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I've never gotten a simple answer to this question -- maybe because there isn't one.
You build the condos, expensive rentals, whatever, in a neighborhood that hasn't seen that type of construction. Does it make the housing around it less affordable as rents rise there? Or does the additional housing serve to moderate prices, as upwardly mobile folks in the neighborhood, and others like it close by, leave their less expensive places for the shiny new thing?
Maybe there is no simple answer because the ultimate effect depends on so many other factors, including the number of housing units around, their quality, the availability of land, the ease of construction, the personal financial situation of people in the neighborhood, etc, etc. All of which means that the new building can be the beginning of large scale gentrification, a total flop, or something in between.
What happens, you think, in general, and specifically what happens (or has happened) in your neck of the woods?
"Neither study means that rents actually fall. Rather, they suggest that new buildings slow the pace of rent increases in the kinds of neighborhoods that developers have already identified as hot. By the time those developers arrive — particularly with plans for large-scale projects — rents are most likely already rising rapidly."
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
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We have seen this in parts of southern Seattle, which was considered "sketchy" at best. As old beat up homes and businesses were replaced with new homes and condos, the process of rent and homes on existing housing went up as the gentrification took place. The light rail went in, and it became an easy commute to jobs.
"Neither study means that rents actually fall. Rather, they suggest that new buildings slow the pace of rent increases in the kinds of neighborhoods that developers have already identified as hot. By the time those developers arrive — particularly with plans for large-scale projects — rents are most likely already rising rapidly."
Just got around to reading this. Thanks for the heads up. I guess the basic answer to my question of what happens with new expensive housing goes up in poor and working class neighborhoods is both straightforward and frustrating at the same time: It depends...
"Neither study means that rents actually fall. Rather, they suggest that new buildings slow the pace of rent increases in the kinds of neighborhoods that developers have already identified as hot. By the time those developers arrive — particularly with plans for large-scale projects — rents are most likely already rising rapidly."
Using the NYC market as a test case is pretty wack, for better lack of words. I own a Co-Op in Manhattan and from the years I spent living there, the effect on market rate rents due to a new development was crazy. Landlords can legally raise your rents per annum. Both stabilized and market rate apartments are subject to this. However, in NYC specifically, there are really no rules. If say you rent in the West Village a 1BR at $3k a month and its an old pre-war walk up, if a developer buys an older building and renovates it or better yet demolishes and builds new, those units will hit the market at a premium rate, not what the area rates are. This inclines landlords to them at times perform shady actions to get tenants to leave the properties so that when re-posted, they will ask for that premium rate as well. They either perform illegal acts such as removing fire escapes to get the building temporarily condemned as an example or encourage long term tenants to not renew. Moral of the story is that new units on the market do not work in an inverse manner with already set rental prices.
I've never gotten a simple answer to this question -- maybe because there
What happens, you think, in general, and specifically what happens (or has happened) in your neck of the woods?
The local miscreants get lush new targets for sneak thieving and break-ins.
The local miscreants get lush new targets for sneak thieving and break-ins.
Had to laugh at this. At one point used to live in a brand new subdivision built 20 miles outside of downtown Phoenix in a rapidly growing suburb that had been farmland. The issue was that the subdivision surrounded on three sides a poor, run down neighborhood built for migrant farm laborers back in the 50's. Anything that wasn't nailed down or locked away was stolen from your front yard. Anything from bikes, lights for your landscaping, hoses and more was fair game. Our neighbor had his house pretty well secured and the thieves crawled in the doggy door while he was on vacation and stole a bunch of stuff.
My experience is that the poor folks are hired to do the fetching and carrying for the rich folks. Poor community adjacent to a rich one is not unusual.
I've never gotten a simple answer to this question -- maybe because there isn't one.
You build the condos, expensive rentals, whatever, in a neighborhood that hasn't seen that type of construction. Does it make the housing around it less affordable as rents rise there? Or does the additional housing serve to moderate prices, as upwardly mobile folks in the neighborhood, and others like it close by, leave their less expensive places for the shiny new thing?
Maybe there is no simple answer because the ultimate effect depends on so many other factors, including the number of housing units around, their quality, the availability of land, the ease of construction, the personal financial situation of people in the neighborhood, etc, etc. All of which means that the new building can be the beginning of large scale gentrification, a total flop, or something in between.
What happens, you think, in general, and specifically what happens (or has happened) in your neck of the woods?
My neighborhood fits the bill here. I live in a newer construction condo and the neighborhood is largely working class, predominantly older-construction multi-unit buildings. It doesn't really seem as if the larger new "luxury" buildings are really having the effect of driving up rents in nearby apartments.
For starters, they're not really competing with each other. Just because there are new "luxury" units in the area, it doesn't mean that the same clientele are also looking at the multitude of lower and middle of the road units nearby. If anything, it could be argued that the new higher end construction helps ensure that those lower and middle income units remain lower and middle income. If developers are investing hundreds of millions to build luxury units, it means demand exists for luxury units in those neighborhoods. In my neighborhood, an attractive waterfront and incredibly quick/easy access to downtown fueled demand even before the influx of large luxury developments. Rents were already rising. I would imagine that the influx of new development helped slow the rise of overall rents in the area as significant increase in new units took pressure off the existing housing stock to renovate/update to meet demand.
In most cases, demand already exists where new luxury development is happening. If it didn't, it's unlikely developers would invest so much money in these areas. So I'd argue that the developments are a symptom of gentrification that is already taking place rather than the cause of it. In the short term, they likely help slow the process by helping to meet demand (and forcing landlords to price competitively). But like everything in economics, an equilibrium exists. At some point, the balance tips and the neighborhood shifts from "mixed" to "affluent." Once you have a critical mass of luxury renters/owners, businesses begin to cater to those crowds since the money is there, commercial landlords hold out for higher rent tenants, and property owners renovate to rent/sell to the increasing number of affluent renters/buyers. Eventually, it becomes untenable for the lower/middle income residents to live/shop/dine, etc. in the neighborhood.
My neck of the woods is still very mixed. There's a fascinating juxtaposition of high end restaurants and whiskey bars a block or two away from restaurants and shops selling $1 pupusas, cheap furniture, and offering wire transfers to S. America. You can actually see where the "lines" are dividing low/middle income and luxury. But you can also see that it's not far off from really tilting towards "gentrified." There's a transition occurring with many of the businesses, in addition to the large luxury units going up, a lot of smaller, older rental buildings and condos are being renovated into luxury units. It happens fast. But for now - still mixed.
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