Does building new homes in the suburbs impact rising housing costs in urban areas?

One popular idea to address ever-increasing home prices and rents is simply to build more housing. However, a new report from Harvard University's Joint Center for Housing Services (JCHS) indicates increasing supply alone is not enough. The research suggests where you build housing matters and building new single-family housing on the suburban fringe has little to no impact on housing costs in the urban core. 

The analysis utilizes census data to examine “vacancy chains” – the number of moves between housing units generated by new home construction. The first vacancy forms when someone moves into a new home, leaving their previous unit vacant. For example, a young couple moving from a starter home into a newly constructed house. This move created a vacancy in the old home. The second vacancy is created when someone then moves into the couple’s first home, leaving their old place vacant. 

According to the report, most vacancy chains are short, resulting in three moves, and each new suburban home leads to only .015 moves in the urban core. The report also finds that filtering – a process whereby properties depreciate in quality over time and become more affordable – has a limited or localized impact on price. As a result, the study finds that new housing construction in outlying suburbs, along with filtering, has a negligible effect on rising housing costs in center of cities. 

These findings complicate approaches that rely on simply building our way out of the affordability crisis, particularly relying on suburban and exurban development. Effective development policies should consider both housing type and location to generate more affordable housing for more households. 

For decades, the Kansas City region has relied on robust housing production and affordability to attract economic development and growth. However, housing development across the metro has yet to recover from the Great Recession of 2007-2009. The COVID-19 pandemic further slowed recovery, making rapidly increasing housing prices and rising rents worse. Prior MARC research found the region lacks 64,000 affordable rental units, threatening Kansas City’s reputation as a cost-effective place to live. Pair this trend with the findings from the JCHS study and it becomes clear the Kansas City region needs to implement a targeted approach to the housing shortage, focusing both on the type of homes built and the location of new housing developments to generate more affordable housing throughout the region.