Challenging the view new market rate housing does little to improve housing affordability, e61 Institute research finds existing private rentals become cheaper when there’s a decent supply of new homes coming onto the market.

Rental properties became 3.6 per cent cheaper, on average, as they aged over the course of a decade, according to the non-partisan economic think tank.

That’s due to process known as “filtering”, with rental properties typically attracting lower rents as wear and tear takes a toll.

In areas with high levels of new development, the fall in rental prices was more pronounced.

In Parramatta in Sydney’s Western suburbs, an area where many new homes have been built, rentals had become almost 11 per cent cheaper throughout the 2010s.

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In regions with minimal new construction, filtering was more muted or even non-existent.

In Sydney’s northern beaches – where few new homes have been built – a three per cent rental increase was logged over the same period.

Attempts were made to control changing property characteristics, the tendency for centrally-located homes to increase in price more quickly, and other influences on rental markets.

The research lands at critical juncture in the nation’s housing affordability debate, with rents surging and political fracturing over policy fixes.

e61 Institute research manager Nick Garvin said the research brought together two schools of thought – champions of boosting overall housing supply to lower housing costs, and public housing advocates focused on aiding the lowest-income households.

“While some people oppose new developments that do not directly target lower-income households, our research shows that building new market-rate rentals does in fact benefit the majority of renters over time,” he said.

Dr Garvin said building more market-rate homes should be viewed as an accompaniment, not a replacement, to policy interventions for low income households, such as rent assistance and social housing.

That’s because the cheapest rentals – unlike premium or mid-priced homes – typically became more expensive over time, with underpricing and renovations cited as possible reasons.

“Given the overall estimated speed that rents decline with age, and the fact that rents do not decline with age at the bottom of the income distribution, market-rate supply does not appear capable of completely replacing targeted lower-income interventions,” Dr Garvin said.

“Instead, market-rate supply eases the burden of these targeted policies, by generating affordability at other parts of the income distribution.”