Filtering

Filtering connects housing supply and demand over time and is measured by changes in the quality or type of housing occupied, relative to both prices and incomes. From the perspective of the housing stock, filtering is typically observed as a downward passage of housing units, deteriorating in relative quality and price, and providing shelter for successively lower income occupants. From the perspective of the housing consumers, filtering is the progress of people moving into a succession of housing units, each one of better quality than the last. The balance between housing and occupants may turn out differently in different decades under different market conditions.

The long-held simple premise is that as houses become old and obsolete, they decline in value and rent, and trickle down from richer to poorer families. The upper level of the housing market is replenished by new construction, creating new units that will filter down in turn. The normative conceptualization of filtering focuses on the degree to which this process can produce affordable housing of decent quality for lower income households.

Housing quality is difficult to define, so the standard economic assumption is that prices reflect housing quality. However, prices also reflect the scarcity of housing supply, what people are willing to spend based on their incomes, and varied and changing housing tastes. Since quality is only one of the factors that affect price, using price to measure quality can obscure the effects of changing supply, income levels, and housing tastes.

Filtering involves a complex process of housing unit and neighborhood maintenance, decay, or renewal, and ties prices and incomes to these changes. The movement of people through the housing stock is both cause and consequence of these changes. Filtering trends can go upward or downward, driven by both demographic change (as new generations and groups of larger or smaller size have different needs and tastes for housing) and economic cycles that affect housing construction. Gentrification is the best known example of upward filtering driven by changing preferences.