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The housing Market in Madison, Wisconsin, is experiencing huge changes due to the development of high-end student housing, which has led to the rise of rental prices for students. We have seen it so much in the last year with Oliv, Atmosphere, and Verve all being put up for the 2024 school year. Looking at the standard economic theory, with these high end apartments going up it would typically shift the supply curve outward, increasing the quantity of available housing or reducing the rent prices due to competition. This isn’t necessarily the case in Madison because we do not have a perfectly competitive market. When these high end apartments go up they cater to high income students, therefore there is a large demographic that cannot afford them. This then leaves many middle and low income students without affordable options because those “middle end” or low end apartments are now forced to raise their rent to match that of the new apartments.

There are many consequences that come with this such as externalities and inequities and that complicates the market. When these high end apartments dominate college cities like this, the students face a huge financial burden, which then leads to taking on more debt or reducing spending in other areas like groceries, shopping, etc. Developers and the income students may benefit from this, the reality of it is the majority of students experience reduced consumer surplus due to higher rent and limited affordable housing. According to the Daily Cardinal, “A studio apartment at Chapter currently costs $1,859 per month, $691 more than the city’s average, according to Apartment Advisor. Comparable units in Atmosphere and Oliv are over $400 above average”. This quote illustrates how luxury student housing inflates rental prices, with these apartments costing $400-$691 more than the city’s average. In summary, the development of high end student housing in Madison has created a market that benefits high income students and developers while leaving many students struggling with there being such few affordable options.

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DALL·E 2024-12-06 18.07.26 - A professional, rectangular slideshow graphic with the title 'Madison’s Complex Apartment Market' prominently displayed. The design should feature a w

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-Affordable housing benefits all members of a community, including many students and young families, in Madison, Wisconsin, which houses some of the largest demographics. -Due to many recent developments like the Verve, The Hub, and oLiv; the availability of affordable apartments has not only decreased, but these ‘affordable options’ are also getting more expensive.

-If you look at the average rent price in Madison from January until December of 2024, it has gone from sixteen hundred dollars a month to seventeen hundred (Zillow).

-The issue of rents rising does not stop there, as buildings such as the Saxony Apartments are being proposed to the city, to be renovated into luxury apartments.

-Fortunately, Madison has recognized that there is a lack of affordable housing.

-In November, the city council announced they would be funding 9.85 million dollars for four new development projects (Rios).

-Students and the labor force are still going to be unrepresented

-"The Housing Strategy Committee recently released a report showing that more than half the jobs in Madison right now don't pay enough for folks to comfortably afford the median rent in Madison, and that's a big problem" (Rios).

-Considering the funding from the last project came from the affordable housing fund, we are proposing that the city not only continue to invest in their affordable housing but to put a price ceiling on what certain types of buildings can charge for rent.

-Buildings considered to be in this class of buildings should be given tax credits to help incentivize developers.

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City of Madison approves funding for hundreds of new affordable housing units

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MADISON (WKOW) --The City of Madison will be giving funding to four new development projects, including hundreds of new affordable housing units.

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In Madison, Wisconsin, the fast construction of high-end student housing has brought a number of non-standard features that call the standard equilibrium model into question. According to the conventional model, supply and demand should interact to achieve an equilibrium in which housing costs reflect the balance of available units and the number of students seeking residence. However, market imperfections such as knowledge asymmetries, externalities, and developer market dominance alter the equilibrium. Many students, particularly those new to the area, may lack reliable information regarding cheap housing options or prospective price increases, causing them to accept higher rents without fully understanding the alternatives. This information gap enables developers to maintain high pricing even as supply increases. The increase of costly student housing creates negative externalities that go beyond the immediate market. As high-end units become the norm in new buildings, owners of more cheap properties may feel obligated to raise rents in order to remain competitive, limiting the availability of low-cost housing. This trend disproportionately affects low- and middle-income students, as well as non-student inhabitants, resulting in increased housing insecurity and hastening the gentrification of previously inexpensive communities. These externalities demonstrate how developers' pursuit of private gains can impose enormous social costs on the larger community, calling into question the idea that profit-maximizing conduct always results in socially desirable outcomes.

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The apartment market in Madison, Wisconsin, shows us a great example of how the economic concepts we have discussed in class interact with real-world challenges, especially for student renters in the Madison area. The demand for housing on campus by new students each year and the city’s growing population create pressure on rents. The Standard economic theory says that the high cost of renting should tell developers to build more apartments, increasing the supply and thus making the prices stay relatively the same. But, this equilibrium prediction does not fully account for the changes in Madison’s market.

Many factors distort the standard supply and demand. Large property management companies take charge of the rental market, showing their power that can result in higher-than-competitive rents. Some solutions like rent control try to cap prices but can reduce the landlord's incentives to their properties like building new units which potentially is losing the idea of building new properties and creating a housing shortage in the long term.

A couple of ways for the city of Madison to address these issues the right way, they need some policies that have both affordability and market efficiency. Motivating developers to build affordable student housing near campus through tax breaks or subsidies could end up increasing the supply and maintaining the quality of the apartments. If Madison were to focus on these strategies they can create a more fair and affordable housing market for students who are renting from them. They can avoid supply shortages and reduced housing quality.

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Application of Equilibrium Model (Video)

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Application of Equilibrium Model (Video)

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Comparative Analysis or Real-World Examples (Video)

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Comparative Analysis or Real-World Examples (Video)

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With the right intervention, Madison can bring back its affordable housing where it is not increasing above the national average. They can do this by incorporating policies that target both affordability and market efficiency, which motivates local developers to build affordable student housing near campus through tax breaks or subsidies. The current market trends only show the prices rising with the quantity of affordable housing decreasing, showing that there needs to be more incentives to develop non-luxury apartments. With no intervention, this will continue to put pressure on mid to low-income individuals in Madison, eventually pricing some people out of the city. This ultimately is a supply issue for consumers and they will either adapt to the changing economic conditions of Madison, or they will be forced to relocate. We have already seen the city start to enact legislation that will create more affordable housing, and they need to continue to implement these strategies in more centralized areas of Madison. From a positive analysis standpoint, the city has understood there is an issue in affordable housing and has created a plan to start handling this. From the normative analysis perspective, not only is it important for these investments to be profitable, but this will drastically improve citizens' quality of life and create the ability for more people to live in Madison.

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The Hub, The James, oLiv developer eyes Saxony Apartments for luxury revamp

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Saxony Apartments, located at 305 N. Frances St., is potentially being redeveloped by Core Spaces, the same company that built The James, The Hub and oLiv, according to the Wisconsin State Journal. Core Spaces is also working on two additional downtown apartment communities that have already been approved by the city, the 12-story, 235-unit “Johnson…

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The supply of “affordable” options for apartment buildings shrinking has caused a shift in supply and a shift in demand. This relationship shows why the prices for renting apartments have risen drastically over the year with less of a supply. In the graph below, you can see the equilibrium of affordable housing before the changes in the quantity of apartments, as well as what the current equilibrium for the market looks like. As you can see the supply and demand have shifted to the left, causing the equilibrium price to increase to $1700 and the quantity of apartments in the market to decrease due to buildings being currently redeveloped.