Housing market filter more ‘complex’ than it seems, research reveals

The research conducted for the Australian Housing and Urban Research Institute (AHURI) suggests that new supply does not necessarily result in older homes filtering down and becoming affordable options for lower-income households.

The process of filtering refers to the building of new, high-quality dwellings for upper- to middle-class income households which may result in additional supply of dwellings for lower-income households.

For this to occur, a number of factors must happen such as properties becoming obsolete over time, new properties providing higher-quality housing services, and the rate of new dwelling construction must exceed the rate of new households forming.

In theory, this should lead to “naturally occurring affordable housing” through the perceived quality drops in homes over time as these properties age, trickling down into lower market segments.

The research, “Filtering as a source of low-income housing in Australia”, was put together by researchers from Swinburne University of Technology, University of New South Wales and University of Wollongong includes insights on how the process of filtering may contribute to “market-provided, low-cost housing” in Australia for AHURI.

Lead researcher associate professor, Christian Nygaard of Swinburne University of Technology, said: “We found that filtering relies on several critical assumptions: including, that any property and location in a city can be a substituted for any other property and location.”

“However, properties are located in different areas with different neighbourhood characteristics. Therefore, where a property is located may matter as much as, or more than, what condition a property is in.

“In practice, the housing markets of our cities consist of a system of interconnected housing sub-markets, defined by both geographic and property characteristics,” Mr Nygaard said.

An economist has warned declining home prices, amid the rising cash rate environment, will have a negative impact on household wealth.

While the impacts of interest rate hikes are well known to slow consumer spending, the fall in house prices will create another negative for households by reducing overall wealth, according to AMP senior economist, Diana Mousina.

In the latest Econosights, Ms Mousina said given 65 per cent of wealth is housing related, a fall in home prices will contribute towards a “negative wealth effect”.

The latest data from the Australian Bureau of Statistics showed the mean price of residential dwellings fell $18,900 to $921,500 over the three months to June, equating to a valuation drop of approximately $6,300 a month or $210 a day.

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