Yes: But probably not enough. It might stand to reason that development of housing—any kind of housing—would lead to lower housing prices. In most urban areas, however, the opposite occurs. Construction of new housing impacts the price or rent of existing housing in two different ways simultaneously. As the basic notion of supply and demand suggests, the addition of new units in a given housing market will inevitably put some downward pressure on the cost of existing units. But in regional housing markets, the units that become less expensive may be far out on the suburban fringe, far from jobs and opportunity.
At a more local level, new development often creates upward pressure on housing costs because new housing is primarily built for higher-income residents. A 2015 study commissioned by the Wall Street Journal found that 82 percent of new rental housing in the US was luxury housing.* Not only do the new units have higher rents, but the new higher-income residents spend money in ways that create demand for more lower-wage workers in an area; this, in turn, creates more demand for housing in the area and ultimately raises housing costs.
Modest price increases in a region can translate into very acute increases in specific neighborhoods. The lower costs resulting from increased supply may be apparent only at the suburban fringe of the region, while new luxury housing may cause dramatic upswings in the price of residential real estate in central neighborhoods.
