Housing deficits and luxury developments

In countries facing housing deficits, what’s not to love in luxury developments - high-end rents for landlords, prestige, and long-term value growth. Housing economics theory demonstrates that prioritising volume over luxury remains an economic necessity, arguing that housing units gradually become more affordable as they age and newer stock enters the market. But this is largely in theory.

Rosenthal's seminal 2014 paper, “Are Private Markets and Filtering a Viable Source of Low-Income Housing? Estimates from a ‘Repeat Income’ Model,” concluded that housing depreciates in quality by approximately 2.5% annually. Short for making yesterday's luxury tomorrow's middle-income housing. And even though this process requires a new supply, filtering stalls when luxury assets

dominate.

Glaeser and Gyourko's work on housing supply elasticity (2018) all but states that luxury construction alone cannot resolve deficits, failing to match demand across, you guessed it, income distributions. When new construction lags household formation, price pressures force lower-income households into slum conditions or outright displacement.

Contributors to the arguments in support of luxury developments argue that supply reduces wealthy households' competition for existing stock. While theoretically sound, researchers found this effect operates too slowly in housing deficit markets. Luxury high-rise buildings produced minimal rent

stabilisation in surrounding neighbourhoods over five-year periods.

Housing deficits, when unaddressed, cause slum settlement growth, infrastructure strain, and reduced labour mobility. This is confirmed in Mexico, India, and Nigeria. The volume argument is supported by success stories, such as Singapore's Housing Development Board, which has produced over 1 million public housing units since 1960. Homeownership is 90%.

Some suggest that housing deficits are arithmetic problems requiring arithmetic solutions. And while luxury developments contribute to supply (albeit marginally), with prestige points added for good measure, economic theory and empirical evidence agree that countries with deficits need volume- focused construction, that is, the kind that matches the income distribution of demand.