In the past decade, luxury apartment complexes have sprouted up around Pittsburgh like mushrooms, popping up between the century-old row houses with their boxy exteriors often decked out in gray or beige cladding and adorned with banners promoting websites that boast about all of the amenities that lie within their walls.
You’ve definitely seen these buildings (or maybe you even live in one). But they are often controversial — people critique the expensive rents that are out of reach for many, the bland aesthetics as lacking character and the buildings themselves as vehicles for gentrification.
But if these buildings didn’t exist, your rent would be higher. Why? Supply of more housing, even if it’s just luxury apartments, decreases pressure on the overall market.
“Adding supply either decreases rents or slows the growth of rents,” said Vicki Been, a New York University law professor and faculty director of NYU Furman Center for Real Estate and Urban Policy.
And that’s not from just one study — it’s a consistent finding from recent research, according to Been’s 2023 paper “Supply Skepticism Revisited.”
“My research really pulls together all of the existing research on how new supply affects the city as a whole, individual neighborhoods and low income people,” Been said.
Been says "supply skeptics" typically have three arguments against luxury apartments. The first is that adding new buildings may decrease rent citywide but increase rent in the neighborhood.
“The argument is, look, it's reducing the pressure by adding supply. But at the same time, it's changing the nature of who moves into the neighborhood,” Been said. “And with that, changing the nature of the kinds of amenities — coffee shops, wine bars, et cetera — that are available.”
She says while there’s certainly an amenity effect — the people moving into new buildings tend to be wealthier and better educated — the increased supply usually outweighs that.
The second argument also draws on the demographics likely to move into the new buildings, in that adding new supply ends up displacing people already in the neighborhood as rents go up due to gentrification.
Been says one Bay Area study did back up that assertion — displacement went up by 1-2% in that case — but most other research shows the opposite is true.
“You lower the number of people, especially low-income people, who are moving out of the neighborhood, and you actually increase the number of lower-income people who move into the neighborhood,” Been said.
The third argument is that luxury apartments don’t help low-income people, because they’re too expensive. But a study by Evan Mast, an economics professor at the University of Notre Dame, finds the supply increase provided by new luxury buildings actually ripples throughout the citywide rental market.
Mast used address history data to track the movement of 52,000 people who moved into new multifamily buildings in large U.S. cities. The data allowed him to follow where those people moved from and who moved into their old apartments. He then repeated that process for the people who’d replaced those original households until he was six steps, i.e. six sets of people, removed from his starting point.
“I look at these people who live in these luxury new buildings now, I can show you they used to live in a pretty dispersed set of areas,” Mast said. “Now, those will still tend to be relatively well-off areas, because this person had to be high enough income to afford one of these new apartments.”
But those old apartments are now empty for someone else.
“I can trace out these ripples round by round, and what I show is that in each round, you kind of take another step down the income ladder,” Mast said. “Eventually most of these chains, say roughly half of them, end up reaching a below average income neighborhood.”
In other words, his research finds a new market-rate building housing 100 people means around 40 to 75 people move out of below-median-income neighborhoods within three years.
“You're sort of sucking out some of that high-income demand and kind of quarantining it into one of these new apartment buildings,” Mast said.
The Strip District is Pittsburgh’s most salient example. The neighborhood had 266 residents in 2000, according to census data. By 2022, the population had more than quintupled to 1,471 with most of that growth coming from new construction luxury apartment complexes.
No new buildings opened last year, but there are 1,961 housing units expected to come online in the next few years, according to the 2024 “State of the Strip District” report from Strip District Neighbors.
Additionally as of 2022 when compared to the rest of the city, the neighborhood has a higher median household income ($119,223 vs. $63,380) and a much higher percentage of renters (91.7% vs. 50.7%).
Denying the data
But many Americans think supply and demand doesn’t apply to the housing market, and disagree with the evidence that building more homes decreases housing costs. And Been says this mismatch goes one step further.
“They don't believe that it applies in the housing market, even though they understand that it applies in other markets,” Been said.
She points to a study by Christopher Elmendorf, a law professor at the University of California Davis. In three surveys of urban and suburban U.S. voters, he found that about 85% believed shortages of new cars would increase the prices of used cars while only 30-40% believed an increase in new homes would lower the prices of existing homes.
Been thinks one factor in this inconsistency may be that it’s easy for the average person to notice changes in their neighborhood, like new apartment buildings, but a lot harder for them to get a sense of how much demand there is.
Simply put, most people aren’t real estate brokers.
“They don't see the demand until they see the supply meeting the demand, so they blame the supply meeting the demand instead of blaming the demand,” Been said. “It's kind of like I see an umbrella, I see people are walking with their umbrellas, the umbrella caused the rain.”
Mast says that blame sometimes extends to the people living in the buildings, too.
“The general strategy if you don't like these apartments, is to somehow say that the person moving in or the person who's going to buy it is basically bad in some way, right?” Mast said. “It could be like an other or an outsider — it could be someone from a different metropolitan area who wasn't going to come here anyway.”
But he says data shows this isn’t true.
“Most people who move into a new apartment building in a city come from somewhere else within the same metropolitan area — I think the number is typically around 60% or 70%,” Mast said. “Tech workers get demonized in this way too. I find it all, after just years of listening to it, a little bit exhausting, these purity tests of who the city is for.”
Additionally, Been says backlash to adding more supply is sometimes “a drawbridge mentality.”
“Like I got here, nobody else should be able to come in now, you know?” Been said. “People have a very strong belief that once they are in a neighborhood, it's theirs, and they have a right to keep it the way that it was.”
“But if it was attractive to you, it's probably going to be attractive to others as well. And why was the fact that you got there a little bit before them, why does that give you the right to keep them out?” she added.
The luxury focus
As to why luxury apartments are the build of choice for developers, Been says that’s a product of the system we have built — labor costs are up, construction costs are up, and projects tend to get bogged down in years of local bureaucracy with numerous layers of reviews, rounds of community input and litigation.
And while Mast isn’t a developer, he’s spoken with many and says that in his opinion, most of the cost for a new apartment complex is building the actual building — so going less ‘luxury’ doesn’t save much.
“Adding all of those small flourishes is pretty cheap,” Mast said. “Your dog run is pretty cheap — there's probably some first floor space you weren't going to do much with. Upgrading the counter from whatever to quartz is pretty cheap. And then maybe all of that together increases your rents by 10% on the whole 200 unit apartment building.”
Additionally, he thinks the term “luxury” gets misused a lot. There’s a big difference between a full-floor apartment in a tower on Billionaire's Row in Manhattan “that has a bathtub with a view of Central Park on the 70th floor” and a studio in a new five-over-one building in the Strip District — but they’re both considered “luxury.”
“We're kind of buying into developers' marketing campaigns on a massive scale and letting them determine what the word luxury means,” Mast said. “You do have to make some money to have these apartments, but not like an unattainable amount, right? Maybe it's like the top quartile of the distribution if you're a single person, and if you're married and you have two incomes, then you can find that it's pretty affordable.”
Of course, luxury apartments aren’t a land of puppies and rainbows. Many are developed and owned by national corporations, some of which use computer algorithms to set rents. RealPage, the developer of one such algorithm, is currently being sued by the Department of Justice, as well as the attorneys general of eight states, under the allegation that the algorithm is a price-fixing scheme that drives up rents in violation of antitrust law.
And just building a lot of luxury apartments everywhere isn’t a panacea for America’s housing crisis — the country is short 4 to 7 million homes and housing is now unaffordable for a record half of U.S. renters. To solve it, Been says other policies are needed in addition to adding more supply.
“The housing affordability crisis has two sides — one is that housing is expensive, and two is that incomes haven't kept up,” she said.
Been says we need to work on “both sides of the equation” — building more housing as well as doing things like raising the minimum wage, providing more childcare and better, stable jobs.
“We could build 20 million new homes, but if people's incomes don't keep up with the basic cost of building those homes, you're still going to have a problem,” she said. “There's going to have to be some restricted affordable housing that's subsidized. There's going to have to be housing vouchers that are subsidized.”
But ultimately, she says we need policy changes to make building new housing easier in general.
“We can't have our cake and eat it too. We can't delay, delay, delay so that we've listened to every possible objection and done every possible study and also have affordable housing,” Been said. “Part of it is a fear of change, and we've built a land use system that protects that. And that is a very basic cause of the problem.”
