Depreciation of Housing: An Empirical Consideration of the Filtering Hypothesis

This paper presents estimates of depreciation rates for housing which are appropriate to consideration of the filtering hypothesis (houses ''filter down'' from higher to lower quality). Housing is treated as a single composite commodity, and a depreciation rate is specified which is the net depreciation rate for individual occupied rental units. The primary source of data is the Panel Study of Income Dynamics by the University of Michigan's Institute for Social Research. The point estimate for net depreciation is 0.39%, which suggests that the encountered effects of time per se are not a major factor in determining conditions in cities. The 95% confidence interval admits values which are consistent with filtering or which contradict filtering, so the only statement that can be made applying the usual standards of statistical significance is that the data used here provide no support for the hypothesis that dwellings deliver diminishing quantities of housing service with the passage of time. The results call into question assumptions giving rise to the filtering model.