When affordable housing activists see “luxury” apartment buildings going up in gentrifying neighborhoods they sometimes assume that the apartment

How luxury apartment buildings help low-income renters

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2021-09-17 00:00:05

When affordable housing activists see “luxury” apartment buildings going up in gentrifying neighborhoods they sometimes assume that the apartment buildings are causing the rents to go up. Back in 2015, for example, activists called for a moratorium on new housing construction in San Francisco’s Mission neighborhood. (The proposal was ultimately rejected by voters.)

Most economists believe that this gets the causality backwards, and rents on existing apartments would have risen even faster if the apartment building hadn’t been built. But affordable housing activists don’t always find this convincing. In their mind, building more luxury housing only helps rich people, since lower-income consumers can’t afford to live in them.

Last month, a trio of Finnish economists published a new research paper that brings empirical evidence to bear on this important question. The Finnish government has a population register that collects data about where individuals live. The researchers got access to this data and were able to follow individuals as they moved from place to place in the Helsinki metro area. This data allowed them to trace exactly how the construction of new luxury apartment buildings in high-end neighborhoods impacted the broader housing market.

When a new apartment comes on the market, it starts a chain reaction. Often, the person who rents the new apartment is moving out of an old apartment in the same metropolitan area. That creates a vacancy that can be filled by another renter. That person, in turn, may be vacating a third apartment. These “moving chains” can extend for six or more steps, with Helsinki residents playing a game of musical chairs to find better or cheaper housing options.

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