Surging housing prices in Massachusetts are displacing families from their homes, some from the state as a whole.

“Many people are finding they cannot take up roots in Massachusetts like they used to,” Sen. Lydia Edwards, co-chair of the Legislature’s Joint Committee on Housing, recently told GBH News. “Graduating from college, graduating from graduate school, getting your first job — that’s usually where you can get your starter home or your starter apartment, and they are out of reach.”

Advocates and policymakers agree the solution involves building more homes and apartments. There’s less agreement about who that new housing should be for.

Some activists argue the state’s most immediate need is homes for lower-income residents. Other advocates and experts counter that increasing the supply of market-rate housing, which comes with a higher price tag, could create a trickle-down effect that helps reduce costs for all residents.

Housing economists say determining which approach works better isn’t as simple as pointing to the basic supply-and-demand principle that holds if supply increases, prices usually decline. In fact, some economists say the construction of more market-rate housing often drives up costs for lower-income people.

The debate over which method is more conducive to lowering housing costs isn’t new. But which side Massachusetts policymakers come down on is particularly relevant right now as Gov. Maura Healey’s administration tries to develop new housing policies and allocate state money to build more homes and apartments.

A woman speaks into a megaphone in front on someone holding a yellow sign with the words "housing is a human right" displayed in black and red letters.
Housing advocates say evictions and homelessness are surging now that pandemic-related housing protections have phased out.
Matthew J. Lee/The Boston Globe via Getty Images

Bottom-up vs. top-down

Proponents of building more market-rate housing stress that prices are high in Massachusetts because the commonwealth hasn’t built enough housing of any kind. That’s forced higher-income people to compete against lower-income families for units.

“The wealthy people, both in the rental and homeownership scenario, have the power and resources to bid up the cost of housing,” said Jesse Kanson-Benanav, executive director of the Boston-based nonprofit advocacy group Abundant Housing Massachusetts. “Therefore, the working class or lower-income people are completely boxed out of the market.”

He says this has been apparent when people looking to buy or rent homes make offers well over the asking price in Boston and surrounding communities.

A way to fix this, these housing advocates say, is to build more homes and apartments for wealthier people. They predict that will create the trickle-down effect, opening up more existing units for lower-income families and causing prices to decline as supply increases.

“I sometimes call it ‘buffering’ — that we need to build market-rate housing to protect or buffer more working-class or lower-income households from having to directly compete with wealthier households for the limited supply of housing,” Kanson-Benanav said.

But other housing activists and attorneys favor more mixed-income housing, and reject the idea that housing built for people with higher incomes would help all current residents. They say new apartment and condo complexes with market-rate units have fueled surging rents, gentrification and displacement in a lot of communities.

“I think the evidence is pretty clear that when a neighborhood starts to have luxury housing, that causes the land values to go up around it. And as a result, the rents start to go up,” said Eloise Lawrence, a housing attorney with the Harvard Legal Aid Bureau.

Increases in rent often happen through a chain reaction, affordable housing activists say. After a more expensive housing complex opens, landlords of nearby housing units feel empowered to raise their rents.

Lawrence said she’s witnessed this play out when negotiating with her clients’ landlords. After previously charging around $1,500 in monthly rent, some landlords have wanted to raise it to closer to $3,000 because they know new nearby housing units are going for $4,000.

“What we’re seeing are rents that are just astronomical when you think about people’s income and wages,” she said. “If we really want to solve the housing crisis, we should start [building] from the bottom up, not the top down.”

What the economists think

Housing economists say supply and demand does help determine the cost of housing. If there’s a shortage of units, they’ll be more expensive.

But they say building more market-rate housing can have a side effect that drives up prices. If a community starts to see a lot of new expensive housing, more coffee shops, restaurants and stores could spring up to tailor to the residents of the new complexes. That could make the area as a whole a more desirable place to reside.

“All of sudden people say, ‘Oh, I want to live there,’” said William Wheaton, an M.I.T. economics professor and a founder of the school’s Center for Real Estate. “You’re adding [housing] supply, but the supply changes the character of the community.”

As the demand increases, landlords across the area will be able to charge higher rents, displacing lower-income families that can no longer afford the community. Wheaton and Jeffrey Zabel, a housing economist at Tufts, say this is what’s been playing out in gentrifying areas, like Worcester, Chelsea and Malden.

All three cities have historically been more affordable places to live. But as more expensive apartments have opened up, bringing with them restaurants and cafes, housing prices have risen across the board.

"You're adding [housing] supply, but the supply changes the character of the community."
William Wheaton, M.I.T. economics professor

Wheaton and Zabel said the trickle-down housing argument is reminiscent of the traditional trickle-down economics theory, in which tax breaks for corporations and the wealthy stimulate economic growth, benefiting people with less money. They believe it’s a principle that could work better in already-gentrified communities where demand has plateaued.

In that case, as housing stock ages, its value depreciates and landlords charge less. And with more new units coming online, the landlords also know they can’t raise rents as much because prospective tenants have other apartments to choose from. However, that often pushes lower-income people into older, often run-down housing.

Wheaton and Zabel added that Greater Boston neighborhoods where rents are highest can benefit when new, more expensive housing goes up in nearby cities. For example, housing prices in areas of Cambridge and Boston should decline as more of their residents move into new market-rate housing in Worcester and Chelsea.

But that means lower-income families that have long lived in Worcester and Chelsea would lose out.

“So it’s a two-edged sword with all this,” Zabel said.