New Housing Filters Downward in Adequate Supply, Upward in Constrained Markets, Economist Michael Wiebe Explains

Economist Michael Wiebe recently highlighted the concept of "filtering" in housing, stating via social media, > "Reminder that this is how new housing works, as backed up by published research." This mechanism describes how homes move across income distributions as they age and depreciate, directly impacting housing affordability. Wiebe's work, including his "Building Abundance" literature review, synthesizes extensive research on this topic.

Filtering occurs when today's expensive new housing eventually becomes more affordable. A home "filters down" if its next occupant has a lower income than the previous one, typically as the property ages and its quality-adjusted price falls. Conversely, "up-filtering" happens when the next occupant is richer, often indicating a constrained housing supply where even older homes become less accessible to lower-income individuals.

Research by Rosenthal (2014) found that housing in the U.S. filtered down at approximately 1.9% per year between 1985 and 2011, suggesting an adequate housing supply during that period. However, subsequent studies by Liu et al. (2022) and Spader (2025) indicate a shift, with filtering rates near zero or even up-filtering observed after 2011. This change suggests that supply constraints began to bind, leading to increased competition for older homes.

Wiebe emphasizes that filtering rates are not fixed but are "equilibrium outcomes" influenced by housing policies and market conditions. He argues that up-filtering is a symptom of housing shortages, often exacerbated by restrictive zoning regulations. The economist suggests that increasing market-rate housing supply is a natural remedy for such shortages, rather than solely relying on subsidized housing.

The Vancouver-based economist, who specializes in housing economics and replication, also points to the role of "vacancy chains." As new homes are occupied, they free up older units, creating a chain reaction that can ultimately make more affordable housing available. This process, alongside filtering, forms the core of how new construction impacts the broader housing market and affordability.