Near my partner’s house they finally demolished an abanonded hospital that had been there for decades and I think they are going to build luxury condos that a lot of renters in my town cannot afford.
I expressed my concerns to my partner and he was explaining how its a good thing to create more housing regardless of whether its luxury housing or low income. I said that I wasn’t upset about more housing but how luxury condos will cause rentals in the area to go up due to increased value from slum and corporate landlords. He continued to explain I don’t know economics and doubled down that this will lower rental costs as renters will be moving to these condos freeing up housing across the city. I continued to tell him the condo prices are too expensive for this area and most will remain vacant for a long time as I have seen the rental market in my area and there are condos closer to me that have been sitting vacant for almost two years now because of the price tag and the condo fees
We dropped the conversation there because we stood very opposite in this debate. And sure I don’t know a ton about economics but what I do know is that rental prices in my area I can’t find a place under $1700 right now. I am currently fighting my landlord against an eviction because they are refusing to accept government rental assistance I applied and got approved for. I can’t move I can’t afford it I can’t beat $1100. My partner thinks my case is sad but he still stood where he does on the issue mostly because he makes way more money than me.
So please explain basic housing and economics like I am five.
In: Economics
Builders generally try to build things they think will sell, and they are betting a lot of money on their ability to sell. They just need *somebody* to be able to afford it, and luxury condos have higher profit margins, therefore more room for error if they overestimated the demand. So building luxury condos is often a good business decision.
Now, let’s assume they’re right, and someone buys the condo. Let’s talk about what happens when the new owner moves into their new condo: An older unit is now available, and older things are usually less expensive than newer things, so now the market has a slightly more affordable unit. So someone with the means to upgrade moves in there, and makes a more affordable unit available, and so forth.
So that’s the basic mechanism for luxury condos putting downward pressure rents, but the issue is that these effects happen at a regional level, and often times the lower rents are showing up outside the neighborhood that the new condos are built in. And now that builders see that luxury condos sell in that neighborhood, they might offer a premium to property owners of underdeveloped plots in the area, and if those owners are landlords, they evict their tenants, and sell their property. The property becomes a bunch of units that the original tenants can’t afford, so this type of displacement is a big part of what housing justice advocates are concerned about.
So in summary, any type of housing puts downward pressure on rents *regionally*, but can cause rents in the immediate neighborhood to rise, displacing existing residents.
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