Does more mean cheaper? The relationship between new construction and secondary market housing prices

The Polish housing market is constantly changing – prices’ fluctuations, changes in the supply structure, differences between regions – all of this means that anyone interested in the subject of housing should be aware that this is a dynamic and highly complex phenomenon. Property prices are influenced by a number of factors: from the general condition of the economy and the level of inflation, through local investment decisions, to the demographic structure of a given city or the availability of public transport. One of the key elements of this puzzle is the relationship between the primary market (i.e. new apartments) and the secondary market (i.e. those that already have their owners and a history).

Although both markets operate in parallel, their logics can be completely different. Apartments on the primary market are mostly “produced” by developers – so their prices depend largely on construction costs and the availability of plots. Meanwhile, the secondary market is the domain of individual apartment owners. On one hand, we have the sector of planning and investments, on the other – the decisions of thousands of people guided by life necessity, convenience or emotions.

Importantly, despite these differences, both markets influence each other. When a lot of new apartments are built in a city, this can limit the price pressure on the secondary market. But it can also be the other way around – a lack of sufficient new development can drive up the prices of existing stock. Therefore, understanding the relationship between these two market segments is of great importance today – both for buyers and for decision-makers planning the spatial development of cities.

In this article, we examine this relationship trying to answer the question of whether and to what extent the new housing production translates into the prices of secondary market apartments in medium-sized Polish cities. We examined 24 cities with county rights, where the population in 2023 was between 100 000 and 200 000 people.

Two data sources were used for the analysis: statistics from the Statistics Poland (GUS) on the number of apartments put into use (i.e. new supply on the primary market) and data from the AMRON database. The period covered 2014–2023 – a full decade.

Each of the studied cities was ranked in two ways: according to the scale of housing production (i.e. the average number of apartments put into use per 1 000 inhabitants – chart 1.) and according to the rate of price growth on the secondary market (i.e. the change in the median price per sqm in the analysed period – chart 2.). To enable clear comparisons, the values ​​of both indicators were divided into tertiles – i.e. three groups with the same number of cities. They were then compiled into a simple 3×3 matrix, showing which cities were characterized by a given combination of the scale of housing production and the rate of price growth (chart 3.).

The results were interesting and sometimes surprising. The largest number of cities – five out of 24 – were ranked in the most desirable place in this matrix: high housing production and low price growth. This is a signal that the appropriate scale of new development can effectively counteract price pressure. This group included Rzeszów, Olsztyn, Kielce and Gorzów Wielkopolski – voivodeship cities, as well as Koszalin, a former voivodeship city.

The situation at the other end of the list was completely different. In four cities – Rybnik, Ruda Śląska, Bytom and Tarnów – a low level of new construction and a very high price increase were recorded at the same time. This is a worrying phenomenon that may indicate a structural housing shortage – a situation in which housing needs significantly exceed market possibilities. Such a mismatch results not only in price increases, but also in a growing risk of housing exclusion – especially for young people, families working their way up or seniors living on pensions. Importantly, in these cases, the price increase was subject to the so-called “base effect” – prices grew dynamically, but started from a low level from a decade ago.

Another equally interesting category were cities in which, despite high developer activity, housing prices on the secondary market were still rising very quickly. Among the 24 cities analysed, two had such characteristics: Zielona Góra and Opole. In their case, we are dealing with an example of a hot market – dynamic development, inflow of investors, good economic prospects. However, this type of boom also carries a risk: when the situation reverses, for example as a result of a crisis or population outflow, prices may fall just as rapidly.

It is also worth noting the complexity of the phenomenon itself. Many cities, despite low housing production, have not experienced a dramatic increase in prices. There may be many reasons: falling population, lack of new jobs, low investment attractiveness. In turn, in some centres, the high supply of apartments was not a sufficient barrier to prices, which shows that the market cannot be slowed down by the number of new buildings alone. The quality of these apartments, their location, access to public transport or social infrastructure are crucial.

CHART 1. AVERAGE HOUSING PRODUCTION PER 1 000 INHABITANTS, 2014-2023

CHART 2. PERCENTAGE INCREASE IN THE MEDIAN PRICE PER SQUARE METER OF HOUSING ON THE SECONDARY MARKET, 2014-2023

CHART 3. CLASSIFICATION MATRIX

At the statistical level, the analysis showed a moderate correlation between new supply and price changes on the secondary market. In other words, there is a relationship, but it is neither direct nor unequivocal. This is an important conclusion: it is not enough to simply build more to reduce prices. A smart, locally adapted housing policy is needed, taking into account the real needs of residents.

Although it is impossible to draw one simple rule, the analysis allows for a better understanding of the mechanisms operating on local housing markets. It shows that an effective housing policy must take into account investments in infrastructure, spatial planning and the development of services. Only such an integrated approach will allow medium-sized cities to effectively counteract housing imbalances and create space that is actually accessible to all social groups.

Hubert Horynek
Real Estate Market Analyst