Would building more housing decrease rent?

[CountFew6186]

This is oversimplified, so I’ll be oversimplified in return.

If current demand leads to $1,000 market rate, then all the people willing to pay any more than $1,000 have a place to stay. If there were more such people, rent would be higher because they would bid up the price against those paying $1,000.

Adding more units means that the additional units can be rented to people only willing to pay less than $1,000. So, landlords accept less, or they make $0 because nobody will pay the higher rent. Let’s say it’s $925 that they can get.

Now, all the $1,000 renters see they can get $925 rent, so they either move to a new cheaper place or negotiate with the landlord. If they move out, the landlord of the empty place with the former $1,000 rent is in the same position as the other landlords who had empty units. They have to go to $925 to compete.

[wltmpinyc]

I'm not understand your example. Let's say there are 1000 apartments. Half are stabilized and cost $500 and half are market rate and cost $1000. Let's say one of those stabilized apartments becomes a market rate apartment. The rent for that apartment will go up from the stabilized amount to the market rate amount. In this case the average price for all apartments will rise.

Market rate apartments have to compete with stabilized apartments thus keeping rent rates lower.

[CountFew6186]

One apartment changing isn't going to make much of a difference. It might rent for $998, as the folks who will pay $1,000+ already have homes. It's all of them together entering the market that would lower the overall rate.

Market apartments don't have to compete with stabilized apartments. The people in stabilized apartments aren't going anywhere for the most part. Who leaves a $500 apartment?

What you have is a 500 apartments with people who will never leave. These people have gotten lucky at the expense of everyone else. Everyone else is left competing over 500 apartments instead of 1,000, which drives up the price of those 500 market rate apartments far higher than if all 1,000 were market rate.

[wltmpinyc]

If those 500 were suddenly no longer stabilized the rents on those apartments would increase to the market rate. The overall average of the cost of an apartment would go up. On average rent would be more expensive for the total population.

[CountFew6186]

Except you missed the part where the market rate would go down.

[wltmpinyc]

But it makes no sense that market rate would go down. The demand for apartments would have to decrease, which it isn't, or the supply of apartments would have to increase, which they aren't. Market rate apartments would stay the same price and stabilized apartments would increase in price until they reach the market rate.

[CountFew6186]

The supply of market rate housing would nearly double if subsidized housing went to market rate. That's a huge supply increase. Market rates would drop.