Does new housing provided by the private market increase the availability of affordable housing? Or should government policy subsidise housing and directly target low-income households to increase affordability? The answer depends on how quickly housing becomes more affordable as it ages. This dynamic is often called `filtering’. This note examines the ability of filtering to increase affordability in the Australian rental market.

• On average, a rental property becomes 3.6% cheaper in inflation-adjusted terms as it ages 10 years.
• Rental filtering is stronger in areas with more new housing being built – rents decline up to 9% with 10 years of age. And it is weaker, and sometimes reversed, for properties that are cheapest to rent.

The work shows that building market-rate housing is complementary, rather than competitive, to policies that directly provide affordable housing. Market-rate supply eases the burden of these targeted policies, by generating affordability through filtering at all but the lowest parts of the rental price distribution.