Filtering doesn’t matter

Imagine you come up to me and say, "I want to be rich." "No problem" I say, "just save $1 everyday and you'll be a millionaire."

Am I wrong? Technically, no. But I sure was useless.

Relying on "filtering" to get affordable housing is like planning to be a millionaire by saving $1/day. Sure, eventually, you could get there. But you'll probably be dead before you do.

And before the average market-rate home built today becomes affordable via filtering, everyone alive today will be dead.

Filtering is a jargon term for the fact that older homes tend to be cheaper than newer homes. It's not quite trickle-down economics applied to housing, but it can feel that way sometimes.

There’s been a lot of academic ink and even more in the policy blogosphere hammering home that filtering is a real thing, that as homes get older they on average get cheaper.

That's true. It just doesn't matter. It is way too slow.

Rosenthal (2014), in what is likely the most widely cited paper on filtering, estimates that the income needed to buy a home decreases by around 0.5% per year.

Basically, homes should become affordable to lower income folks as they age. That can be true even if home prices rise—so long as incomes are rising faster.

Note: despite the popularity of conflating them, moving chains are not filtering! Weʻll discuss moving chains in our next piece.

And those rates are why filtering doesn't matter in Hawai'i.

New market construction in Hawai'i hovers around $850k. You can use any number of mortgage calculators to find that requires a household income of around $223,284 at current interest rates, or 212% of median income.

So, if we just relied on filtering, that new market rate home becomes affordable to the median local resident in ~150 years.

So, build market rate housing, get affordable housing in 150 years. Got it.

But lets be optimistic. Lets say we are able to reform government such that the average price becomes $700k and we make tweaks such that filtering increases by 4X to 2% per year. How long will it take for housing to be affordable?

Still pretty much useless: 27 years. That's long enough for your kids to have kids and for you to babysitting them in Vegas.

Filtering works, it just doesn't matter. Folks whose solution is more market rate housing that eventually trickles down, don't have a solution.

There's a more structural problem with filtering, but it's related to moving chains so next time we'll cover moving chains.