In my Midwest city the reason for this is because a huge amount of the cost associated with building has nothing to do with construction. You have to bribe the local politician to get zoning approval and then hold community meetings run by expensive consultants you need to employ. With such huge upfront fixed costs it only makes sense to build luxury. If we reduce the friction to building, more housing would be built and affordable styles would be much easier to pencil out.
But see, to the politicians this is a feature, not a bug. It’s the same reason that it’s incredibly expensive in terms of permitting and such to start a brick and mortar business in many cities. They would rather leave the locations unoccupied and available for something that will bring in high tax revenue than tie them up with low revenue occupants.
> With such huge upfront fixed costs it only makes sense to build luxury.
You really believe that if there were less upfront fixed costs, that developers wouldn’t still default to building “luxury” as long as nothing was stopping them? The profit margin incentives are all still the same, regardless of the level of community/political opposition.
when fixed costs are high you want to invest more to raise the final price. The lower the fixed costs the less sense it makes to build the most expensive thing you can.
there are only so many people looking for those units. As more units are built the competition to sell those units will heat up. Either prices drop on those units, or theyre replaced by units that are cheaper to build. Right now they can sell all the luxury units they build so no reason to build anything else. So removing the barriers doesnt itself make luxury less appealing for developers, but it increases the number of units built and that makes luxury less appealing for developers. It will still make sense to build luxury, but it wont make sense to build only luxury.
There are other reasons too. Personally I would not mind living in communist style blocks and I know some others agree. If it was legal to build those they might be created because you can fit so many more units on a plot compared to luxury housing.
