Upjohn Institute for Employment Research Economist Evan Mast says allowing more expensive housing construction in a city can have a “ripple effect” that eventually makes it more affordable for middle income and working class residents. In his working paper, The Effect of New Market Rate Construction on the Low-Income Housing Market, Mast says allowing new high priced developments sets off a chain. As people move out of units with cheaper rates, those open up to renters who can pay a little more than where they live now.
Mast says the paper “generally” makes an argument for less regulation of housing construction. He says requirements that a set number of units be “affordable” for a certain income level may not create the same amount of affordable housing that would happen if the “ripple effects” go as planned.
Mast says there are some policies cities can enact to encourage a “chain” of movement that has affordable housing benefits. He says those include preventing a home from sitting vacant. Mast says tax incentives could be used to discourage use of that housing as a second home.
External factors include the housing market and the overall economy. Mast says “If we go back to 2010, the vacancy rates were much higher, home time on the market was several times as long as it is now, so this mechanism would just take longer to happen.”