Evidence Pack: Does Building More Housing Actually Lower Rents?

For decades, the solution to the housing affordability crisis seemed intuitively simple to economists: build more homes. Yet, as rents soared in major cities across the globe, a counter-narrative took hold among some residents and local politicians. This supply skepticism argued that new construction—particularly of luxury or market-rate apartments—actually induced demand, gentrified neighborhoods, and drove nearby rents even higher. It is a debate that has paralyzed city councils and stalled development. But over the past few years, a wave of rigorous empirical research has provided a definitive answer. The evidence is now overwhelmingly clear: building more housing, even at market rates, lowers rents and expands affordability.[1][6]

The most comprehensive look at this dynamic comes from the NYU Furman Center, which recently synthesized the latest economic literature on housing supply. Their findings dismantle the core fears of supply skeptics. Across multiple studies, researchers found that adding new housing supply leads to modest decreases in city-wide rents. More importantly, new construction actually moderates rents or slows rent growth in the immediate surrounding neighborhoods, rather than accelerating it. When developers build a new high-rise, it acts as a sponge, absorbing the high-income renters who would otherwise be bidding up the prices of older, existing apartments in the same area.[1]

One of the most fascinating mechanisms behind this rent moderation is a phenomenon economists call filtering or moving chains. For a long time, critics argued that building luxury apartments only helps the wealthy. However, a landmark study by the W.E. Upjohn Institute for Employment Research tracked the address histories of residents moving into new market-rate buildings across twelve major U.S. cities. The researchers discovered a rapid domino effect. When a new luxury building opens, the people who move in leave behind slightly older apartments. The people who move into those apartments leave behind even older ones.[2]

The Upjohn Institute quantified this chain reaction with striking precision. They found that for every 100 new market-rate apartments built, the resulting moving chains open up the equivalent of 70 units in neighborhoods earning below the area's median income. Even more remarkably, 40 of those freed-up units are located in the poorest neighborhoods. Most of this cascading effect occurs within just three years. This proves that new high-end construction provides real, measurable relief to struggling renters by freeing up older housing stock much faster than previously assumed.[2][6]

Beyond the neighborhood level, researchers have also begun to measure the macroeconomic impact of city-wide zoning reforms. In 2016, Auckland, New Zealand, undertook one of the most ambitious housing experiments in the developed world. The city aggressively upzoned approximately three-quarters of its residential land, essentially legalizing medium-density housing like townhouses and apartments in areas previously restricted to single-family homes. The policy precipitated a massive boom in housing construction, fundamentally altering the city's real estate trajectory and providing a perfect natural experiment for economists.[3]

Six years after Auckland's reform, economists at the University of Auckland used a synthetic control method to evaluate the results. They compared Auckland's actual rents to a mathematically constructed version of the city that never implemented the upzoning. The results were staggering. Rents for three-bedroom family homes in Auckland were between 26 and 33 percent lower than they would have been without the zoning reform. This massive divergence provides some of the strongest empirical evidence to date that large-scale deregulation of housing supply directly translates to enhanced affordability.[3][7]

A recent working paper from Motu Economic and Public Policy Research further validated Auckland's success, comprehensively reviewing the data and dispelling critiques that had circulated on social media and local blogs. The Motu researchers confirmed that the evidence from Auckland is remarkably robust and statistically sound. They concluded that zoning reforms definitively boosted housing supply and reduced rents across the board, providing a highly viable and tested template for other global cities grappling with persistent housing shortages and affordability crises.[7]

A similar success story is unfolding in the United States. In 2018, Minneapolis became the first major U.S. city to eliminate single-family zoning citywide through its Minneapolis 2040 plan. The city legalized duplexes and triplexes on lots formerly reserved for single-family homes, eliminated parking minimums, and allowed denser apartment construction along transit corridors. The goal was to dismantle exclusionary zoning laws and tame runaway housing costs.[4]

The data shows the Minneapolis plan is working exactly as intended. According to an analysis by the Pew Charitable Trusts, Minneapolis increased its housing stock by 12 percent between 2017 and 2022. During that same five-year period, rents in the city grew by a mere 1 percent. To put that in perspective, the rest of Minnesota added only 4 percent to its housing stock over the same timeframe, and saw rents surge by 14 percent. Despite experiencing similar population and household growth, Minneapolis successfully decoupled demand from price spikes simply by ensuring the availability of more homes.[4]

Other independent economic analyses of the Minneapolis 2040 plan have echoed these findings. Using synthetic control models similar to the Auckland study, researchers found that the reform significantly reduced the growth of housing costs over the subsequent five years. Home prices were estimated to be 16 to 34 percent lower, and rents 17.5 to 34 percent lower, than they would have been in a counterfactual scenario where the city never reformed its zoning. Interestingly, researchers noted that the price reductions were driven not just by the immediate physical supply of new homes, but by a softening of housing demand as market expectations shifted.[8]

However, the evidence also points to the limitations of upzoning as a standalone cure-all. While relaxing land-use regulations is highly effective at moderating overall market prices, it is not a silver bullet for immediate, deep affordability. A comprehensive study by the Urban Institute examined land-use reforms across over a thousand U.S. cities and found that upzoning was associated with a statistically significant, but modest, 0.8 percent increase in housing supply within three to nine years of passage.[5]

Crucially, the Urban Institute found no statistically significant evidence that additional lower-cost units became immediately available or less expensive in the years directly following the reforms. This highlights a vital nuance in the housing debate: while market-rate construction eventually filters down to lower-income brackets, the private market alone cannot rapidly produce housing affordable to those at the very bottom of the income distribution.[5]

This nuanced reality has forged a new consensus among housing policy experts. Upzoning and market-rate construction are absolutely necessary preconditions for a healthy housing market, but they are not sufficient on their own. To truly solve the housing crisis, cities must adopt a yes, and approach. They must aggressively remove barriers to market-rate construction to prevent middle-class residents from bidding up older stock, while simultaneously investing heavily in subsidized, deed-restricted affordable housing for the most vulnerable populations.[1][5]

The empirical evidence gathered over the last few years represents a paradigm shift in urban economics. The debate over whether supply matters is effectively over. From the moving chains of luxury apartments in major American metros to the sweeping zoning reforms of Auckland and Minneapolis, the data tells a consistent, hopeful story. By embracing housing abundance and dismantling restrictive zoning, cities have a proven, evidence-based pathway to restore affordability and build more inclusive communities.[6][7]