They don’t really compete based on price.
Here’s what I mean by that. Consider D.C.’s Shaw/U Street neighborhood, a rapidly gentrifying neighborhood. There are still new buildings going up in Shaw, as well as available parcels for new buildings. These buildings could adopt one of several strategies:
- Charge more than the going rate, but make the housing really nice (e.g., amenities, larger than usual apartments, extensive sound-proofing, etc.).
- Charge the market rate, and offer comparable prices, amenities, etc.
- Charge less than the market rate, but offer less space and fewer or no amenities.
After all, this is how other sectors typically compete.
Given that Shaw is a pretty happening (and these days, safe) place, you don’t really need an amazing building, so one would think option #3 would be part of the mix. But, as best as I can tell (I read a lot of housing porn), that’s not on the table at all.
This seems relevant to the whole NIMBY/YIMBY debate.