Adding new housing units at any price point lowers housing costs in the area; so long as the luxury condo high rises are increasing the number of units in the area, they are reducing the cost of housing. There are counter-theories of "induced demand" (whose premises aren't even operative in Chicagoland), but this is reasonably and recently well studied, and those theories don't seem to hold up.
"Induced demand" does exist, but not in a normal market. It exists in markets where positive externalities are not fully priced in. When you have a road without congestion charges, then building a second lane to expand capacity just adds more "free shit" to the local infrastructure. The demand for "free shit" is infinite, giving rise to the appearance that supply is driving demand, when it is actually the price that is biased towards demand structurally exceeding supply.
This doesn't apply to housing at all, because the landlord would simply price in all positive externalities, such as the free road infrastructure mentioned above. The "free shit" would go straight into the pocket of the landlord, which would stimulate supply and discourage demand. The problem is that these places are constrained by geographics, local politics and the willingness of previous land owners to move out so you can't just build more.
> Adding new housing units at any price point lowers housing costs in the area;
This isn't really true in housing. Housing is not a market commodity, it's not priced primarily via supply or demand. Housing is priced based on comparables, quite literally, what is the most expensive thing that sold recently, and how close do we compare to that.
In this way, building a fancy new condo building will literally raise prices, even if the number of people remain constant, and even if it "increases the number of the units in the area", because now pricing comparables will get to take the new condo's higher pricing into effect, and things like comparables and federal interest rates have a much higher effect on sales price than traditional supply or demand.
To be clear, this is NOT an anti-build argument, we need more housing, the only way to get more is to build it. We just need to be mindful of the real-world consequences of it, new luxury condo construction creates a form of financial "pollution" into that area, and all nearby housing stock will absorb that pollution in higher prices.
This is something anyone who cares about affordable housing needs to understand, and plan for.
Those are just how people work out the actual price to offer; that is almost orthogonal to the actual transaction that occurs.
Because otherwise prices could never decline (because comparable could never decline) - but we know that price drops do occur.
The biggest issue is that when prices are increasing year over year, it can be hard to tease out that "prices would have been X% higher instead of only Y% if Z, G, and B hadn't happened".
Or another way to put it - if you overbuild; prices will drop, because nobody will buy/rent a crappier house/unit right next to a nicer one when both are on the market for the same price - the crappier one has to drop price until competitive, or sit empty. And sure, some people will allow it to sit empty for some time, but eventually carrying costs eat it alive.
If you're going to make a claim this strong, you really should provide a better supporting argument.
> new luxury condo construction creates a form of financial "pollution"
One thing about "luxury" is it's another word for "exclusive." That is relevant because if you flooded an area with "luxury" housing, then the features that define "luxury" would have to change.
One can easily see this has happened as buildings that were "luxury" in the 1960s are (unless they have undergone wholesale renovation) no longer considered "luxury." (Two of my favorite luxury amenities are indoor plumbing and A/C.)
One can also observe this across American cities. Some "luxury" apartments in NYC are not very expensive in other cities, because the supply & demand are not as out of balance.
In addition to the strong arguments you've seen in my sibling comments, we know empirically from recent studies that this "financial pollution raising nearby prices" argument (paraphrasing you) is false. The opposite thing occurs. Which is what you'd expect from basic economics!
Causality goes the opposite direction: constructing a high rise is very expensive, therefore you will only see them built where housing cost is already high enough to justify luxury condos; otherwise, such a project would not be profitable.
But, we have such a supply problem (in popular US metro areas) that prices continue to go up, even when we add capacity.
In my immediate area, there is very little SFH stock being added - it's almost exclusively large THs and rental apartments (but not condos).
The apartments rent for "luxury" prices ($2500-$3500+/month) but are just generic 1-2 bedroom flats without any true luxury features.
The THs are "near-luxury" - better than "builder grade" finishes, but nothing special either. And sell for $800-$1.2 million (for a typical 3-bed, 1-2 garage, 2500sqft floorplan).
pre-covid, the San Francisco greater Bay Area had a quantified dwelling unit (DU) shortage of around 500,000 units. Those numbers are directly connected to jobs available and other demographic factors.
The other issue you have (which confuses the situation) is there may be a 500k shortage in the Bay Area directly (e.g., people who work in the area and would like to live closer, etc, etc).
But if you solve that you may find that you have an additional five million families far from the area, out of state, even out of country that would also like to live there. At some point you can't satisfy everyone, or the Bay Area wouldn't be the Bay Area anymore and it would more resemble New York West.
hypothetical nonsense -- whole cities in California cannot attract new Doctors or uniform police because the person working cannot afford RENT. public school teachers have been priced out of RENT for more than a decade. The ability to purchase a home comes only after personal capital is accumulated for most people. A recent study showed in California that in many areas, household income must be FIVE HUNDRED THOUSAND per YEAR documented income to purchase an ordinary home. This housing system is top-loaded with capital for twenty years now.
nonsense like "oh maybe another five million would want to come here" is not only distracting, but bordering on cruel denial.
It seems to me that if one luxury condo takes the space and building cost of multiple smaller units, then building luxury condos could prevent a sufficient number being built.
have you thought that those luxury condo are limiting the housing cost instead of amplifying it? I mean that maybe without them the costs would increase even more
