One of the most common arguments in the housing debate sounds simple.
Build enough new homes — even expensive ones — and over time older homes will become cheaper. Higher-income households move into the new housing, the homes they leave behind become available to people further down the income ladder, and eventually more housing becomes affordable.
Economists call this process “filtering.”
In theory, it makes sense.
But Australian research shows there is a major problem: housing does not reliably filter down far enough, or fast enough, to become affordable to low-income households.
What does “filtering” mean?
Imagine a new luxury apartment building is completed.
Someone moves into one of those apartments and leaves an older home behind. Another household moves into that home and leaves another property vacant.
In theory, this creates a chain through the housing market. As buildings age, they should gradually become less desirable and less expensive.
Eventually, some should become affordable to people on lower incomes.
That is the theory.
Australia's experience is much more complicated.
What did the Australian research find?
In 2022, the Australian Housing and Urban Research Institute — AHURI — published a major study specifically testing filtering in Sydney and Melbourne.
Its conclusion was important.
Researchers found evidence that new housing generally attracts a price premium and that some older housing does move down the market.
But they found little evidence that this process goes far enough to reliably produce housing affordable to low-income households.
AHURI concluded that, under Australia's prevailing housing-market and planning conditions, the evidence did not support relying on filtering as a substitute for dedicated affordable housing.
There are three major reasons.
1. Housing gets older — but the whole market keeps getting more expensive
An older apartment may become cheaper relative to a brand-new apartment.
That does not mean it becomes affordable.
AHURI's Sydney rental analysis found that older rental properties did move down relative to median rents over time. But that decline was not enough to offset the overall increase in rents.
Put simply:
The apartment was depreciating. The market was appreciating faster.
So the rent could become relatively cheaper while still becoming less affordable to a low-income household.
2. Desirable locations often keep their premium
Housing prices are not determined by the building alone.
Location matters.
Access to jobs, public transport, schools, shops, beaches, parks and other amenities all contribute to the value of a home.
AHURI found that higher socio-economic neighbourhoods were less likely to move down the market over time. In desirable areas, properties may instead be maintained, renovated or redeveloped before they ever become genuinely inexpensive.
That is particularly relevant to well-located, high-value parts of Sydney.
A 40-year-old apartment in a highly desirable suburb does not automatically become a low-income apartment simply because it is old.
3. Many homes disappear from the process before they ever become affordable
This is perhaps the biggest flaw in the filtering theory.
Older housing does not simply sit there getting cheaper forever.
It can be renovated.
It can be substantially upgraded.
Or it can be demolished and replaced with much more expensive housing.
AHURI's Sydney research found that the amount of rental housing reaching the very bottom of the market was “vanishingly small.”
In its sample, rental properties priced below 40 per cent of the median were too few to report for three-bedroom houses, while they represented less than 0.5 per cent of one-bedroom flats.
The researchers concluded that dwellings were being removed from the filtering process before they reached lower-income households.
More rental housing does not automatically mean more affordable rental housing
Another AHURI study published in 2024 makes the distinction even clearer.
Australia's private rental sector grew by around 17 per cent between 2016 and 2021, adding almost 340,000 renter households.
Yet in 2021 there was still a shortage of approximately 348,000 affordable and available private rental homes for very-low-income households.
Around 82 per cent of renters in that lowest income group were paying unaffordable rents.
That is why simply counting the total number of homes being created can give a misleading picture of housing affordability.
Supply and affordable supply are not the same thing.
This is not an argument against building more homes
Australia needs more housing.
Additional supply can reduce pressure across housing markets, increase choice and accommodate a growing population.
But AHURI's research makes an equally important point: market supply alone cannot be relied upon to deliver housing affordable to people on low incomes.
Affordable housing needs to be intentionally created and protected.
And where governments grant developers valuable additional height, floor space or dwelling capacity specifically in return for providing affordable housing, the public benefit should be real.
For Affordable Forever, that means:
affordable housing should remain affordable in perpetuity, not disappear after 15 years; rents should reflect what lower-income households can genuinely afford, not simply a discount from an expensive local market; and governments should count the lower-cost homes demolished as well as the new homes constructed.
Build more. But build affordability into the policy.
The filtering theory assumes today's expensive housing will eventually become tomorrow's affordable housing.
Australian evidence shows we cannot rely on that happening.
Homes can appreciate faster than they depreciate. Premium locations can remain premium. Older lower-cost homes can be renovated or demolished long before they reach people on low incomes.
So yes — build more housing.
But when public policy promises affordable housing, we should not have to wait decades and hope the market eventually delivers it.
Affordable housing should be affordable from day one — and affordable forever.
Research
Australian Housing and Urban Research Institute (AHURI), Final Report No. 387: Filtering as a source of low-income housing in Australia: conceptualisation and testing (2022). Read the AHURI research
AHURI Final Report No. 416: Affordable private rental supply and demand: short-term disruption (2016–2021) and longer-term structural change (1996–2021) (2024). Read the AHURI research