Will Building More Market Rate Apartments Increase the Affordable Housing Stock?

Banker & Tradesman published an article on March 26, 2023 asking "Can Massachusetts Build Its Way to Affordability?". In short, they believe the answer is yes and that more market-rate housing will actually by itself create more affordable housing.It's a commonly-held belief that the construction of market-rate apartments increases the rent in the area where they are built. Existing landlords, it is thought, see how much new units are going for and hike their rental rates, which results in higher rents for older, possibly less well-maintained, units. Another commonly-held belief is that the construction of affordable housing depresses value in the area where it is built, as there is a conception that affordable housing brings with it poverty-related issues such as crime, drugs and violence.This may be a twentieth-century perspective. Low-income public housing was historically built in already economically depressed areas or in otherwise-unoccupied areas of vacant land. Low-income housing also used to be built as large tower blocks (the Cabrini Green project in Chicago springs to mind), where only very low-income people lived in high density with no support services on-site and poor transit infrastructure.In the twenty-first century, many large "projects" of low-income housing (including Cabrini Green) were demolished and new construction tended to be less-dense and less confined only to those considered low or very-low-income; i.e. those earning less than 60% of the Area Median Income are considered low income and those earning less than 30% of the Area Median Income are considered "very low income" and are usually not working for that income. Many states such as Massachusetts encouraged mixed-rate housing development. That meant that in a new housing development (be that a blocky apartment building or more dispersed townhouses), some percentage of the units would be reserved for people earning below the AMI and the rest would be market rate. Developers got preferential treatment and lower-interest loans if they included affordable units in their new builds.And what happened in the neighborhoods? Several studies published since 2000 have shown that building market-rate units actually helps with the demand for affordable (but not subsidized) rents in their neighborhood.The Upjohn Institute in 2019 and the Hudson Institute in 2017 both found that increased availability of market-rate or luxury units actually has a "filtering up" effect that results in more affordable units becoming available as local renters who can afford to do so upgrade their apartments by moving into the newer, more expensive units, leaving their old and now less-desirable units available for renters with a tighter budget.Similarly, a 2021 study by Redfin found that low-income housing developments had either no effect or a positive effect on housing resale values in the immediate area of the development.   Living in a socio-economically diverse neighborhood (or "economically integrated" neighborhoods as they are sometimes known) is beneficial for everyone along the income spectrum. Lower-income children in economically-diverse neighborhoods have better physical and mental health and are more upwardly mobile economically.For the people earning more, it can change their perceptions of poor people - unless the spread of incomes is too great, according to an interesting Urban Institute panel.  Their recommendation was to build more middle-income market rate units, rather than so many "luxury" units.                           However, as the Urban Institute notes, the return for developers is on luxury units. UI asks, what cangovernment do to incentivize new building that contains units that are market-rate but affordable to middle-income earners?