Upjohn Institute for Employment Research Economist Evan Mast says a proposal for a large new apartment or condominium building could cause debate at a city council or a planning commission meeting. He says one argument from opponents may be “These units aren’t going to do anything for our housing problem, these are expensive.” But Mast says his research on housing shows that developments with above average prices can have “ripple effects” that help make housing affordable.
Mast is the author of a working paper called The Effect of New Market Rate Construction on the Low-Income Housing Market. He says two big developments in downtown Kalamazoo provide a possible example. He says both new buildings are renting apartments at rates much higher than the typical price in the region. Mast says two of his colleagues are looking at apartments at one of the locations, and would be moving out of less expensive units. He says that would help “loosen” the market.
If people move into the downtown apartments, then the slightly cheaper units left behind would be vacant. Mast says the “ripple effect” is that people currently paying less in rent could move into those units once they become available. Mast says there are tradeoffs to mandating that a certain number of units that are affordable to people at the area’s median income or lower. Mast says the benefit is offering affordable rental rates in some neighborhoods. He says the downside is that if a developer builds fewer units, or scraps a possible project all together because of those requirements, the new housing and the ripple effect will not happen.
Mast warns, “not every new unit is going to create this chain that goes on forever.” He says in larger cities someone could buy a condominium that is used as a second home for a weekend getaway. Mast says the idea also applies to popular vacation areas, like the Lake Michigan shoreline. He says someone buying a second home does not create more vacancies.
One caveat Mast offers is that the “chain mechanism” can help middle income and working class people, but he says people struggling to pay the lowest rental rates in the city probably won’t be helped. He says a landlord isn’t going to take a loss on rental property, and will probably pull the unit off the market. Mast says that segment of the market may need subsidy and voucher programs to afford housing. He says it’s possible to consider policy changes that could lower the cost of providing housing.