Impact of New Construction on Rents Depends on Quality of Existing Housing
Jun 01, 2026
By NLIHC Research Team
A study published in the Journal of Urban Affairs, “Build baby build? Housing submarkets and the effects of new construction on existing rents,” found that the impact of large newly constructed market-rate apartment buildings on rents of nearby existing properties depended on the quality of those properties. The study found that new market-rate construction was associated with a 4.4% increase in rents in the lowest-priced buildings in the first five years after construction, as compared to low-quality, lowest-rent buildings not near the new construction, and a 1.7% decrease in rents for the highest-priced apartments as compared to the highest-priced apartment buildings not near the new construction. The study underscores the importance of housing submarkets in understanding rent trends within a particular area.
A general housing market consists of distinct housing submarkets that can be defined by unique shared characteristics. For example, housing of similar locations or neighborhoods, housing type, or quality can be considered distinct submarkets. Submarkets within the same overall housing market can experience different trends in supply, demand, and ultimately price. This study examined the impact of new construction of large apartment buildings on housing submarkets based on quality and price in Minneapolis, Minnesota.
The authors found that new market-rate apartment buildings increased rents in the lowest-priced nearby buildings and lowered rents in the highest-priced nearby buildings. The increase in rents for the lowest-priced existing buildings might be due to anticipation among landlords of greater demand for housing in the vicinity, as well as the fact that low-cost rental housing is not a good substitute for high-priced rental housing. The decrease in rents in the highest-priced buildings may be due to the increase in supply of high-priced units.
The authors call for more research that provides a better understanding of the impact of new supply on housing submarkets, particularly on the housing stock available to low-income households. They acknowledge that their current research has limitations in that their analysis looked at changes in rents for up to only five to seven years, leaving out the potential longer-term impact of new supply. It was also limited to only one city.
The full article can be found here.