The Luxury Housing Paradox: How Million-Dollar Condos Help the Homeless

512 luxury condos created 557 vacant apartments across the city. This mathematical impossibility became reality in Honolulu, revealing how housing markets actually work.

When a $1.25 Million Condo Opens a Homeless Shelter Bed

When the Central, a gleaming 43-story tower, rose behind Honolulu's Ala Moana shopping center, critics saw another playground for the wealthy. How could apartments selling for $1.25 million possibly help working families?

Three researchers decided to find out by playing detective. They traced every buyer back to their previous home, then tracked who moved into those vacated units. What they discovered challenged conventional wisdom about luxury housing.

The buyers moving into the Central left behind homes that were, on average, 38% cheaper per square foot. The people who moved into those vacated homes came from places that were 44% cheaper still. Like hermit crabs trading up to bigger shells, each move created opportunity for someone else to climb the housing ladder.

The most striking example: A woman bought a unit at the Central, leaving behind a 1960s-era apartment in a low-income neighborhood. That apartment was then occupied by someone moving out of transitional housing for the formerly homeless. In essence, the sale of a half-million-dollar condo created a vacancy at a homeless shelter.

The Mobility Americans Have Lost

This "vacancy chain" research illuminates something Americans have largely forgotten: the power of residential mobility. In the 19th and early 20th centuries, "moving day" was celebrated like Christmas or the Fourth of July—a day of opportunity when families shuffled among apartments seeking better neighborhoods, larger spaces, or modern amenities like hot water and electric lighting.

Today, only about one-tenth of American households relocate annually, down from one-fifth in the 1950s. We've become a nation of stayers, partly because housing construction slowed and partly because moving became more expensive and complicated.

The economist Evan Mast found similar patterns in his 2023 study: "Constructing a new market-rate building that houses 100 people ultimately leads 45 to 70 people to move out of below-median income neighborhoods." International research from Helsinki and Sweden confirms these findings.

When Housing Markets Break Down

But here's the catch: the worse a housing market becomes, the less effective these solutions are. Honolulu represents a worst-case scenario—9% of housing is overcrowded, household sizes are among the nation's largest, yet homes are the smallest. The average home price hits $750,000.

In such constrained markets, vacancy chains become shorter. The Honolulu study found market-rate units created an average of 1.61 vacancies each, while subsidized units created only 0.73. Compare this to 1960s research that found chains averaging 3.5 vacancies per new unit in healthier markets.

Why the difference? In overcrowded cities, people often move from shared living situations—parental homes, roommate arrangements—that don't create additional vacancies when they leave. A shorter chain signals overcrowding relief, which is positive, but it also means fewer opportunities for others to move up.

The Progressive-Conservative Housing Alliance

This research creates an unlikely alliance between progressive housing advocates and free-market conservatives. Progressive goals—helping low-income families access better neighborhoods—can be achieved through market mechanisms that conservatives prefer.

Public housing remains essential for the deeply poor, but it's expensive: $650,000 per unit in Boston. Market-rate construction, by contrast, typically generates revenue through taxes and fees while creating these beneficial ripple effects.

The key insight isn't that luxury housing solves everything, but that housing markets are interconnected systems. Block construction at the top, and you constrain mobility throughout the entire ladder.