But developers are responding to higher rents in Central Texas. Davis says 17,000 new apartment units are under construction in the Austin-area, and another 10,500 are expected to be built. She says that could help slow the rise in rents.
"There's certainly a possibility of that as people start competing for market share," she said. But at the same time, lower-grade properties are racing for a piece of the higher-end market by installing faux wood floors, granite countertops.
"Those rents are increasing as well with these upgrades," she says.
From the standpoint of a renter in the market for a $750 per month apartment, two bad things can happen when the rental market is tight. One of those bad things -- the one everyone seems to get -- is that rents can rise across the board. "All the apartments I'm looking at rented for $750 last year but rent for $800 this year."
The other bad thing, though, is less well understood. When there is a shortage of housing at the higher end of the market, there is not only an incentive to build new, high-end units, but also to upgrade existing, lower-end units. Upgrading existing units can almost always be done more cheaply and more quickly than starting from scratch.
The newly upgraded units don't rent for a little more than they used to; they rent for a lot more. The renter, in fact, won't even complain about the rents at the upgraded apartments because she won't bother looking at them -- they've effectively been moved from one rental submarket to another. The renter then has a smaller pool of apartments to choose from, and naturally pays higher rents for what she can find in her price range.
So: (1) a shortage of units leads to higher rents across-the-board; and (2) a shortage of units causes landlords to upgrade low-end units to high-end units. "Filtering up" refers to (2) but not (1).
What we'd prefer to see is housign filter down. Almost all decently priced, unsubsidized rental housing is old or aging housing. New apartments naturally deteriorate with age. It becomes increasingly expensive to keep them in tip-top shape. Rents naturally decline with the condition, and as the affluent chase the latest new thing.
"Naturally" is the key word here. When there is a shortage of pricey apartments, landlords have an incentive to make the extra investment to keep their aging units in shape to fetch the highest rents. Units that should have filtered down don't. Or, worse, units actually filter up.
This is why allowing the construction of a lot of expensive rental housing is a sound strategy for preserving moderately-priced rental housing.