In the late 20th century, most American urban cores were in decline. Middle- and upper-class Americans were moving en masse to suburbia, and cities’ remaining residents tended to be people too poor to afford suburban life. But in recent decades, urban cores have become more popular places to live. Even in declining cities, downtowns have become more populous and affluent. But as the demand for urban housing has increased, housing costs have risen – especially in downtowns and other urban neighborhoods. Some new housing units are too expensive for anyone but the very wealthy. Buyers of these high-cost units include not only wealthy residents who wish to move downtown, but nonresidents who wish to use housing as an investment rather than a residence.

Some commentators argue that new market-rate housing may actually increase housing costs- or at least fail to lower them. They reason that out-of-town investors drive up housing costs by increasing demand, and that because of the growth of out-of-town housing investment, the construction of new market-rate housing will not increase housing supply, because housing will be bought by investors who will leave the units empty. A related argument is that any market-rate housing will increase housing costs by increasing the cost of land, regardless of its effects upon housing supply. The purpose of this speech is to critically evaluate these arguments.