Flutterby™! : Induced Demand & Gentrification

Panel Paper: Does Luxury Housing Construction Increase Nearby Rents?

Preliminary results using a spatial difference-in-differences approach suggest that any induced demand effects are overwhelmed by the effect of increased supply. In neighborhoods where new apartment complexes were completed between 2014-2016, rents in existing units near the new apartments declined relative to neighborhoods that did not see new construction until 2018. Changes in in-migration appear to drive this result. Although the total number of migrants from high-income neighborhoods to the new construction neighborhoods increases after the new units are completed, the number of high-income arrivals to previously existing units actually decreases, as the new units absorb a substantial portion of these households. On the whole, our results suggest that—on average and in the short-run—new construction lowers rents in gentrifying neighborhoods.