A review of recent research into the link between new housing production and apartment affordability offers new evidence that the rules of supply and demand do indeed apply to housing: Building more housing can slow rent growth in cities and free up more affordable vacant units in surrounding neighborhoods, without causing significant displacement. The analysis, conducted by three faculty directors at New York University’s Furman Center, cites dozens of studies and explains how their findings consistently debunk concerns that building more housing could do more harm than good to affordability.
New research on the impact of new homes on city-wide rents confirms that new supply moderates rent increases for the city as a whole. While relaxing zoning reduces rents citywide, the effects are modest. Most of the new research finds that new construction leads to decreases in rents in the surrounding neighborhood (or declines in the rate by which rents are increasing).
Many discussions the authors reviewed argue that new construction will harm lower-income residents by gentrifying lower-rent neighborhoods, displacing current residents of those neighborhoods, and leaving them no place in the city that they can afford. Yet the authors find that while evidence about displacement is mixed, the chains of moves sparked by new construction generally free up apartments that are then rented (or retained) by households across the income spectrum.
Finally, the authors conclude that broadly easing land use restrictions in ways that change binding constraints on development generally leads to more new housing over time, but because many other factors constrain the pace of new development, easing land use restrictions only accounts for a fraction of the new capacity created compared to simply building more housing.