What Does New Building Do to Rent in the Neighborhood?

Talking to kids about the wider world

When I drive my kids around, I feel the need to call their attention to the things we pass, no matter how uninteresting the things are. “Look kids,” I might say, “those workers dug a hole in the road.” Where does this urge come from? Is it just that I’m bored and want them to look at what I’m looking at? Am I trying to distract them from arguing or complaining? Is there a clause in the Dad Contract that we sign requiring us to point out the pointless?

In one recent case, I was trying to teach them something.

“Kids,” I said as we passed a construction site in our neighborhood, “see this nice new building? Do you think new buildings make people in the neighborhood pay a higher price for rent, or lower?”

“Ugh, is this more economics, Dad?” groaned Daisy. An appropriate answer from a middle schooler.

“It makes the rent lower, because there are more houses,” said Calvin, eager to please.

“No, it makes it higher, because it makes the neighborhood nicer,” said Robbie, eager to contradict his brother.

“My friend Davis is having a birthday party this week,” reported Lucy.

As Daisy suspected, my question was premeditated, and even more diabolically, based on economics research. I got my information from a new paper by Divya Singh and Luis Baldomero-Quintana, which estimated the effect of new building on local rent in New York City. Their paper shows that new building has contradictory effects in the short-term and medium-term: 

• In the short term, new construction increases nearby rent because of increased demand for housing and amenities. A new vintage shop sells used clothes for the same price as new ones, and a kombucha bar opens on the corner.

• In the medium-to-long term, new construction decreases nearby rent because of the increased supply of housing.

Calvin and Robbie used the same reasoning as the researchers did, with Calvin focusing on supply, and Robbie on demand.

“So who was right?” asked Calvin.

“You both were,” I replied. “First, the rent goes up for the reason Robbie said, because things in the neighborhood are newer. Next, the rent goes back down because there are more apartments to go around.” 

“But who was more right?” asked Robbie.

“Both. It’s a tie,” I replied crisply, “just at different times.” I made a mental note that pointing out things as we drive doesn’t necessarily stop arguments.

So you’re not an economist, and not comfortable teaching about supply and demand on the fly? It’s not so hard! Keep it simple: when people want things more or have more ability to pay for things, demand and therefore price go up. If people produce more things, supply goes up and therefore price goes down. But there are more important things at stake in this example than whether my kids learn about supply and demand (which is awesome, make no mistake). 

First, it’s important to get the kids thinking about the short term versus the long term. Delaying gratification is the main skill you need for managing money. It’s also the starting point for many (most?) difficult choices that people make. The longer we can get the kids to extend their time horizons, the better choice-makers they will be. 

Second, these conversations help them focus not just on themselves, but on other people. This particular conversation was about their neighborhood, but it could be about any neighborhood. It’s an issue that happens all around the world. Conversations about our neighborhood, our local economy, and the economic forces that move through it help them get a larger view of their world.

A follow-up question could be: “How do you think the neighbors feel about a new apartment building being built?” When the kids think through the positive and negative effects on the neighborhood, it can help them build awareness and empathy for the people around them. This isn’t just a parent question. When I talked to Dr. Baldomero-Quintana about his research, this was just what he was concerned about. He is afraid that policymakers might fail to understand the feelings and therefore the politics of neighborhood residents, leading to clumsy policymaking and overly restrictive regulations on new building citywide. As he and Singh pointed out in the paper, if people can’t pay for increased rent in the short term, they may be displaced and have to move. But if cities don’t build more housing, rent will be permanently high everywhere. After all, we all live in someone’s long term. (His opinion is that cities should incentivize housing construction in run-down industrial areas, but not so much in established, older residential areas.)

Why do we feel the need to call our kids’ attention to things outside the car window? Dear reader, if you know, please tell me (perhaps in the comments below). But I’d like to think that it’s part of our big mission to make the kids more aware of the world around them. It doesn’t have to be about supply and demand, or about change over time, but it can be.