> The solution is the market. These units will have to be rented out, either by the developer or by the creditors that will end up with the project if it fails. The way to fill these units is to cut rents until sufficient demand materializes. And this puts pressure on rents in lesser buildings that have to compete with these high-end units. In other words, it creates downward pressure on rents, from the top down.

Well said. Developers build high end because margins are high and vacancies are low and regulation won't allow enough competition to actually threaten their position in the market. In any scenario where you're limited by how much you can build, you're going to build your highest margin prospects first.

Developers can build high end all they want, but they have to lease them up or they can't pay off their loans or sell their property. Let them build more and when the luxury market saturates, more affordable buildings will start to look like the best prospect for development.

Unfortunately the fact that developers build luxury buildings is reason enough for some people to not let them build at all.