This paper theoretically investigates filtering in urban housing markets: how the process occurs and the degree to which its outcomes are beneficial. Central to the framework presented is the partitioning of the urban housing market into submarkets that are segmented by quality. Within each submarket there is latitude for independent adjustments of demand and supply, and submarkets are interconnected by the actions of households, converters of new dwellings, and builders of new dwellings. Forces impinging on one submarket create signals there that eventually lead to systematic, but nonuniform repercussions, potentially throughout the submarket array. It is these dynamics of intersubmarket adjustments of demanders and suppliers that illuminate filtering.
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