This Housing Research Note, published in August 2023, summarises the findings of recent economic research into the impacts on affordability of new housing supply.
There is already evidence that increases in the supply of housing bear down on housing costs over the long term, but until recently there has been little evidence on the short-term and local impacts of new supply on affordability.
Several recently published economic papers attempt to identify these impacts using new data sources and new analytical techniques. This research finds that in general, building new market-rate homes makes other housing more affordable. It does so by creating chains of vacancies and moves that can reach across an entire housing market area. These moving chains improve the availability and affordability of housing throughout the range of prices and rents, including for lowincome households.
Building market-rate housing therefore indirectly increases the availability of homes affordable to low-income households, although not as directly as building social housing and other kinds of affordable housing.
The geographical distribution of market-rate housing supply also matters. If it is focused only in low-income areas it can lead to localised increases in prices and rents in those areas (while still improving affordability elsewhere), if the impact on demand resulting from improvements in local amenities and services outweighs the impact on supply.