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The impact of new housing supply on the distribution of rents

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  • Mense, Andreas

Abstract

I estimate the impact of new housing supply on the local rent distribution, exploiting delays in housing completions caused by weather shocks. A 1% increase in new supply (i) lowers average rents by 0.19%, (ii) effectively reduces rents of lower-quality units, and (iii) disproportionately increases the number of second-hand units available for rent. Moreover, the impact on rents is equally strong in high-demand markets. Employing a quantitative model, I explain these results by second-hand supply: New supply triggers moving chains that free up units in all market segments. The estimate translates into a short-run demand price elasticity of −0.025.

Suggested Citation

  • Mense, Andreas, 2025. "The impact of new housing supply on the distribution of rents," LSE Research Online Documents on Economics 127192, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:127192
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    Cited by:

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    2. Forster-Benson, Nicholas & Nchare, Karim, 2025. "Upzoning and residential transaction price in Nashville," Journal of Housing Economics, Elsevier, vol. 70(C).
    3. Katja Gehr & Linus Kraft & Michael Pflüger, 2026. "Housing in Big Cities: The Capitalization Premium," CESifo Working Paper Series 12430, CESifo.
    4. Alexander Daminger, 2021. "Subsidies to Homeownership and Central City Rent," Working Papers 210, Bavarian Graduate Program in Economics (BGPE).
    5. Ariel Binder & Max Risch & John Voorheis, 2025. "Housing Capital and Intergenerational Mobility in the United States," Working Papers 25-55, Center for Economic Studies, U.S. Census Bureau.
    6. Rainald Borck & Niklas Gohl, 2021. "Gentrification and Affordable Housing Policies," CESifo Working Paper Series 9454, CESifo.
    7. Blanco, Hector & Neri, Lorenzo, 2023. "Knocking It Down and Mixing It Up: The Impact of Public Housing Regenerations," IZA Discussion Papers 15855, IZA Network @ LISER.
    8. Büchler, Simon & Ehrlich, Maximilian v. & Schöni, Olivier, 2021. "The amplifying effect of capitalization rates on housing supply," Journal of Urban Economics, Elsevier, vol. 126(C).
    9. Buchholz, Maximilian & Kemeny, Tom & Randolph, Gregory & Storper, Michael, 2026. "Inequality, not regulation, drives America's housing affordability crisis," SocArXiv 95trz_v1, Center for Open Science.
    10. Bratu, Cristina & Harjunen, Oskari & Saarimaa, Tuukka, 2021. "City-wide effects of new housing supply: Evidence from moving chains," Working Papers 146, VATT Institute for Economic Research.

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    JEL classification:

    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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