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

68 Pages Posted: 14 Jan 2020

See all articles by Brian Asquith

Brian Asquith

Upjohn Institute

Evan Mast

Upjohn Institute

Davin Reed

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Multiple version iconThere are 2 versions of this paper

Date Written: December 19, 2019

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.

Keywords: housing supply, housing affordability, gentrification, amenities

JEL Classification: R21, R23, R31

Suggested Citation

Asquith, Brian and Mast, Evan and Reed, Davin, Supply Shock Versus Demand Shock: The Local Effects of New Housing in Low-Income Areas (December 19, 2019). Available at SSRN: https://ssrn.com/abstract=3507532 or http://dx.doi.org/10.2139/ssrn.3507532

Brian Asquith (Contact Author)

Upjohn Institute ( email )

300 South Westnedge Avenue
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United States

HOME PAGE: http://www.brianjamesasquith.com

Evan Mast

Upjohn Institute ( email )

300 South Westnedge Avenue
Kalamazoo, MI 49007-4686
United States

HOME PAGE: http://https://sites.google.com/site/evanemast/home

Davin Reed

Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

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