The kooky housing supply filtering debate

People must relocate to fill the stock of homes. Filtering must happen. So what is the controversy about?

Filtering is a concept in housing analysis that describes the fact that people occupying new homes come from other homes. Sometimes these relocations are described as moving chains.

For an outsider, the attention to such a niche concept might seem a little strange. After all, where else do people come from to occupy new homes if not existing ones?

Yet the concept of filtering attracts a lot of attention, particularly in the YIMBY movement. Here’s a typical headline about new research on filtering: “Building new units is proven to push rents down – but not for the reasons you may think.”

So revered is this filtering concept that people will claim that building one home adds more than one home to supply because of the relocations that happen.

A claim that adding one home adds more than one home to supply because of widespread confusion about the economic meaning of the concept of filtering

I think part of the confusion arises because one side of the housing debate wants to use filtering as evidence that faster new housing production will automatically happen when there are no pesky regulations.

But instead of directly making this claim, they revert to a slightly different claim, which is that adding any new housing, even luxury homes, makes rents and prices cheaper across the whole market.

In other words, if regulations on density were removed, more new luxury apartments would be built in some locations, and the quantity effect on price from adding more luxury homes would be felt by all parts of the market, including budget homes, and across many substitute locations.

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In case you missed it, check out my explanation of the problems behind the common assumption that more density equals more homes.

Please stop confusing supply and density in housing debates

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I suspect that the other side of the debate observes that property markets never seem to over-build and crash prices, nor solve unequal access to housing in prime locations on their own. But they can’t explain why in economic terms. So they argue that filtering doesn’t happen and so the quantity effect on rent and price can’t apply to the whole market.

They claim that adding more luxury homes doesn’t make housing cheaper, so filtering can’t be important. They say things like “Building more luxury apartments doesn’t help poor people.”

It is all very confusing. And I think the reason for this confusion is the inconsistency of the application of the filtering concept.

Consider the following.

First, filtering must exist, just as it does in car markets and other durable goods markets. So showing that it does by tracking households moving into other homes doesn’t reveal new information. It also doesn’t help explain at all the choice of how quickly new homes are built, which for me seems to be the main issue in housing supply debates.

But the next points really show how kooky the debate has become.