I totally understand the rationale. My problem is that I don't see it happen in real life. Where I live, quite a lot of new high-end housing has been built, but it hasn't seemed to reduce housing costs at all. The people moving into the new housing aren't vacating lower-cost housing to do so. They're mostly people moving into the area for the first time.
So housing costs for everybody, but mostly at the more affordable end, continue to rise faster than inflation.
We would have to calculate the rate of influx vs construction. There are places where there is a lot of construction but the new construction still isn't enough to keep up with demand so instead of reducing prices it just slows down the increase. In your example I would guess if that high-end housing hadn't been built the increases would have been steeper and the new arrivals would be displacing the people in lower cost housing
Yes, I understand the theory. But after decades of watching this stuff, the topic kind of falls into "what am I going to believe, the theory or my lying eyes?" territory.
If I saw this effect actually happen over the long term, I'd be less suspicious of it. As it is, I'm very suspicious about it. I'm not saying I think it's not true, I'm saying that I haven't seen any indication that it is.
The point is that housing costs would have gone up more if that housing wasn't built, not that some amount of built housing automatically means prices grow slower than inflation.
It just means that we need to build even more new housing to keep up with the demand, and that the situation would have been even worse if we hadn't built what we have.
The problem is that there is not enough housing for the people who want to live there. Building more is the only way to address that problem other than exclusing people who want to live there.
But the problem is that there is little economic incentive to build more than is being built. The housing is being built for wealthy people. If most of those people aren't trading up from less expensive units, then that doesn't vacate any less expensive units. So, outside of the wealthy crowd, there is little downward price pressure in housing.
If the new housing hadn't been built, that new class of buyer would've just displaced the residents of older housing, and you'd get the higher prices but for shittier housing stock. This is why a 1BR in a run-down low-rise in Silicon Valley goes for $2200/month and the Bay Area's working class lives in Sacramento or Stockton.
> They're mostly people moving into the area for the first time.
Then instead of moving into the new high housing, they would have offered similar to what they are paying for the high end housing for the the lower cost housing people are in now driving the price of that up. The people living in that tier, May have been forced to a yet lower tier, driving those prices up, and so on.
In my experience a rising tide lifts all boats. New "luxury" housing sets a new price for a neighborhood, which attracts flippers and investors who turn the old, cheaper stock into old, expensive stock. The rise in price of the old stock also increases the price of the new stock because of (hand wave) "comparables" and some people just want the biggest and newest house.
Maybe this wouldn't happen if we had all the stock we needed, but from what I've experienced it seems like adding new high priced housing to a supply constrained market increases prices rather than reduces them.
There's endless housing being built where I am, but it's all massive 4-6 bedroom, 4 car garage monstrosities that nobody but the 0.1% could afford to live in, and meanwhile service industry folks can't find enough places to live so they're having to drive an hour+ to get to the area to work.
Even if it were practically given away, nobody but the ultra-wealthy could afford the taxes on the huge chunk of land, the utilities, or the upkeep.
The argument for building "any" housing is just trickle-down bullshit based on the notion that lots of wealthy people are hanging around in housing that others could afford. Except that by building more housing for the wealthy, you lift that area up - there's more market and demand for luxury shops, services, and so on..so commercial real estate becomes more expensive, and so on.
The other reality is that people in luxury housing don't like non-luxury housing near them, so they do things like buy up property near them, tear it down or renovate it, turning it into more luxury housing.
So housing costs for everybody, but mostly at the more affordable end, continue to rise faster than inflation.