Filtering: playing the long (really long) game
Imagine you come up to me and say, "I want to be rich." "No problem", I reply, "just save $1 everyday and eventually you'll be a millionaire."
Am I wrong? Technically, no. Was I useful? Also, no. At $1/day you'll be dead long before you're rich.
Unfortunately, similar logic is being applied to Hawai'i's housing problems. It's called filtering. It does technically work, but you'll be dead before it results in affordable housing.
"Filtering" is a jargony term for the fact that older homes tend to be cheaper than newer homes. Because of that fact, some folks think we should focus on new market rate housing.
By their math, fifteen luxury homes are better than five affordable homes. Why? Because the luxury homes eventually could become affordable.
It's not quite trickle-down economics applied to housing, but it can feel that way.
The problem isn't that they're wrong. It's that the process is way too slow to solve Hawai'i's housing woes.
Dr. Rosenthal at Cornell University wrote what is likely the most cited paper on filtering. In it, he estimates that for each year a home ages, the income needed to buy that home decreases by around 0.5%.
That's really slow. Let’s do a quick example using Hawai’i numbers.
New market construction in Hawai'i hovers around $850k. Buying that home requires a household income of around $223,284 according to NerdWallet. That's more than double what the average Hawai'i family makes.
How long would it take filtering to make that home affordable to the average local? Well, if Rosenthall is right, about 150 years.
So, build market rate housing, get affordable housing in 150 years. Got it. That’s filtering at work!
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 be babysitting them in Vegas.
Really, you have to make absurd assumptions to get it to work. Try it yourself. We made a filtering calculator.
Filtering Calculator
I want to buy .
I blame the government for % of the cost of housing.
To heck with research, filtering will work times faster!
Sources & Notes
- Mortgage rates sourced from Federal Reserve Economic Data (FRED) - 30-Year Fixed Rate Mortgage Average
- Median household income: U.S. Census Bureau, American Community Survey
- Home prices based on Zillow Honolulu market data and deducting how much of that you think is due to the gubbament.
- Property tax calculation uses Honolulu County rate of $3.50 per $1,000 assessed value (with $120,000 homeowner exemption)
- Out-migration data: IPUMS USA, University of Minnesota
Filtering technically works, it just doesn't matter. It takes too long. Folks whose solution is more market rate housing that eventually trickles down, don't have a solution.
But "filtering" is what other local housing organizations are promoting. They're overly focused on a supply side solutions that ignore Hawai'i's overseas demand woes. Until they take that seriously, you and I will be stuck waiting.
Saying you can give someone an affordable home in 150 years or after their grandkids are born, is not a solution. When someone says “filtering” that’s what they’re saying.