Filtering down in a housing market occurs when:

Correct Answer

C) Older units become occupied by lower-income households

Why this is correct: Filtering down is the process where housing units, as they age and become less desirable relative to new construction, become occupied by successively lower-income households. New construction at the high end 'filters' the existing stock downward. Why the other choices are wrong: 'Owners renovating homes well above the neighborhood norms' describes over-improvement. 'New construction moves to a higher price point' is part of the process but describes the trigger, not the filtering itself. 'Rents rise faster than incomes in the area' describes affordability pressure, not the filtering mechanism. Exam tip: Filtering is the 'trickle-down' theory of housing. New high-end supply eventually increases low-end supply through aging.