Let’s consider a scenario where we have a relatively affordable 20-unit apartment building in a rapidly growing global city. This particular building happens to be of an older vintage and so let’s say that the in-place rents are about 40% below market.
Next let’s assume that the zoning has just been updated for the land and it is now possible and economically feasible to build a total of 300 housing units in a new high-rise building. This would mean demolishing the existing 20 apartment units.
But because this global city has rental replacement policies in place, these 20 units would need to be rebuilt within the new high-rise and offered to the current residents at exactly the same rents. So same price, but new housing.
Compensation would also need to be provided to these residents to cover the cost of moving around. Because they would obviously need to move off site to allow for construction and then, if they’d like, move back once construction is complete.
How would such a scenario make you feel?
The typical objections usually involve, among other things, concerns around displacement, gentrification, and overall built form. There is a concern that investments of this magnitude might push people out of the area and also change the character of it.
But at the end of the day, these 20 existing homes are not disappearing from the market. They will remain part of the housing stock, but now with the addition of 280 new market rate homes.
I think it’s important to remember that in a rapidly growing city, trying to maintain the status quo by limiting new development can actually have the opposite effect. Because what you end up doing is creating a scenario where more and more people are fighting for a relatively fixed supply homes. And that is certainly one way to encourage displacement and gentrification.