Over the past decade, luxury apartment complexes have sprouted up like mushrooms around Pittsburgh, popping up among century-old rowhouses, their boxy facades often adorned with gray or beige exteriors. It is decorated with banners advertising a website boasting all the amenities. It’s within their walls.
You’ve definitely seen these buildings (or maybe you even live in one). However, these are often controversial, with high rents out of reach for many, bland aesthetics lacking character, and buildings themselves criticized as vehicles for gentrification.
But if these buildings didn’t exist, rents would have been much higher. why? More housing supply, even if it’s luxury apartments, reduces pressure on the overall market.
“Increasing supply either lowers rents or slows rent growth,” said Vicki Bean, a professor at New York University School of Law and dean of New York University’s Furman Center for Real Estate and Urban Policy.
According to Bean’s 2023 paper, “Revisiting Supply Skepticism,” this is a consistent finding from recent research, not just from one study.
“My research synthesizes all existing research on how new supply impacts cities as a whole, individual neighborhoods, and low-income residents,” Bean said.
Bean said “supply skeptics” typically have three arguments against luxury apartments. The first is that adding new buildings may lower rents citywide, but increase rents in nearby neighborhoods.
“The argument is that by adding supply we are relieving pressure. But at the same time, the nature of people moving into the area is also changing,” Mr Bean said. “As a result, the types of amenities available, such as coffee shops and wine bars, will change as well.”
She says that while there is certainly an amenity effect – people who move into new buildings tend to be wealthier and better educated – the increase in supply usually outweighs it.
The second argument also refers to the demographics that are more likely to move into new buildings, and as rents rise due to gentrification, adding new supply will increase the number of people already living in the neighborhood. The point is that they will be kicked out.
Bean says one Bay Area study supports that claim — in which evacuations increased by 1 to 2 percent — but most other studies show the opposite is true. It shows.
“It’s going to reduce the number of people moving out of the neighborhood, especially low-income people, and actually increase the number of low-income people moving into the neighborhood,” Bean said.
The third argument is that luxury apartments are too expensive and therefore useless to low-income people. But a study by Evan Mast, an economics professor at the University of Notre Dame, found that the increase in supply brought about by new luxury buildings actually ripples through the rental market across the city.
Mast used historical address data to track the movements of 52,000 people who moved into new apartment complexes in large U.S. cities. That data allowed him to track where these people were moving from and who was moving into the old apartments. He then repeated the process with the people who replaced the original household until six steps, or six sets of people, had left the starting point.
“When you look at the people who are now living in these fancy new buildings, you can see that they used to live in fairly dispersed areas,” Mast said. “Even now, these are often relatively affluent areas, because this person would have had to have a high enough income to afford these new apartments.”
But those old apartments are now empty for others.
“I can track these ripples round by round, and what I’m showing is that each round is another step down the income ladder,” Mast said. “Ultimately, most of these chains, roughly half, will end up in areas with below-average incomes.”
In other words, his research reveals that a new market-rate building housing 100 people means that approximately 40 to 75 people will move out of below-average income neighborhoods within three years. .
“It’s like you’re siphoning off some of the demand from high-income people and sequestering it in one of these new apartments,” Mast said.
The Strip District is Pittsburgh’s most prominent example. In 2000, the district had 266 residents, according to census data. By 2022, the population will more than quintuple to 1,471 people, with much of the growth coming from new luxury apartment complexes.
According to Strip Neighbors’ 2024 State of the Strip report, no new buildings opened last year, but 1,961 homes are expected to come into operation over the next few years.
Additionally, as of 2022, compared to the rest of the city, this neighborhood has a higher median household income ($119,223 vs. $63,380) and a much higher percentage of renters (91.7% vs. 50.7%).
deny the data
However, many Americans believe that supply and demand do not apply to the housing market and disagree with the evidence that building more homes will lower housing costs. And Bean says the discrepancy goes a step further.
“They understand that it applies to other markets, but they don’t believe it applies to the housing market,” Bean said.
She points to a study by Christopher Elmendorf, a law professor at the University of California, Davis. In three surveys of U.S. urban and suburban voters, he found that about 85% believed that a shortage of new cars would cause used car prices to rise, while an increase in new construction would lead to lower prices for existing ones. found that only 30-40% believe prices will fall.
Bean said one reason for this discrepancy is that while it’s easy for the average person to notice changes in their neighborhood, such as new apartment buildings, it’s much harder to gauge how much demand there is. I think it might be.
Simply put, most people are not real estate agents.
“They don’t see demand until they see supply meeting demand, so instead of blaming demand, they blame supply meeting demand,” Bean says. “It’s like I see umbrellas, I see people walking with umbrellas, and I feel like it’s raining because of the umbrellas.”
Mast says liability can also extend to the people living in the building.
“If you don’t like these apartments, the general strategy is to say that the people who are moving in or are going to buy are basically bad in some way, right?” Mast said. “It could be someone else, or an outsider. It could be someone from another metropolitan area who wasn’t going to come here anyway.”
But he says the data shows this is not true.
“Most of the people who move into new apartments in the city are coming from other parts of the same metropolitan area. I would say that number is usually around 60 or 70 percent,” Mast said. “Tech workers are also demonized in this way. After listening to it for just a few years, it’s a pure test of who this city is meant for, and I find it a little tiresome. .”
Additionally, Bean says the pushback to increasing supply can be a “drawbridge mentality.”
They said, “No one can come in now like I came here, right?” “People have a very strong belief that once they’re in an area, it’s theirs and they have the right to keep it as it was.”
“But if it’s appealing to you, it’s probably going to be appealing to other people as well. And then there’s the fact that you got there a little bit before them, and why it’s Does that give you the right to keep them out?” she added.
Luxury commitment
As for why luxury apartments are being chosen by developers, Bean says it’s a product of the systems we’ve built. Labor and construction costs are rising, and projects tend to stall due to years of local bureaucracy, he said. Rounds of reviews, community input, and litigation.
Mast is not a developer, but he has talked to many people and, in his opinion, most of the cost of a new apartment complex is in the actual construction of the building, so cutting back on “luxury” doesn’t save much. He said that it should not be done.
“If you add all these little trinkets, it’s pretty cheap,” Mast says. “Your dog run is pretty cheap. You probably have space on the ground floor that you don’t use very often. Upgrading your countertops to quartz is pretty cheap. And all of that probably adds up to an entire 200-unit apartment building. The rent will go up by 10%.”
Furthermore, he believes that the word “luxury” is often misused. There’s a big difference between a full-floor apartment “with a bathtub overlooking Central Park on the 70th floor” in a tower on Manhattan’s Billionaire’s Row and a studio in a new five-story building on the Strip — but which is also considered “luxury”.
“We’re kind of buying into a big developer’s marketing campaign and letting them decide what luxury means,” Mast said. “You have to make a certain amount of money to own these apartments, but it’s not an unattainable amount, right? Maybe if you’re single, it’s something like the top quarter of the distribution. , if you’re married and have two incomes, you’ll find it quite affordable.”
Of course, luxury apartments aren’t a land of puppies and rainbows. Many are developed and owned by state-owned companies, some of which use computer algorithms to set rents. RealPage, the developer of such an algorithm, is currently being sued by the Department of Justice and eight state attorneys general, alleging that the algorithm is a price-fixing scheme that violates antitrust laws and inflates rents. .
And just building lots of luxury apartments everywhere is not a panacea for America’s housing crisis. There is a housing shortage of 4 million to 7 million homes in this country, and a record half of American renters cannot currently afford to buy a home. The solution requires other policies besides increasing supply, Bean said.
“There are two sides to the housing affordability crisis: one is that home prices are high, and the other is that incomes are not keeping up,” she says.
Mr Bean said we need to work on “both sides of the equation” – building more housing while also raising the minimum wage, providing more child care and providing better and more stable jobs. says it needs to be worked on.
“We can build 20 million new homes, but if people’s incomes don’t keep up with the basic cost of building those homes, we’re still going to have problems,” she said. said. “We’re going to need subsidized, limited affordable housing. We’re going to need subsidized housing vouchers.”
But ultimately, she says, policy changes are needed to make it easier to build new housing in general.
“We cannot have our cake and eat it too. We must listen to all objections, give all possible consideration, and ensure affordable housing that we cannot delay or delay.” Bean said. “Part of it is fear of change, and we’ve built a land use system that protects that, and that’s the very root cause of the problem.”
