a city might need to build to stave off rent increases. In Munich, that number is a 20 percent increase over development totals from the last seven years, but the article cites a graph that charts the supply needed in a large number of German cities as well.

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Published on Monday, December 14, 2020 in City Observatory
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