When Redevelopment Transforms the Housing Stock: Carrot & Stick Policy and the Affordability Puzzle

In mature cities, housing supply expands primarily through redevelopment of existing struc tures. We develop a forward-looking spatial equilibrium model in which developers choose whether, when, and how intensively to redevelop individual parcels. Calibrated to New York City, the model shows that policies that incentivize development raise average rents because new construction replaces lower-rent units with higher-rent ones. In a representative upzon ing, supply rises 1.4 percent while average rent rises 1.3 percent. Tax incentives accelerate redevelopment while density bonuses increase height but often delay redevelopment. Affordability mandates crowd out market-rate construction, with incidence determined by the paired incentive.