Filtering as a Source of Low-Income Housing in Australia: Conceptualisation and Testing

Abstract

This study investigated how filtering contributes to market-provided low-income housing in Australia. It critiques the conceptualisation of filtering as a source of housing for low-income households, tests for the presence of filtering dynamics in housing markets (using Melbourne and Sydney as case studies) and considers policy options for enhancing (if so desired) filtering as a policy tool.

Filtering is a market-based process whereby the supply of new, higher quality dwellings for higher- and middle-income households may also lead to additional supply of dwellings for lower income households. As properties age and their perceived quality drops, over time they move down the economic hierarchy through successively lower market segments or sub-markets, becoming a supply of ‘naturally occurring affordable housing’.

Research into Melbourne and Sydney market dynamics found filtering is incompatible as a reliable source of additional affordable housing for low-income households in Australian cities. To enhance the role that filtering can play in the provision of affordable housing for low-income households, both more supply and more responsiveness of new supply to market signals are needed. In addition, Policy options to better enable filtering to generate a supply of affordable housing for low-income households are likely to be impractical and politically undesirable.

Keywords: Filtering, affordable housing, housing market dynamics, price elasticity of supply, rental depreciation metric

JEL Classification: R00, R1, R10, R11, R12, R19, R3, R30, R39