Beyond the 325 Deansgate Controversy: How Luxury Developments Affect Housing Markets

We can't help ourselves, and the video where we deep-dived into the controversial 325 Deansgate project, then made us question: "Does increasing real-estate supply at the high end of the market, actually support with pricing pressure downstream in the lower and middle income housing sector?" That's what we'll deep dive this piece.

It seems we weren't the only ones asking ourselves this question, as per the many passionate reddit posts on this topic. 🥸

This UCLA paper explains the conundrum of such a question very clearly.

On one side you could argue, that unsubsidized homes whose price often places them beyond the reach of lower- and middle-income households — make nearby housing more affordable by increasing availability and relieving pressure on the existing housing stock. This is known as the “supply effect.” An opposing view, however, is that new housing only attracts more wealthy households, brings new amenities to the neighborhood (including the housing itself), and sends a signal to existing landlords that they should raise their rents. This “amenity effect” or “demand effect” thus makes housing less affordable. 

As the UCLA paper mentions, both the supply and amenity effect likely have an impact, it's about assessing which one is most significant.

 Long story short, the paper and also referenced in the paper, all seems to resoundingly confirm that increasing supply regardless of it being unsubsidized market rate housing, at least at an average has the effect of keeping prices lower.

This conclusion was also confirmed by a different paper from a Finish research team by analyzing the chain of house relocations induced by the building of new market rate housing in the wider Helsinki metroplex. One particularly interesting difference between the Finish research  is that it seems compared to US cities, the moving chains in the Helsinki Metropolitan Area are more likely to reach middle- and low-income neighborhoods and reach them faster.

So how does the supply effect of high end luxury apartments ultimately trickle down?

So from a policy perspective, at Site Steer we definitely sit on the YIMBY camp. Generally making it easier for building housing stock, driving our industry's growth, but evidence shows its clearly helps alleviate the incessant growth of housing prices which have been observed globally. 

If you want to learn more about the NIMBY topic here's a discussion on one of our favourite podcasts: