New research from economist Evan Mast of the W.E. Upjohn Institute for Employment Research looks into the impact luxury housing has on overall housing costs. Here’s a summary of Mast’s work from City Lab…
Mast looked at 802 new multifamily developments across 12 central cities, from the “Texas doughnuts” of Dallas to luxury high-rises in New York City. Using commercial address data, he found out the moving history of the residents of these new units. The first round of moves are roughly what you might expect: Approximately 70 percent came from nearby neighborhoods with above-average incomes, with the remaining 30 percent moving from below-average neighborhoods. These aren’t exactly inspiring results for activists focused on helping households at the bottom of the market.
But when a household moves into a new unit, they initiate a kind of housing musical chairs by vacating their existing unit. A second household then moves into that unit, in turn vacating a third unit. For each new market-rate building, Mast follows this trail of movers back through six moves, tracking where residents are moving from, a process he calls the migration chain. By the sixth link of this chain, Mast finds that approximately half of the movers are moving out of census tracts with below-median incomes. As many as 20 percent of movers are coming from the poorest tracts in the city.
These findings suggest that housing markets aren’t nearly as segregated as some might fear, if you work your way down the migration chain far enough. His model suggests that for every 100 luxury units built in wealthier neighborhoods, as many as 48 households in moderate-income neighborhoods are able to move into housing that better suits their needs, vacating an existing unit in the process. Somewhere between 10 and 20 of these households are coming from among the city’s lowest-income neighborhoods, vacating units and reducing demand where housing is most likely to be affordable for working families.
This suggests that even pricey new units could free up a lot of existing housing. Accounting for possibilities like units sitting vacant, out-of-town movers filling the units, or units being used as second homes/pied-a-terres/safe deposit boxes in the sky, Mast’s model still indicates that for every 100 new market-rate units built, approximately 65 equivalent units are created by movers vacating existing units. If the migration chain is as robust as this paper finds it to be, as much as half of theses newly vacated units could be in low- and moderate-income neighborhoods. This new supply, combined with less demand, could play a major role in easing pressure on rents in the short run.