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A recent paper by UCLA researchers discusses 2019-20 literature on the relationship between new construction and rents. The article discusses five papers; four of them found that new housing consistently lowers rents in nearby buildings.
For example, Kate Pennington wrote a paper on the relationship between new construction and housing costs in San Francisco. What is unique about this paper is that while other papers focus on a broad sample of new construction, Pennington focuses on one subset of the market: “new construction caused by serious building fires.” Why? Because most new construction is in high-demand areas. Any study that focuses on such construction will be more likely to conclude that the new construction is related to high rents, when in fact the real cause of increased rents is increased demand for certain neighborhoods.
Pennington found that rents actually decreased within 500 meters of new buildings- by 2.3 percent, compared to similar blocks without new buildings. Pennington also found 17.1 percent less displacement (which she defines as moves to poorer zipcodes) near the new buildings, and found that landlords were less likely to evict rent-controlled tenants.
One paper was a partial exception to the pro-supply trend of recent scholarship: a paper by Anthony Damiano and Chris Frenier found that new buildings in Minneapolis lowered rents for most nearby buildings, but increased rents for the cheapest buildings. But the UCLA researches point out that “Damiano and Frenier do not adjust the rents in their study for inflation, which is an unusual decision, and one that makes the rent increases they report look much larger than they actually were.” Adjusted for inflation, rents near new buildings declined by 7 percent overall, and increased by only 0.2 percent for the cheapest buildings.
One point that the UCLA researches do not mention: although the Damiano/Frenier paper seems to be more skeptical of the benefits of new housing supply than the other papers, even Damiano and Frenier admit that “Research shows that new housing supply at all affordability levels is an important step toward ensuring housing is affordable to urban residents.” (p. 30)
