Where to apply the Yglesias solution

Matt Yglesias has been arguing to remove zoning restrictions that prevent residential development and increase rents. It's the obvious answer to the misguided view that rent regulations raise market-rate rents. 

Adding supply lowers demand and price, but evicting regulated renters don't add supply since the evicted tenants remain in the renting pool (the piece I did for Met Council's Tenant/Inquilino explains this in more detail), so they just raise rents wherever they go in the locality. The only available means of adding supply, short of killing renters, is construction. As it happens, rent regulations are one of the very few incentives to construct housing: new housing, unless it's subsidized, is unregulated. 

Yglesias also points out correctly that if cities don't construct, a tight housing market gentrifies their older, lower-income neighborhoods, displacing whole communities. 

But what happens when the city constructs at a scale commensurate with its demand? Yglesias seems to assume there is a limit to demand. That might appear to be necessarily true, since there's a limit to global population. But one person can rent more than one unit, so any limit has to be found in the aggregate funds available for rents, and there's no reason to assume that that's necessarily limited, especially where there's fiat money, and that holds of just about every nation across the globe, even Europe if considered as a whole.

In most urban markets, the limit is reached through preference and employment opportunity. More people want to live in L.A. than in Detroit, and in particular, more people with more money want to live there, for a variety of reasons. Supply that preference demand, rents should decline, or should they? 

But not all markets have a limit. Some actually create more demand the more it is supplied. Bars are a perfect example. One or two local bars may suffice for a neighborhood. But if the neighborhood boasts many lively bars, it becomes a nightlife strip attracting non locals. The more the bars, the more attractive the strip to non local consumers. More supply=more demand.

Some cities have this attraction too. The more you construct, the more people live in the city, the more people want to be where those people are. People are themselves an attraction, especially among young singles actively seeking. So if New York abandoned its zoning regulations and constructed wildly, would market rents decline? Would the upscale leave older neighborhoods to themselves? Or would New York just grow, continuing to spread upscale development everywhere? 

If that's so, then the Yglesias recommendation won't help New York, unless other cities become more attractive and cheaper than NYC. The only hope I see to prevent gentrification of the entirety of this city, is recommending the Yglesias solution to other cities.