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

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