Where do you think the people that would live in new luxury condos go if there are no new luxury condos? Any chance they may buy up existing rental properties and evict long-time residents?
The idea (and I don't know if it is correct) is that a significant proportion of luxury apartments go to foreign investors seeking secure places to store cash in the case that Russia/China/Some oil dictatorship decides they don't like the wealthy individual in question anymore and they have to flee. Such investors don't care if the property is worth $1 million or $5 million merely that in an emergency it is worth some amount in the millions. There is also a question in the UK if such investors are engaging in money laundering using our property market. This segment of buyers therefore tends to skew the market with what would otherwise be irrational buying practises (extremely overpriced purchases, several million $/£ cash-in-a-suitcase purchases etc).
The problem for middle class people being that the domestic luxury condo buyers then get pushed into midrange property market where they outbid the middle class. The middle class then move into the low range property market outbidding the working class etc.
If new construction is allowed though, the people parking money will encourage more development. You can always add another 5 floors to the top of the building which nobody lives in like they do in NYC.
The problem for middle class people being that the domestic luxury condo buyers then get pushed into midrange property market where they outbid the middle class. The middle class then move into the low range property market outbidding the working class etc.