A new research note from the Greater London Authority, based on a number of pieces of economic research, examined the impacts on affordability of new housing supply.
It found that the building of new homes helped to increase the amount of affordable options, even if the new homes were more expensive or located elsewhere in London.
It said that market-rate homes helped make cheaper housing more affordable by “creating chains of vacancies and moves that can reach across an entire housing market area”.
“Building relatively high-cost new homes in one area can lead to increased availability of low-cost housing in another area because local housing markets are not highly segmented and moving chains link one segment to another,” it said.
“These moving chains improve the availability and affordability of housing throughout the range of prices and rents, including for low-income households.”
“Building market-rate housing therefore indirectly increases the availability of homes affordable to low-income households, although not as directly as building social housing and other kinds of affordable housing.
“While all kinds of new homes ultimately improve the availability of housing across the income spectrum, new social housing provides the most immediate and direct benefits for low-income households.”
It also said that those seeking affordable housing usually ended up being hit the hardest by a lack of housing for higher-income people.
“When demand for high-cost homes is not met by new supply it is primarily low-income households that lose out, because low-income households benefit from the construction of even high-cost homes while high-income households can afford to satisfy their housing needs even in the absence of new supply,” it said.
The note added that, if the homes are built in lower-income areas, it can lead to gentrification, but if the homes are built in areas that are already more expensive then it can reduce the amount of gentrification.