You're right that new construction favors luxury housing, but I don't agree that this inevitably leads to displacement of other residents. Most of the effects of "trickle-down housing" are seen in the same market as older buildings must lower rental prices as the condition/amenities age and compare poorly to the newer/nicer buildings. Individuals must move as new construction replaces an existing building, but there will be other units available to move to in a market that is actually allowing new construction. The only situation that causes significant gentrification is when new housing cannot be built and prices rise due to concentrated demand...

>Individuals must move as new construction replaces an existing building, but there will be other units available to move to in a market that is actually allowing new construction

I don't think the emphasized part is a given. There is likely no new construction at the bottom of the market for these displaced people to move into.

For example, let's say a SRO hotel is torn down and a luxury condo goes up in its place. The result is increased supply in the luxury market and decreased price in the luxury market. That decrease in price trickles down throughout the rest of the market. However at the bottom of the market the SRO supply has now dropped and the demand is now higher due to all the displaced residents. There are too many variables involved to say the trickle down effects will always outweigh the direct effects of removing the housing from the bottom of the market.

I'm going to replace SRO hotel with single-bedroom condominium in this case, as I'm not familiar with any modern cities that still allow the construction of SRO hotels... If that's the factor on which your argument hinges, we can talk about micro-housing and "apodments" separately...

In every other instance, new luxury housing in a constrained market allows wealth individuals living in mid-range housing to move up. That frees mid-range housing for middle-class individuals to move out of their low-end units. Those low-end units are now free for the individuals displaced by the luxury construction.

This is the cycle that the article is highlighting in action. The key here is not the number of people demanding low-income housing - that level stays fixed, whether they lived in the old demo'd building or not. The determining factor is available units of supply, which is stable once the middle- and upper-income people vacate their lower-end units. This is an observable phenomenon, as highlighted by the original article and all of the crosslinks therein.

The SROs aren't new construction, but there are still plenty of them around. The example I gave is simplified version of what is happening in downtown Los Angeles as neighborhoods like Little Tokyo and the Arts District are creeping into Skid Row displacing people in low income housing and worsening the areas homeless problem. Meanwhile the new construction in Downtown LA has the areas highest vacancy rates because the luxury market is already saturated. The supply never trickles down because the developer are optimizing for profit and they can see a greater profit with high rents at 85-90% occupancy than lower rents at 100% occupancy.

Here is the first news story I found on Google about the subject.

http://www.latimes.com/local/lanow/la-me-ln-skid-row-tower-2...

Thanks for sharing the article - it's interesting to hear how other areas are reacting to similar situations (I'm in Seattle). I confess, though, that I don't fully understand the applicability of the downtown LA situation to the affordable housing debate. The article linked seems to lament the construction of units that the homeless on Skid Row can't afford, but that seems to be an untenable expectation in the first place. The basic logic still holds that if supply is constrained in downtown LA, the new luxury apartments in the Fashion District will relieve housing demand in the mid- and low-end for that neighborhood. It will be a net good for the area, all things considered.

The protesters in the article seem to conflate one kind of construction with the other: "The protesters say the city should house the neighborhood’s homeless people before it approves another big residential development in downtown Los Angeles."

Market-rate development is a process that can continue to take place while the city grapples with housing the homeless. They don't interfere with one another, since the market-rate construction is private enterprise.

The protesters, further, are falling victim to the same fallacy discussed in the original posted article here: "They also argued that hundreds of new market rate apartments will drive the neighborhood’s rents beyond the means of residents living “precariously” in nearby converted flophouses, hotels, tents and buildings."

The basics of trickle-down housing dynamics work strictly against the rising rents scenario being true. The pressure goes strictly the other way for the existing units in the neighborhood, which have new competition at the top end.