I have been involved in urban real estate markets, in addition to my own house. (Details to come.) As a potential owner, what was my response to a declaration that an eight-story building was going up that would block part of the view from the unit? One guess would be, “That is terrible, it will block part of my view.”
That would be wrong. So another guess might be, “That is great, it will lower housing prices!” That statement would be logically correct, but does not really capture why I was not dissuaded by the loss of the view. My real response was:
“That is great, this crappy neighborhood I grew up in is going to become way more valuable. People want to build unsubsidized luxury housing here.”
And this is what drives renters to be NIMBYs in high rents cities. Here is a description of the logic from Michael Hankinson (Harvard) in his recent paper:
Imagine you are a renter in a city with high housing prices, living in one of the few remaining affordable neighborhoods. On your street, a new condominium is proposed, to be rented at market-rate, defined as the unsubsidized or ‘typical’ price for housing that renters are willing to pay. Generally, you believe that new supply helps to mitigate rising prices. However, this one condominium is a minuscule addition to the overall supply, making it unlikely to appreciably lower prices citywide. Meanwhile, the new building may signal to other developers that your neighborhood is an undervalued investment. Your landlord may see the new building and consider renovating her own, leading to your eviction. In the end, while the new condominium may marginally ease prices citywide, it may also attract demand locally, driving a spatially localized rise in rent. To you, the long run benefit of lower citywide prices is eclipsed by the immediate, short run cost of displacement.
That said, I am not sure that the logic Hankinson describes is correct. Consider my mental model. The construction of the eight-story building is confirmation that the neighborhood is becoming more desirable. But does said construction actually make the neighborhood more desirable on its own? Not at all. I would be as happy to know that a luxury four-story building were under construction. In fact, I would happier to learn that an upscale restaurant were opening with no additional units, at least as far as my property values were concerned.
(I would actually not be thrilled about any of the above for I am not in this market to maximize my returns, although I would prefer to minimize my opportunity cost as regards other potential investments. So bring on the building.)
Coincidentally, the policy recommendations from the paper jibe with the lack of pushback in this particularly neighborhood to new developments: for reasons particular to the city and locality, many of the residents are either protected against displacement or owners.
But the overall point holds: renters oppose new development in overheated markets because they believe that such developments create “positive” externalities that will raise their housing costs and drive them out. If you want to change the political economy of urban growth, then you need to address that belief.