Why ‘House Filtering’ Is the Key To Unlocking Hawaii’s Inventory, Study Says

The opening of a single condominium tower in Honolulu is having a domino effect on the housing market in Oahu, according to new research from the University of Hawaii Economic Research Organization (UHERO).

The study looks at "housing filtering," a process where new construction triggers a chain reaction of moves, freeing up existing homes throughout the market. When one household occupies a new unit, their old home becomes available for another, continuing the cycle.

"'Housing filtering' refers to the concept that adding inventory to a market, such as via new construction, can help loosen up the market down the chain," says Hannah Jones, senior economic research analyst at Realtor.com®. "Put differently, any new inventory is good and can trigger buyers to move as households choose to move up/over, opening up inventory for buyers in different segments."

UHERO associate professor Justin Tyndall studied this phenomenon through The Central, a 512-unit mixed-income condo finished in 2021 near the popular Ala Moana neighborhood of Honolulu.

The single tower contains 202 market-rate units and 310 affordable income-restricted units that were provided to comply with a state-run affordable housing program.

Tyndall found the development created over 500 housing openings across Oahu within three years, extending its impact well beyond the building itself.

"Consider the impacts of a single condo unit in The Central," he writes. "After construction was completed, we observed a local resident moving into the unit. This person was living in a single-family home in Kuliouou, but after moving, their home became available for another local family. That family left behind a single-family home in Hawaii Kai."

"We then observe another family moving into this home, freeing up their home in Mililani for yet another family, and so on. In all, we identify five local homes that were freed up in response to a single new condo, and identify six local families that were able to find a new home."

Tyndall says that for policymakers and planners, the results of this study highlight the importance of considering these broader market dynamics when evaluating housing policy.

"Expanding housing supply in high-demand areas can improve affordability not only through income-restricted units, but also through the filtering process that returns older housing stock to the market," he writes.

New housing leads to greater affordability

Housing affordability is a challenge in Honolulu, but also the whole island of Oahu, where the median home price in February was $639,500.

Tyndall argues that restricting the construction of market-rate housing—often because new units are costly—can end up being largely counterproductive.

He writes, “The production of all types of housing pushes up the overall supply of homes and can contribute to greater affordability across all segments of the market.”

He found that housing freed up by The Central's ripple effect was typically bigger and cheaper than the newly built units—about 40% less per square foot and often single-family homes with three or more bedrooms.

Evan Harlow, Hawaii real estate agent at Coldwell Banker Island Properties, tells Realtor.com, "Housing filtering is going to have a bigger impact on Oahu which has the state’s largest population, but not as much on the outer islands."

Harlow says each of the islands has unique needs and challenges and approaches housing differently.

"Oahu is building to meet the needs of its residents," he explains. "Ultimately, all of the islands need greater access to affordable housing."

Housing filtering could be one way to do that.

"Housing filtering means that adding high-priced inventory to a market can eventually free up inventory in affordable price tiers, contributing to overall affordability in the market by increasing supply," says Jones.