Btw, this is the article that Yglesias was responding to:
Smith doesn't assume an upper limit on luxury demand, he thinks the upper limit is reached when overdevelopment begins to lose its attraction. It's a scary thought: the rich lose interest in bland elevator buildings, so they raid the neighborhoods without them. Their presence attract their elevator-addicted friends, so developers construct for them and transform the neighborhood, driving the upscale to seek a hipper slum to raid. It's already happened here -- the Schwimmer Manse.