Let’s talk about filtering. No, not Instagram filters. I’m talking about the economic phenomenon where new "luxury" apartments magically (ok, not magically—economically) help lower-income renters. Sound crazy? It’s not. In fact, it’s been studied and proven repeatedly, but many people—including me at one point—don’t buy into it.
Here’s the basic idea: when shiny, expensive apartments hit the market, wealthier renters leave their less-fancy-but-still-nice apartments behind. Then, middle-income renters move into those, leaving older or lower-priced units open for renters with lower incomes. It’s a housing game of musical chairs—but everyone gets a seat.
I used to think this theory was bogus. "How does a $5,000 penthouse help someone making $50,000 a year?" I’d ask. Turns out, my skepticism was based on some pretty common mistakes, ones that plenty of people still make.
So, let’s clear them up.
If you want to see filtering in action, you can’t just zoom out and look at the whole city. You’ve got to focus on neighborhoods where a lot of apartments are being built. The more supply, the clearer the story.
For example, if you’re looking at a neighborhood where no one has built anything new since 1985, of course you’re not going to see rents drop. Supply hasn’t changed! But if you’re in a high-growth area—say, Downtown Austin or Miami’s Edgewater—new construction increases competition, and rents across all price points start to cool.
The takeaway? If you're analyzing filtering across the board instead of focusing on high-supply areas, you’re going to miss the action.
Look, I love a good label. "Luxury," "affordable," "Class A," "Class B"—we toss these around all the time in real estate. But when it comes to filtering, these labels mean almost nothing. You’ve got to look at rents, not random classifications based on a building’s age or whether it has a rooftop pool.
Here’s why: a building that starts as “luxury” today might be “moderate” in 10 years. Why? Rents drop as buildings age. Tenants trade up. The cycle continues. If you’re stuck on industry definitions like "Class B," you’ll completely miss the point. Filtering is all about how rents shift and how people move within the market.
This one’s big. People hear “We’re building more apartments!” and assume that means there’s suddenly enough housing to meet demand. Not true.
Let’s look at the 2010s. Yeah, we built a lot of apartments in places like Texas. But demand for housing? That was on steroids. Supply didn’t keep up, so rents kept climbing. It wasn’t because filtering didn’t work—it was because we weren’t building enough to even see it.
Fast forward to 2023-24. For the first time in a while, we built A LOT. And what happened? Rents dropped—even in the lowest-priced apartments. Boom. Filtering in action.
The moral here: It’s not just about building more; it’s about building enough. And when supply finally catches up to (or exceeds) demand, filtering becomes crystal clear.
You want to really understand filtering? Talk to property managers. These people are the unsung heroes of real estate. They see what’s actually happening day to day—who’s moving in, who’s moving out, and how rents are changing.
When I first started rethinking my stance on filtering, it wasn’t because of some fancy economic chart. It was because a friend who runs apartments in a high-supply area called me out. “Dude, I’m literally watching rents drop across the board because of all this new construction.” That was my lightbulb moment. Sometimes, you’ve just got to listen to the people in the trenches.
If you’re still skeptical about filtering, let me hit you with some hard facts. This isn’t just a theory; it’s backed by tons of academic research. Papers published in the Journal of Urban Economics and studies from the Federal Reserve Bank of Minneapolis have confirmed it.
Here’s the TL;DR: Filtering works. New housing supply, especially at the top, cools rents across the market. It’s not immediate, and it’s not perfect, but it’s real.
Let me be clear: filtering isn’t some magical fix for the housing crisis. It’s not going to solve every affordability problem, and we still need targeted policies for the lowest-income renters. But it is a major piece of the puzzle.
Here’s why it matters: If we’re serious about addressing housing affordability, we need to build more housing. Period. And not just in dribs and drabs—we’re talking major supply increases in high-demand areas. Filtering shows us that when we build enough, rents drop, and markets stabilize.
Look, I’ll admit it—I was skeptical about the efficacy of filtering. It’s easy to be skeptical, especially when the idea seems counterintuitive. But the data, the research, and the real-world evidence are clear. Building more apartments helps renters at every level.
So, next time you hear someone say, “We don’t need more ‘luxury’ apartments,” tell them this: More housing means more options, aging inventory, lower rents, and a better market for everyone. Filtering works. And when we embrace it, we’re one step closer to fixing the housing market—for good.