All new housing improves housing affordability. Yes, even luxury apartments. I’ve written about this before, but figure it’s worth a standalone post given recent events:
“At Tuesday night’s Council meeting, Mrs Pearson was joined by 150 locals, calling for a ‘Mosman specific’ housing plan, in consultation with the local community.
‘I am not against development, but I am in favour of community-based housing solutions,’ Mrs Pearson told Councillors.
‘The early indications are that the planned developments for Mosman will only be affordable to the very privileged.’”
I wonder if Pearson would support the specific development proposed in Mosman—one driven by a group of existing residents seeking to downsize without leaving the area, via an option agreement to amalgamate six properties on Awaba Street—but I suspect not:
“Developers are seeking to build 29 new apartments, with a total value of $130 million, for downsizers, or ‘rightsizers’, who wish to remain in Mosman as part of an option agreement that amalgamates six properties on Awaba Street.
It’s the first development application in Mosman under the Minns government’s low-and mid-rise housing policy that allows six-storey residential buildings within 800 metres of train stations or town centres.”
But that’s beside the point. What I want to discuss is the claim that “the planned developments for Mosman will only be affordable to the very privileged”, which was repeated in a recent fight against a development in Melbourne:
“President Alan Nightingale, however, rejected the suggestion that residents had delayed much-needed housing in inner Melbourne.
Nightingale said he was happier with homes, compared to offices, but argued Carpe Group’s plan for ’luxury’ apartments did little for housing affordability.”
I believe this thinking stems from a misunderstanding of basic economics, which flows from the observation that luxury apartments in well-located suburbs are only available to “the very privileged”, i.e., the wealthy. But this fact doesn’t mean they don’t improve affordability.
In reality, when high-income households move into new luxury apartments, they exit the market for existing housing. This reduces competition for non-luxury homes, reducing prices (or slowing their growth). Even if the new units are unaffordable to most, their construction frees up existing stock and reduces the pressure on rents and prices across the market.
It’s unfortunate that so many people still hold the mistaken view that only “affordable” housing helps improve affordability. Such a view leads people to essentially argue that no new housing is better than expensive new housing, just because that new supply doesn’t directly serve lower-income buyers or renters.
The real barrier to affordability isn’t luxury apartments but a planning system that lets vocal minorities block virtually all new supply. Every development denied, regardless of type, sustains artificial scarcity and keeps prices high. Until that changes, housing affordability will remain out of reach.