If you think they’re going to build an apartment building in your neighborhood, what’s the first thing you think of? You will probably wonder what type of flooring it will be suitable for, what category of people it will be aimed at and what effects it will have in your daily life. And “daily life” here means two things: vehicles and treasures.
A repair on real estate portals suggests that the new works on the ground have a price of a square meter higher than the second-hand market – something expected – although on the outskirts of the M-30 Madrid they arrive at double. It is a function of scarcity, which confers market power to those who offer. But building in Spain is also expensive: on the ground the materials have increased, on the ground there is a lack of labor, on the ground the sector is less productive than the European average, but which, above all, is faced with some transformation delays from the primary phase of the urbanizable land until the handing over of the keys.
This fuels anxiety about reaching the new block and what will happen with the precious ones. The one who arrives is the one who can pay. Anyone who can pay has more purchasing power. With this, you will arrive with new (and more expensive) services, more inaccessible rents and square meters, and, to top it all off, some will have to disappear; others cannot arrive. That is to say: the first aspect is that construction is more expensive and expelled.
Let’s apply the precise scalpel of applied economics to this chain of arguments. First idea: what generates this dynamic is not the construction. An exhaustive review of the economic literature concluded that “regulation appears to increase housing prices, reduce construction, reduce the elasticity of housing supply, and change urban form.” Also when I arrived, I saw: A study of U.S. cities that limited the conversion of homes into apartment buildings found that land restrictions reduced the volume of developments by 2 to 5 percentage points, encouraging the arrival of more sophisticated residents.
San Francisco, New York… If you build it, what happens? Since the local effect exists and is quantified. An analysis that endorses the random location of building fires to isolate the impact of new construction estimates that, for each additional house, rents within 100 meters of the area cost $0.20 per month. A building of 100 houses would be cheaper and the average rent in the area would be $20 per month. Another study found that for every 10% increase in housing stock within a 150 meter radius, rents fell by 1%. And in Germany, 1% more new supply reduces average rents by 0.19%. Translated: 25% more offer, 5% lower price. Three countries, three methodologies, same verdict.
For what? Oh, best of all: how are you? Many economic commentators have made a small tactical error in trying to respond to this disbelief of the casual reader with “logic: it’s the law of supply and demand.” And the fact is that in a certain way, but in a particularly complicated way, given the particularity of the villa: choosing one implies choosing between locations according to the characteristics (we choose an area or a city, on the other hand rooms or “has a lot of light”), and accessing it has a higher cost: it changes your life (and your business) from one point to another.
These decisions are not made in completely isolated market segments. It’s not that there is one market rail for the floors of the rich and another for the rest, as it intuitively seems to us with anecdotal evidence, and for this reason we can shock the idea of ”law of supply and demand” as if we were talking about shoes. We have many interconnected houses: each new house, no matter what, releases a unit that someone else needs, which in turn releases another, and so on in a cascade. The one who buys a new building in Madrid Río, Poblenou or Alboraia because if he could afford it, he would probably have acquired a second-hand house in these same neighborhoods in the absence of construction. These second-hand houses, significantly cheaper, will be accessible to other people who can afford them. Where have these people gone in the absence of the new blockade (adjacent areas: San Isidro, Sant Martí, la Malvarrosa) also in free fall. And so.
In Finland, a pair of recent analysis data. A study of the entire population reveals that for every 100 new market dwellings in central areas, 66 vacant dwellings are generated in neighborhoods with income below the median and 31 among the poorest 20%. In 12 American cities, similar figures were observed: 100 new housing units generally between 45 and 70 vacant in working-class neighborhoods and between 17 and 39 in the poorest. The new villa creates a thread that binds people who will never set foot on a pilot floor. This is how prizes are lost from the newly opened portal: the prison is spread throughout the sequence.
How have neighborhoods changed? The San Francisco study is enlightening. Yes, restaurants are flourishing and bringing different faces. Normally with low resources. But a typical blockade (of around 65 homes) reduces the risk of building displacement by 17%. Let people have money throughout their lives if it is actually a good thing.
None of these studies are definitive. The debate on the magnitude of the overall effect remains open. But if it at least helps put the fears into perspective and admit that, even if there is a lot of supply and an available supply would be ideal, having at least some supply is better than no supply at all.
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