How Adding Housing Supply Lowers Prices

A recap of the research...

The Bottom Line: Building more housing—even market-rate apartments and homes—reduces prices across the entire market over time. Recent research and real-world examples prove this works.

I’ve been working to address housing affordability and availability for nearly half of my 20 year career. In 2015, my area of focus began to shift away from a traditional approach to economic development and community planning and toward a more equitable approach to regional prosperity and sustainable growth.

Early in this shift, I assumed that more government intervention was the right answer. Inclusionary zoning and rent stabilization measures seemed to be the obvious solutions. But the more I became engaged in the actual production of housing, and worked to influence complicated local and regional market dynamics to the benefit of the broader community, the more I began to understand the true opportunity to make changes at scale within the current confines of the system we have.

The Basic Principle

When we add more housing to a market, price growth slows down in the near term. When we add enough new housing to a market, prices of older homes will become more affordable over time. This follows the simple rules of supply and demand.

For close to a decade, most regions have had much more housing demand than available supply. The competition for scarce supply has resulted in rapidly increasing housing prices. And the result is that more and more low income households have been priced out of the market or forced to double-up with friends and family.

One of the solutions to this problem is enabling more supply to be built where there is demand. When housing supply increases faster than demand, competition among landlords and sellers pushes prices down.

This happens even when the new housing is expensive.

Because there remains so much skepticism about the ability of the market to address any of the urgent needs in the housing market, I am going to include a series of resources as embedded links to citations. If you don’t trust my reasoning, please click through these links and read the studies. This is a rare issue where the Pew Charitable Trust agrees with the American Enterprise Institute. The Mercatus Center, the NYU Furman Center, the Terner Center at UC Berkeley, and the Lewis Center at UCLA are all in general agreement. This post is simply a consolidation of research conducted by dozens of more talented individuals.

For an even better read, go to Jerusalem Demsas’ work at the Atlantic and read, Housing Breaks People’s Brains.

How It Works: Moving Chains

When new apartments get built, they start “moving chains” that quickly reach middle- and low-income areas (Mast, Evan. Journal of Urban Economics. The effect of new market-rate housing on the low-income housing market). Here’s how:

A family moves into a new apartment. This frees up their old apartment. Another family moves into that apartment. This frees up their old apartment. The chain continues.

Research tracking these chains found that by the sixth move, 40% of the newly freed-up units are in below-median income areas. A study from Helsinki showed that by the fourth move in the chain, half the units being vacated are then occupied by tenants from the lower half of the income distribution (Been, Vicki. New York University, Furman Center. Supply Skepticism Revisited).

The new market-rate unit never needs to be “affordable” to help low-income renters. It helps by reducing competition for existing affordable units.

More Research to Confirm This

Analysis by The Pew Charitable Trusts found that every 10% increase in a region’s housing supply from 2017 to 2023 meant rents grew 5% less from 2017 to 2024 (Rodnyanski, Su, & Horowitz. Pew Charitable Trust. New Housing Slows Rent Growth Most for Older, More Affordable Units).

Even more important: The biggest rent relief happened for older, less-expensive apartments—the ones low-income residents can afford.

A study published in the Journal of Political Economy found that a 1% increase in new supply lowers average rents by 0.19% and effectively reduces rents of lower-quality units the most (Mense, Andreas. Journal of Political Economy Macroeconomics. The Impact of New Housing Supply on the Distribution of Rents).

Real Cities Where This Is Happening Now

Austin, Texas: Austin rents have fallen for nearly two years amid a boom in apartment construction. Rents dropped from $1,726 in August 2022 to $1,431 by April 2025. Brand-new apartments and older, cheaper apartments alike have seen rents fall.

Minneapolis, Minnesota: Minneapolis experienced an 11.14% drop in rent, directly tied to pro-housing zoning reforms that unlocked housing supply.

Houston, Texas: Houston added housing at a rapid clip and curbed both rent growth and displacement.

Eleven large metro areas that increased housing supply by at least 10% from 2017 to 2023 saw average rents decline from 2023 to 2024.

Why People Worry (And Why Those Worries Miss the Point)

Some people worry that new market-rate housing will raise nearby prices or cause gentrification.

Research shows that new market-rate housing is built in places where prices are already rising, but the new buildings don’t cause the neighborhood change—they respond to existing demand (Beyer, Scott. Independent Institute. Do Upzoning Increase Home Prices? ). Without the new housing, prices would rise even faster.

What This Means for Your Community

Adding housing supply works. It takes time—usually several years. But it works even when the new housing is market-rate.

This does not mean that market-rate housing alone is the only approach. Many families will still need some form of housing subsidy for the foreseeable future. However, there are currently far more families in need of a subsidy due to a lack of available supply, despite earning a decent middle-income salary.

The analysis conducted by the Pew Charitable Trust showed that increasing the whole region’s housing supply has four times the impact on local rents compared with just adding local supply. Every community in a region needs to do its part. And this is the value of creating a regional housing strategy and identifying key corridors and targeted areas to support growth.

The alternative—restricting new housing—makes prices worse. Communities that severely limit housing growth see costs rise and displacement increase.

The choice is clear: Build more housing now, or watch prices climb higher.

Additional Resources:

Housing Voice Podcast - Shane Philips, UCLA Lewis Center. This is one of the most in depth and ongoing conversations about how to solve housing affordability challenges in North America. If you’re serious about understanding housing, this is a must-listen.

AEI Housing Center - Ed Pinto, Tobias Peter, and their team have produced a mind boggling amount of research and toolkits for communities of every size across the US.

Housing Policy Initiative - Pew Charitable Trusts are looking under every rock for viable and sustainable solutions. They have good research on the value of manufactured housing, co-housing, and other innovative solutions.

Escaping the Housing Trap - The latest publication from Strong Towns founder, Chuck Marohn and Derrick Herriges is absolutely worth the read. It gives a sober analysis of how we climb out of this housing crisis via an anti-fragile approach to both the supply of housing itself and how we finance it.