From 1993 to 2013, the cost of the cheapest 20 percent of U.S. rental units has increased more than 10 percent a year, according to the New York Fed analysis of data from the Census Bureau's American Housing Survey. Meanwhile, the rents of apartments and houses in the priciest 20 percent were flat over time.
A popular theory of real estate development in hot housing markets is that you meet demand for new units by building at the high end. Affluent renters move up into nicer, newer apartments, vacating units that are in turn filled by renters on the next rung of affluence.
But "as one moves down the rent level distribution," Peach and McCarthy write, "increases in the supply of housing increasingly come from previously higher-rent units, which may still have rents above the average of the incumbent units, pushing up rents more in such segments."
In other words, based on the data they examined, building luxury rental apartments is a good business model for developers, but it doesn't really help with housing affordability down the line.
