I just don't understand how some folks expect new construction downtown to include affordable housing. It seems like such an inefficient and expensive way to build out affordable housing, an idea rooted more in abstract concepts of equity and not as much in the real economic choices that would most greatly benefit progressive ideals. We'd have better outcomes if we just pushed for as much new construction as the market will bear, and slightly older units will thus have even further downward pressure into affordable territory for more residents.
In a way your comments reminds me of some kind of "trickle down " economic theory, however, I think it really makes sense and you are spot on. It may especially help moderate income people working downtown to have better access to decent housing in the urban core.
People see new expensive apartments that rent at luxury levels, and then they see existing apartments that renovate to become more upscale and raise their rents, and they incorrectly conclude that rents work the opposite of every other market priced good. I've seen frequent complaints that eventually rents will be so high that nobody will live in the buildings, and the conclusion these people draw is that all this new construciton will just sit empty at high rents rather than lower rents until people want to move in.
I've thought of a little analogy, and maybe some other people can let me know if it 1) makes sense, 2) is correct, and 3) most importantly, conveys the message that apartment rents are based on demand, not supply.
Imagine a new apartment building. If you "rent" a unit there, the management company will pay you a billion dollars a month. There's no strings here about you have to live in it or do X or why or whatever. You merely sign a lease exactly like you would for any other apartment, except instead of agreeing to pay $1000 a month, you agree to be paid a billion dollars a month
note: There's nothing that requires you to live in an apartment you rent. I could rent a hundred apartments all over town and just leave them empty, but that's stupid because that costs a lot of money. But the point here is that I'm trying to disconnect any notion of the actual location of the building, because you don't have to live there).
Now you can probably imagine that literally everybody in the world would want to "rent" this apartment, but there are only, say, 200 units. So the demand is 7 billion people, but the supply is only 200 units.
Now imagine another apartment, except to rent there you have to pay a billion dollars a month. Not even Bill Gates (I believe he's still the world's richest person?) would want to rent there, as he'd wipe out all his money in just a year or two. So demand here is 0, but the supply is still 200 units.
note: Here we establish that there is an amount of money where nobody would rent an apartment. Now let's find some middle ground
Now, let's go back to that first example, where you get paid to rent. Let's imagine that instead of being paid a billion dollars a month, you only get paid a million dollars. That's still a great deal, and almost everybody will still want that, but there will be a handful of people to whom it's not worth it. The administrative overhead of signing the lease and getting the keys etc etc would not be worth it, but realistically we're only lessening demand by a few hundred people. But think now you get paid $100k, a few less people are interested. Now $1000. For the vast majority of people that's still a great deal, but again, it's a deal to fewer people than a billion or a million or hundred thousand. Now let's imagine it's free. There's no profit to be had in "renting" it. So now it's only of interest to people that can actually use it. Maybe somebody would live in it, or maybe somebody would just use it as a crash pad or storage in a different part of the city. At this point I'd say we've limited demand to the tens of thousands. But supply is still only 200 units.
OK, back to the second example. If you remember, nobody would rent the apartment at a billion dollars a month. How about a million? Maybe a handful, if the unit and location is absolutely great. How about $100k? Still a handful? Now $10k. There houses in LA that will rent at that level, and probably plenty of units in NYC that will rent for that level. But here in the Twin Cities, maybe only a couple of people would be willing to pay that in any particular apartment building. So let's say at $10k a month demand is 5, but supply is still 200.
It stands to reason that somewhere between free and $10k per month, there's a dollar amount where only about 200 people will be interested in the apartment, which is great, because there are 200 units. Whatever dollar amount that is, that's what the building will end up charging, because it's the highest rent they can charge while still filling all the units. Any higher, and they have empty units which aren't generating any rent, and any less and they're just leaving money on the table (why charge less when you can charge more? For profit developers aren't charities).
The average rent in the Twin Cities for a two-bedroom apartment is around $1000, so let's call it an even $1000. As demonstrated above, there is a price such that the number of people willing to pay it is pretty equal to the number of units at that price. I think looking at average rents, we could say that for a particular building $2000 might be the price where supply and demand match up. But maybe the building only needs to charge $1500 a month to cover expenses (maintenance and repaying loans/investors). So that's $500 a month per unit going to greedy developers. A new building opens up next door with another 200 units, and they also charge $2000. But there are only 200 people here that want to pay $2000 a month for an apartment. But maybe there are 400 people willing to pay $1800, so the rent becomes $1800 a month. Another building opens up, and 600 people are willing to pay $1600.
But what if the second building didn't open up? Imagine next door an older building. There's nothing wrong with it, it's just kind of boring. It's got white appliances and laminate countertops, etc etc. It doesn't have a huge pool or rooftop patio or party rooms to rent out. Rent is $1000 a month here, right at the average. The only of this building sees the new building next door rent for $2000 a month. He knows he can't get that much, but if he puts in some stainless steel appliances and granite countertops, maybe he can charge $1500 a month. But imagine an older building in the same condition near the 4 new buildings each rent for $1600 a month. It's going to take a lot more than new appliances and countertops to make his apartments worth $1500. In fact, it'd probably cost him more to renovate than he would gain in increased rent, so he doesn't bother. He keeps the apartment well maintained with new counters and appliances on a regular schedule, but he doesn't splurge, and leaves rent at $1000. Maybe he'll raise it to $1100, it's still a good deal in the neighborhood.
So there are few points here. First, a landlord is generally not going to rent an apartment at such a high price that the building can't be filled, and he's not going to charge less than people are willing to pay. Second, the conventional wisdom that new apartments raise rents is the opposite of what actually happens. When supply is limited, new construction could raise rents, if existing landlords see demand for nicer apartments. If supply keeps up with demand, and that demand is met with new units rather than improvements on existing units, the existing units won't raise their prices. Finally, a little prolouge to this story. These 4 new buildings that we have now. In 40 years they'll be pretty old, and by then even newer buildings will have been built. These now 40 year old buildings become the older more affordable units, because it's not possible for them to keep up with the brand new apartments being built with matter energy transport elevators and food replicators in the kitchen. So they don't bother, they put in laminate counters and white appliances and charge an average rent.