Build Baby Build?: Housing Submarkets and the Effects of New Construction on Existing Rents

market-rate apartments play in alleviating housing affordability issues. Prior research suggests that new market-rate construction may result in more affordable housing in the long-run, but much less is known about how this type of new development affects neighborhoods in the shortrun. This study evaluates how new construction affects rent for nearby apartments soon after a new market-rate building is completed. We use a panel of building-level rents in Minneapolis, MN from 2000-2018 and a difference-indifferences study design to compare rent trajectories of units within 300 meters of new construction to a comparison group 300 to 800 meters away. While we find no effect in the single market model, our submarket approach suggests that lower-priced rental housing close to new construction had 6.6 percent higher rents compared to the comparison group. New construction had the opposite effect on higher-priced housing; rents were 3.2 percent lower close to new construction. This study reiterates the importance of understanding housing as a collection of submarkets rather than a singular market. Our findings are important for planners and policymakers who seek to balance growth and protect existing lower-income communities.