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Comment by rgovostes | Hacker News Reader

I'll admit ignorance here, but I've been skeptical of the claim that new construction drives rents down. What I actually see is: a luxury apartment building goes up, surveys the market, and sets its rents 30% higher for the privilege of living in a new building with a gym for dogs or ball pit or whatever. Then the older buildings say, "Well, we can raise our rents 20% and still be the best deal in town," and so on.

Maybe if you flood the market with 30% more housing units like Austin you get the Econ 101 effect. On the other hand, apartment owners realized intentional vacancy is a profitable strategy, which alone seems to defy that basic interpretation.

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what you're neglecting to consider is what would have happened if someone moved to Austin (say a wealthy person from SF) and that expensive new apartment didn't exist.

The mechanism by which new construction drives down rents is that people that need a new apartment are in less competition with existing residents in older worse apartment buildings.

So the newcomer from SF moves into the expensive new apartment, which means that there's less competition for decades old apartments, which means that when one of those is vacated there is less price appreciation on that product.

If there is a scarcity of apartments what happens is that when a decades old apartment is vacant it is filled by a wealthy newcomer and the landlord increases the rent accordingly.

In my neighborhood in NYC, I've also observed that rents increased after luxury apartments were built here. In fact my landlord cited the increased median rent in the neighborhood as a reason to raise my rent.

My understanding of the situation is that luxury apartments do indeed gentrify neighborhoods (i.e. they increase the local rent and drive displacement of locals that can't keep up with those rent increases).

However, across the entire city, it slightly eases rent pressure by providing additional housing supply.

So, like you mentioned, if you get enough housing across many neighborhoods, you can drive down rents. Otherwise, that luxury complex in your neighborhood might only be helping ease rent pressure in other neighborhoods.

"In fact my landlord cited the increased median rent in the neighborhood as a reason to raise my rent."

Your landlord lied to you to get you to pay the increase. You had little choice because finding a cheaper apartment probably wasn't possible/desirable and you probably didn't want to argue with him in front of the rent board. Understandable but that doesn't mean your landlord's explanation has any validity.

You're saying that even though landlords may justify rent increases because of new constructions, if new constructions hadn't been built they would have used a different justification? And the rent increase would have increased just as much?

That's possible!

Maybe the rent increase is independent of that single new construction. Or it could be mixed depending on the type of housing. I looked into it a bit more[1] and it seems like lower-quality apartments near a new build go up in price but high-quality ones go down in price.

[1]: https://nlihc.org/resource/new-construction-has-mixed-short-...

> a luxury apartment building goes up, surveys the market, and sets its rents 30% higher for the privilege of living in a new building with a gym for dogs or ball pit or whatever. Then the older buildings say, "Well, we can raise our rents 20% and still be the best deal in town," and so on.

I think that might not be the right cause and effect relationship. The actual cause is increased demand. This creates both the increased pricing of existing stock and an incentive to build new stock.

> Then the older buildings say, "Well, we can raise our rents 20% and still be the best deal in town,"

They can only get away with that when there is a housing shortage.

> I've been skeptical of the claim that new construction drives rents down.

It can, but not in isolation.

It requires a couple additional variables such as population demand (rate of growth of Austin has reduced since the COVID boom [0]), existing stock (Texas had a building boom and bust in the 1980s [1] that decoupled it's housing market from the rest of the US), and a shift from buying to renting.

That said, the peers I have who work in professional real estate (not realators - as in actual MDs for REITs or multi-generational landlord families whose parents went to school with Governers and Mayors) are starting to shift away from real estate to equities because of headaches around succession planning and reduced margins.

What is ending up happening is megacap REITs like Equity Residential, Essex, Avalon, etc are buying out older groups, taking stakes in new developments, and shifting away from selling condos to perpetually leasing. At their size they can afford to have significant amounts of unleased units becuase they would have made up the cost via higher rent on leased units, tactically building high margins condos and SFHs in high appreciation geographies, or loss harvesting in order to subsidize commercial buildouts like data centers.

Naively saying only construction will reduce prices is false, and if the consolidation aspect is not solved (and sadly, it won't be) it would only lead to an even worse situation.

Additionally, these are hyperlocal problems and what may work for Austin may require significant retooling for Chicago.

[0] - https://www.bizjournals.com/austin/news/2026/01/28/austin-be...

[1] - https://www.nytimes.com/1986/09/14/business/john-connally-s-...

Your scenario is simply describing a massive under-supply problem, and mis-attributing causality for price increases.

If the older buildings are able to raise prices 20% with no increase in vacancies after the new build, the new build not coming in would mean those older buildings rent would be bid up more than 20%.

The people moving in who could have afforded the 30% more expensive luxury units will just have to pick from the older units and outbid lower income people for spots in this low supply, growing city (under no other scenario could you crank up rent on aging stock 20% without losing to competing landlords).

> if you flood the market with 30% more housing units like Austin you get the Econ 101 effect

According to TFA, it seems so.

Which is great, because it's further evidence that we should do the same thing everywhere.

There were a ton of apartments built in lower-cost areas outside of the urban center as well - the Parmer area (near the new Apple campus), the Tech Ridge area near I-35, and out by the airport and Tesla factory as a few examples. It wasn't only high-end, lots of mid-level stuff was built too.

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