The Importance of Building All Types of Housing to Generate more Affordable Housing

Based on a recent article from Build Central, while new construction often focuses on high-end, Class A luxury apartments—primarily because of the high costs associated with land, labor,  materials and rent—there is an increasing need for more affordable housing. According to The Washington Post, rents have risen by about 19% since 2019, making affordability a growing concern for many. In markets where cities are willing and able to build new apartments, expanding the housing supply can help slow rent growth, even for lower-cost units.

This highlights a crucial point: new developments should include a variety of housing options that cater to different income levels. While the focus is frequently on affordable housing, it’s interesting to note that research shows building luxury units can also help. In major cities, adding more high-end housing options often eases demand, which can slow rent growth across the market and free up more affordable units.

The Broader Economic Benefits

Slower rent growth or even a reduction in rent prices has far-reaching economic benefits. When people spend less on housing, they have more disposable income to spend on other goods and services, which can boost local economies. A stronger local economy can pave the way for new businesses, creating a ripple effect that leads to more job opportunities and even more construction projects.

Additionally, when rent prices stabilize or decline, cities become more accessible and attractive to a wider range of people, supporting long-term economic growth and diversity. Cities with a balance of housing options are more likely to thrive, as they can accommodate both high-income earners and those with more modest means.

Examples of Cities with Expanding Housing Supply

Recent research from the Federal Reserve Bank of Dallas shows that increasing housing supply can be a key strategy in managing rent growth. They analyzed 21 cities across the U.S. that have significantly expanded their multifamily housing supply. Cities like Austin, Texas, and Phoenix, Arizona, which have built new multifamily units at an above-average rate in recent years, have seen rent growth slow down as a result.

By continuing to build new housing, particularly in areas with room for expansion, cities can create a more balanced rental market that benefits everyone, from high-income residents to those searching for more affordable options.

The Economics Behind Housing Supply

At the core of this trend is a simple economic principle: when supply increases to meet growing demand, prices tend to stabilize or even decrease. The 21 cities that have successfully expanded their housing supply benefited from factors like available land, streamlined permitting processes, and substantial investment in new construction.

This growth also helps address a broader concern—ensuring that cities have housing options to meet the needs of all their residents. While luxury apartments tend to grab attention, the real key is building a variety of housing types that can cater to different income levels.

Moving Forward

The solution to rising rent prices lies in continuing to build more housing—including affordable, market rate and luxury units. As more housing is built, markets can stabilize, benefiting both renters and local economies. By balancing high-end and affordable housing, cities can attract a diverse range of residents and create thriving, vibrant communities for the long term.

Ultimately, expanding housing supply in cities, whether it’s through luxury apartments or affordable units, plays a vital role in creating a balanced rental market that benefits all residents.