High-End Construction Really Does Help Everyone
One well-worn refrain of progressive urban politics is that new, “luxury” housing will not help solve the housing shortage. A 2024 study of U.S. voters found that 30 to 40 percent believed more housing would, instead, increase prices, and another 30 percent believed it would have no effect.
But research generally points in the other direction: More housing supply of all kinds leads to lower prices in general terms. A new study lays out exactly how a brand-new building can open up more housing in other, lower-income areas, creating the conditions that enable prices to fall.
In the paper, three researchers looked in extraordinary detail at the effects of a new 43-story condo project in Honolulu. The building, called the Central, sits right behind the giant Ala Moana shopping center, halfway between downtown and the beachfront hotels of Waikiki. It comprises both subsidized and market-rate units, priced at around $780,000 for the former, and $1.25 million for the latter. What the researchers found was that the new housing freed up older, cheaper apartments, which, in turn, became occupied by people leaving behind still-cheaper homes elsewhere in the city, and so on. A new rung higher up the housing ladder permitted people lower down to climb. The paper estimates the tower’s 512 units created at least 557 vacancies across the city—with some units opening up no empty apartments (if, say, an adult child moved to the Central from their parents’ home) and others creating as many as four vacancies around town.
To figure this out, the researchers had to go into detective mode. They traced buyers arriving at the new apartments back to their previous homes and then, in some cases, they traced the new occupants of those homes back to prior addresses. The study found that the Central’s new residents left behind houses and apartments that were, on average, 38 percent cheaper, per square foot, than the apartments they moved into. Homes one more link down the chain—the ones vacated by residents who moved into the units vacated by the new occupants of the Central—were worth 44 percent less, per square foot, than the brand-new condos.
[Idrees Kahloon: What tearing down a housing project did for kids]
This research suggests that families who move do so because they are improving their circumstances, upgrading to nicer neighborhoods and homes like hermit crabs trading shells. In one case, two of the article’s co-authors, Justin Tyndall and Limin Fang, told me, a unit at the Central was purchased by a woman leaving an apartment built in the 1960s in a low-income neighborhood. That unit was subsequently occupied by someone moving from a transitional-housing facility for the formerly homeless, presumably freeing up a bed for someone living on the street. Put succinctly: The sale of an apartment costing more than half a million dollars seems to have created a vacancy at a homeless shelter.
The contention that luxury housing opens up affordable homes elsewhere is sometimes referred to as a “trickle down” theory of housing, a derisive reference to the idea that tax cuts for the rich spread prosperity to all. But it’s not as if a “used” house were an unwanted old coat on the rack at Goodwill. And although local governments have developed some spectacular new low-income housing in recent years, their capacity to do so is limited by the enormous amount of money required: In Boston, new affordable units cost the city about $650,000 each. New market-rate construction, by contrast, usually contributes money to the public coffers through fees and taxes. Vacancy-chain research does not suggest new buildings can replace the type of deeply affordable housing that public subsidy enables. But the potential for market-rate construction to help even low-income renters is significant.
Prior to the Honolulu paper, the only big, recent U.S. study on vacancy chains was conducted by the economist Evan Mast and published in 2023. He found that although the occupants of the new buildings came mostly from other high-income census tracts, the share of movers from low-income neighborhoods grew in each subsequent “link” in the chain. (Unlike the authors of the Honolulu paper, Mast did not track moves into specific vacated units, but into the buildings that contained them.)
Mast’s conclusion was that new housing allows families to move into wealthier neighborhoods, a change that tends to be correlated with lots of positive life outcomes for children, such as higher earnings and stable marriages. “Constructing a new market-rate building that houses 100 people ultimately leads 45 to 70 people to move out of below-median income neighborhoods,” he wrote. Barriers between rich and poor neighborhoods were permeable.
A handful of reports from abroad bolster this conclusion. A study of movers in Helsinki, for example, found similar results: For every 100 new centrally located market-rate units, 31 apartments became available in the city’s poorest 20 percent of neighborhoods. Similar patterns have been observed in Sweden.
The citywide churn of vacancy chains is a societal good in and of itself. In his book, Stuck: How the Privileged and the Propertied Broke the Engine of American Opportunity, my colleague Yoni Appelbaum shows that when American mobility was at its high-water mark in the 19th and early 20th centuries, “moving day” was considered a local holiday on par with Christmas or the Fourth of July. It was perceived as a day of opportunity for tenants, who shuffled among apartments in search of places that were larger, better located, or appointed with marvels of the day such as hot water, flush toilets, or electric lighting. “Americans understood their mobility as an exercise of choice, an act of autonomy, an expression of optimism,” Appelbaum writes. In part because this era of rapid urban construction gave way to one of stasis, Americans do not move like they used to, with a record low of about a tenth of households relocating in 2024, down from a fifth in the 1950s. More empty apartments will give more people the chance to move again—and move up in the world.
When a housing market is broken—expensive, overcrowded, with few empty apartments available—new construction creates fewer opportunities to relocate than it otherwise would. And Honolulu’s housing market is among the most broken of major U.S. cities’. In theory, each empty apartment could have released a long succession of U-Hauls downstream, ferrying families from pad to pad. In practice, the Honolulu research found the chains were considerably shorter than that: 1.61 vacancies for each market-rate unit and 0.73 for each income-restricted unit. That’s because vacated units might be demolished, turned into Airbnbs, or occupied by immigrants (starting a vacancy chain elsewhere, though ending one locally). In many cases, a vacancy chain stops because someone moves out of a home they shared with parents, friends, or an ex. And moving chains can take months or even years to bring vacated units onto the market, especially when sales are involved.
[Judd Kessler: The hidden cost of ‘affordable housing’]
It’s also hard to string together vacancy chains without coming up against mistakes in address-history data, which means this research may underestimate the impact of new construction. The one older major study on U.S. vacancy chains, from the 1960s, found each new unit created an average chain of 3.5 vacancies—but it required researchers to knock on doors to gather more than 3,000 interviews.
In Honolulu, market-rate condos produced more vacancies than lower-cost units because the latter were more likely to be occupied by people moving out of shared quarters—a childhood home, or one shared with roommates—and not emptying a unit for someone else to move into. A shorter vacancy chain is a sign of overcrowding being relieved. That’s a positive outcome, even if it doesn’t have the same impact on housing costs. But it is also a sign of a less healthy housing market to begin with: In places where lots of people are already doubled up, new housing creates fewer vacancies and therefore fewer opportunities to move.
Honolulu is such a place: 9 percent of the city’s housing has more than one person per room, a higher rate than New York City and more than double the national average. Hawaii’s households are the second largest in the nation after Utah, thanks in part to the islands’ multigenerational culture, but its homes are the smallest of any U.S. state’s. The square footage per person is the lowest in the nation. This means it will have shorter vacancy chains than a city with a healthier, cheaper housing market. A young couple moving in together in Honolulu is more likely to create zero vacancies (if they both previously lived with roommates or family) than two, compared with that same couple in a lower-cost city. Worse, the average home price in Honolulu is $750,000. When costs are so high, it takes a longer chain to free up affordable housing. Honolulu is going to need a lot of new, market-rate units before low-income neighborhoods will see the spillover effects.
It’s as true in a broken housing market as it is with any broken system: The worse the situation gets, the less effective the solutions become.