This has been dramatically demonstrated in Berkeley, where I live. We have added tons of 0- and 1-bedroom apartments recently. These are very expensive, $3000/mo+. This building boom has caused the price of rent-regulated older apartments to plunge. What had been renting for $2252/mo in November 2018 is now renting for $1688/mo in November 2023. That is a significant increase in affordability of studio and 1-bedroom apartment, effected by building newer, expensive ones.
Edited to add sources:
The discussion is too long for me to recapitulate here, but all of my data in various forms and some visualizations are available here:
https://observablehq.com/@jwb/berkeley-rent-board-data
Also in random tweets such as:
https://twitter.com/Jeffinatorator/status/172890293692602402...
I believe these are visible to non-account holders.
Edit: I think I see where a lot of our disconnect is coming from. We have no rent control here, rent very rarely decreases and is mostly pegged to comparative sq.ft. rentals in the area. Age of the property does not factor as much as location.
Do enough of it and rents will begin to fall below loan maintenance, causing even more sales and more price drops.
And what affordable rental housing exists is increasingly being purchased by investment groups who then squeeze them for every dime, squeezing out the very people who need that housing in the process.
The housing crisis really looks to me like an aspect of the serious wealth inequality problem we have.