frequently asked question

How does market-rate housing supply benefit those most in need?

When new market-rate housing is built and occupants move in, a chain of moves begins, as households vacate their previous, older residences to move into new homes. This opens up older homes to people further down the 'chain', whose homes in turn open up to others, and so on.  

This process is known as filtering, and while the people moving into new homes often have above-average incomes, the full chain of moves provides better quality and cheaper housing for lower-income groups. In 2021, Evan Mast looked at the individual chains of moves that were caused by new development and found that by the 6th move in the chain, 40% of households are below median income.

A different paper by Rosenthal in 2014 looked at how household income changes as a building ages and found that older buildings rent for less and less over time, before rising again for houses that are more than 50 years old. The paper found that the average real household income required to live affordably in a 50-year-old building was just 30% of the income required to live in a new building. This highlights the importance of building homes that last and upzoning broadly enough that sites with high-density housing on them don’t need to be redeveloped frequently for higher yields.

Repeat Income Index, with income adjusted for inflation. Source: Rosenthal, 2014.

Market-rate housing is not, however, a solution for everybody and every household. As The Guardian reported in 2023, Victoria has an alarming shortage of social housing and is building far too slowly to meet needs. The policies we advocate for at YIMBY Melbourne would enable faster and larger social housing builds—the same effect they would have on market builds. 

Because most Victorians rent on the private market, ensuring strong supply, affordability, and point-in-time vacancy rates will ensure that our already-strained social housing sector does not receive additional pressure from those who are able and willing to pay for market-rate housing. This lessens the burden on subsidised housing and allows it to be directed to those who need it most.

While new developments in existing suburbs tend to be expensive relative to older builds, this doesn’t mean that it doesn’t help those on lower incomes. New housing developments can have far-reaching indirect effects through a “moving chain process” (also sometimes referred to as “filtering”). Bratu, Harjunen & Saarimaa (2021) describe this process as the following:

As new residents move into the newly constructed units, they vacate their old units. These vacant units then get occupied by a new set of residents whose old units become vacant and so on. Through this process, new market-rate housing can have moderating price effects in the city’s lower-income neighborhoods, not just in its immediate neighborhood, by effectively loosening the housing market in these areas through vacancies.

Their research, in tandem with numerous others (Mast (2021), Rosenthal (2014), Liang & Kindström (2023) and Zuk & Chapple (2016)) suggests that new developments, even those aimed at higher-income earners, assist with tackling housing affordability on a broad scale.

In the Australian context, The Grattan Institute found that each “1-percentage-point increase in the amount of new housing constructed in a local government area resulted in rents growing 3.7 per cent slower over the decade”.

This is sometimes referred to by critics of supply-side economics as being no different from ‘trickle-down economics’—but this misunderstands the way these two theories work. 

Trickle-down economics assumes that cutting taxes to the wealthy will allow them to spend and invest more thus increasing economic activity—think boosting wages and creating jobs.

However, supply-side economics just theories that expanding the supply of goods reduces the bargaining power of the suppliers, thus reducing the prices of the goods. 

They are completely different in their modes of action.

Another way to describe the moving chain process is a game of musical chairs. When there are not enough chairs, the weakest misses out. But with more chairs, everyone can get a seat.  

However, this does not mean targeted affordability measures such as increasing the Commonwealth Rental Assistance and building more social housing are not worth pursuing. We just believe that building more homes where people want to live needs to form the bedrock of dealing with the affordability crisis. 

Your hottest YIMBY Queries, Answered

Frequently Asked Questions

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Are YIMBYs aligned with any political parties?
Aren't Melbourne apartments low-quality? Why do you want more of them?
Aren't tax concessions the biggest cause of the housing crisis? Why focus on zoning and planning?
Can't we just keep building greenfield/outer suburban developments?
Can't we just stop foreign investment to combat the housing crisis?
Can't we just stop immigration to solve the housing crisis?
Do you support stronger renter protections?
Doesn't new development just push poor people out of the city?
Don't high permit approval rates show that planning isn't the issue?
How does market-rate housing supply benefit those most in need?
Isn't zoning and planning reform just a giveaway to developers?
Local councillors are democratically elected representatives. What’s wrong with them having final decision-making powers over planning matters?
Loosening planning controls may result in more ugly modern buildings. Shouldn't new buildings be beautiful?
Shouldn't the local community get the final say on what happens in their "backyard"?
There are already so many apartments. Do we need more?
What about parking? Won't new developments create massive congestion in our cities?
What about those one million vacant homes?
What can we do about land banking?
What if I don’t want to live in an apartment?
What's the problem with building setbacks?
Why build denser cities? Isn't it better to decentralise?
Why can't the government just build public housing for all?
Why did rental prices go up during COVID?
Why do you hold councils accountable for housing supply delivery?
Why does YIMBY Melbourne have such a problem with heritage overlays?
Why doesn't YIMBY Melbourne endorse mandatory inclusionary zoning?