"I find that rents fall by 2% for parcels within 100m of new construction. Renters’ risk of being displaced to a lower-income neighborhood falls by 17%. Both effects decay linearly to zero within 1.5km"

  1. Abstract/Summary: Uses house fires as an exogeneous source of new construction and identifies the effects on displacement and gentrification by following individual movers. Finds that new market-rate projects cause a 1-2% decline in nearby rents (within 500m), reduce displacement risk by 17%, but make gentrification more likely. Signs of an amenity effect as well, where . In contrast, new affordable units have minimal effects on rent and displacement, but is useful for preserving income diversity. “Suggests that building new market rate housing actually benefits incumbent tenants by reducing rents, evictions, and the risk of moves to poorer zipcodes.”

  2. Background/Lit Review: Displacement = happens to individuals, push-migration out of a neighbourhood (Mok & Wang 2020; Bilal & Rossi-Hansberg 2018; Ding et al. 2016) Measured by moves to poorer zipcodes (median income 10% lower). Gentrification = happens to places, replacement of low-income residents with high-income ones (Glass 1964). Measured by the net change in rich residents being larger than net change in poorer ones.

    New builds can have a) Supply effect: extra supply reduces rents, and b) Amenity effect: make the area more attractive.

    Li (2019) finds that new housing in NYC causes rents to decrease 1% within 500 feet. Asquith et al. (2021) finds that new construction decreases rent within 250m and attracts a more income-diverse group of newcomers.

    Albouy & Ehrlich 2012, Saiz 2010: San Francisco one of the most-regulated places in the US.

  3. Model/Data: Common problem is endogeneity: developers build in places which are appreciating. Solution = exogeneous variation in location due to building fires. Identifying assumption is that these new constructions are more likely on that parcel than neighbours; fires unrelated to trends in rent, displacement & gentrification. Cox proportional hazards for individuals’ chance of moving. Event studies for new builds nearby.

    Data = all housing units in San Francisco; Planning Dept data on new construction; building fires from the Fire Department (47 new market-rate projects and 11 affordable projects after fires); address histories from Infutor; Craigslist rental listings; eviction notices; renovations; business turnover.

  4. Results: For market-rate units: Rents = being within 100m of a new project reduces rent by $28/month, risk of displacement falls by 17%. Displacement = rate of moves to poorer-neighbourhoods declines, probability of eviction declines for people living in rent-controlled neighbourhoods. Implies that displacement is highly price-elastic: 2% decline in rents reduces risk of displacement by 20%. Gentrification = net increase in richer arrivals, 30% increase in probability of gentrifying. Amenity effects = increase in new construction nearby, likewise for renovations and new businesses. For affordable units: no clear impact on prices and displacement, but helps attract lower-income newcomers.

  5. Discussion/Conclusions: Supply effects clearly dominate the amenity effect, “new market rate housing benefits all nearby renters” through lower rents and less displacement. But it also increases gentrification, thus the role for affordable housing in reserving units for low-income households. “For policymakers interested in reducing both displacement and gentrification, market rate and affordable housing are complementary.” The high rent-elasticity of displacement suggests that rental vouchers or UBI can be highly effective at reducing displacement.