This piece was originally published on Chapelboro’s Viewpoints.
As a graduate student, my income is below Chapel Hill’s median. I pay almost half my income to my landlord. I expect to be priced out of any new apartments in Chapel Hill under consideration in the Blue Hill District. To help cost-burdened tenants like me, I hope the Town Council continues to allow the development of dense new market-rate apartments in this area as quickly as possible.
Much of the debate on housing in Chapel Hill has been framed as a tradeoff between market-rate apartments and affordable housing. Market-rate apartments are cast as a threat to our town’s residents: they squeeze tenants for cash, drive up nearby rents and property values, and displace current residents.
This narrative is false. People are moving here for jobs that will exist regardless of how many apartments are built. If we allow developers to build hundreds of new homes for them, they will happily live there, support our local businesses, and make Chapel Hill better able to provide social services with their tax dollars.
If we don’t build those homes, the newcomers still need a place to live. And they’ll knock on the doors of existing landlords, driving up rent and driving out residents. These out-priced residents still need housing, and they’ll downgrade to more affordable housing, pushing lower-income residents there out. The most vulnerable tenants get priced out altogether, abandoning our town or going homeless.
But Chapel Hill has been building these apartments for the past decade, and rents are still rising. Doesn’t this mean luxury apartments raise prices? While this idea is intuitively appealing, we are mixing up the causes of unaffordable prices with their effects. People drinking chicken soup are more likely to have a cold, but we wouldn’t conclude chicken soup causes colds. The rents are higher because more people want to live here, and newcomers are going to need housing. The rent therefore increases without new housing, as these newcomers look for places to live. This need for housing causes luxury apartments to be built, which reduces the number of newcomers driving current tenants out, and lowers rents. It’s the need for new housing, not the construction of the apartments to meet that need, that drives up rent.
This misconception about market-rate apartments raising rents is behind the vicious cycle that has gripped San Francisco. For decades, young people flocked to San Francisco for jobs. They needed housing, driving up local rents. But time and time again, residents blocked construction that would have housed the newcomers, and demanded tighter restrictions on building apartments. This misguided policy increased rents still further, fueling more resentment at the very apartments that would have lessened San Francisco’s housing crisis. After 40 years of opposition to market-rate apartments, San Francisco is a byword for widespread homelessness and breathtaking unaffordability.
Let us instead follow the example of Minneapolis, which in 2018 made building market-rate apartments easier there than in almost any other large city in the country. Construction boomed from 2,600 building permits a year to 4,000 after 2018. Did rents skyrocket with all those new high-end apartments? No: Since 2018, rents have fallen, even as Minneapolis’s population grew and inflation raised prices.
Still not convinced? Let’s look at the science on housing. Evan Mast (2019) finds that new luxury apartments are filled by residents of older housing, and that lower-income residents are able to move into the newly vacant homes. Li (2019) finds that large luxury apartment reduce rents and house prices within their vicinity. Pennington (2021) shows that market-rate housing makes rents fall by 2% within 300 feet of the new building. Asquith, Mast, and Reed (2019) find that market-rate apartments reduce nearby rent by 5%. Bratu, Harjunen, Saarimaa (2021) find that market-rate housing reduces rents across the entire city the housing is located in. Diamond and Moretti (2021):demonstrate how high market rate rents disproportionately hurt workers with less than a college degree in expensive areas. Each of these studies is written by researchers at academic institutions with no financial interest in housing development. Each paper uses state-of-the-art methods to rigorously determine how market-rate housing affects nearby rents and displacement. Each paper shows that market-rate apartments lower rents and displacement.
The facts are simply not on the side of our neighbors claiming that market-rate apartments drive out current tenants. The choice for our town is clear: to make Chapel Hill affordable again, we must continue to build market-rate apartments.
- Minneapolis Rent: https://streets.mn/2022/05/06/minneapolis-rents-drop/
- Li (2019): https://www.fanniemae.com/research-and-insights/do-new-housing-units-next-door-raise-your-rents
- Asquith, Mast, and Reed (2019): https://research.upjohn.org/up_workingpapers/316/
- Bratu, Harjunen, Saarimaa (2021): https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3929243
- Diamond and Moretti (2021): https://www.nber.org/papers/w29533
- Mast (2019): https://research.upjohn.org/up_workingpapers/307/
- Pennington (2021): https://www.dropbox.com/s/oplls6utgf7z6ih/Pennington_JMP.pdf?dl=0