Key points Filtering is a market-based process whereby the supply of new, higher quality dwellings, for higher- and middle-income households also leads to additional supply of dwellings for lower income households as higher income households vacate their former homes. Theoretically, dwellings filter over time through successively lower market segments or sub-markets, becoming a supply of ‘naturally occurring affordable housing’. This report tests for filtering dynamics in Melbourne and Sydney, using differently sourced data and different methods of analysis. Theoretically, filtering is traceable in the price dynamics of dwellings, and in the occupancy characteristics of residents in properties over time. Filtering dynamics are tested across the entire housing stock and in the private rental sector specifically. Overall, there is evidence that new dwellings – whether sold or rented – trade at a market premium. This is consistent with filtering dynamics. However, there is little