Supply Shock Versus Demand Shock: The Local Effects of New Housing in Low-Income Areas

Authors

Brian J. Asquith, W.E. Upjohn Institute for Employment ResearchFollow
Evan Mast, W.E. Upjohn Institute for Employment ResearchFollow
Davin Reed, Federal Reserve Bank of Philadelphia, Community Development and Regional Outreach DepartmentFollow

Upjohn Author ORCID Identifier

https://orcid.org/0000-0002-5783-5557

https://orcid.org/0000-0002-0774-0664

Publication Date

12-19-2019

Series

Upjohn Institute working paper ; 19-316

**Published Version**

In The Review of Economics and Statistics 105(2): 359–375

DOI

10.17848/wp19-316

Abstract

We study the local effects of new market-rate housing in low-income areas using microdata on large apartment buildings, rents, and migration. New buildings decrease nearby rents by 5 to 7 percent relative to locations slightly farther away or developed later, and they increase in-migration from low-income areas. Results are driven by a large supply effect—we show that new buildings absorb many high-income households—that overwhelms any offsetting endogenous amenity effect. The latter may be small because most new buildings go into already-changing areas. Contrary to common concerns, new buildings slow local rent increases rather than initiate or accelerate them.

Issue Date

December 2019

Subject Areas

ECONOMIC DEVELOPMENT; Regional policy and planning; Urban issues