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Another thing the new luxury unit does is it reduces competition for the units just below it on the value chain from wealthier buyers who now have more options
by zaroth 8y ago
Another thing the new luxury unit does is it reduces competition for the units just below it on the value chain from wealthier buyers who now have more options at the higher scale.
This effect cascades all the way down the price curve. In macroeconomic terms, increasing supply shifts the whole curve below that point.
This is true so long as the new supply isn’t itself causing new demand, e.g. foreign investors leaving the unit empty.
- slg 8y ago>This is true so long as the new supply isn’t itself causing new demand Which is where your argument falls apart. Cities aren't closed systems. The price reductions won't trickle down to the bottom of the market because at some point there is always going to be people who are willing to move in from neighboring neighborhoods, cities, or regions. It isn't like the only people who live in San Francisco are the only people who can afford it. There are plenty of people who could afford the worst possible home in San Francisco but decide not to move their because they can't afford a home they want. Once those middle of the market prices come down, people will move in to fill that new supply.