||“Counter-urbanisation” is a phenomenon referring population flows from a more concentrated state (usually urban cores) to less concentrated areas (rural areas). The causes for this phenomenon are said to be due to decentralisation of industrial activities in the urban areas, migration to rural areas because of change in lifestyle and tastes, and increasing long-distance commuting as a result of the expansion of the transportation networks and development in ICT. Counter-urbanisation has become widespread in most developed countries. While local residents in the rural communities may benefit from it in some aspects (e.g. developments in service industries); there are also concerns. From the housing market perspective, local residents are often argued to be outbid by incomers (Stockdale et al, 2000, Lewis et al, 1991, Gilligan, 1987, and Shucksmith, 1981), because the urban incomers tend to have higher income. These claims however, lack empirical support. Furthermore, the segmentation of housing markets and changes in market dynamics have been overlooked in the literatures, which is particularly important given that the term “submarket” has both quality and geographical dimensions. Under this motivation, this research aims to provide both a theoretical model and econometrical evidence on the influences on the counter-urbanisation on rural housing markets. The study is based on the concept of filtering. The filtering process has been discussed in various papers (Hoyt 1939, Lowry 1960, Grigbsy, 1963, Olsen, 1969, Sweeny 1974, Ohls, 1975, Braid, 1984, and Rothenberg et al, 1991). Although varying in their arguments, there is a common similarity among these papers: filtering begins with new constructions of highquality housing caused by some exogenous factors, families move into new houses leaving their former housing vacant, this shifts the demand for the housing that they occupied formerly, reducing house prices in this submarkets and thereby allowing families in the lower quality submarket to “filter up” (Weicher & Thibodeau, 1988). One could argue if the rural housing market is considered as a single market place, a net inflow of population would have the following straightforward impacts on house prices: in short term, when new constructions are constrained, increase in housing demand will lead a rise in house prices; in longer term, when constructions are injected into the market, supply function will be shifted to provide more dwellings. New market equilibrium will form, at which price level is determined by the quantity of new dwellings supplied and demanded (the new equilibrium price can be lower, equal to or higher than the price at the original equilibrium). The conclusion on whether in-migration to the rural areas cause increase in rural house prices therefore is not definitive in the longer term. One the other hand, if the rural housing market is treated as consisting of a set of differing quality submarkets, inmigration’s impact on house prices can be more complicated and interested to analyse. In this study, a relatively simple filtering framework is presented where, there are two housing submarkets within a rural community – a large number of lower quality dwellings (occupied by the majority of rural population) and a small number of higher quality dwellings (occupied by minority high income local residents). The model is used to explore the impact on prices in both rural and urban housing markets associated with an inflow of urban residents based on a variety of different assumptions about construction activity, and the degree of substitution between submarkets. For example, one could argue that new constructions in the higher quality submarkets may trigger filtering, and some of the lower quality submarket households will be able to move up to better houses at relatively low prices. If large flows of urban-to-rural in-migration occupy the dwellings otherwise would have been occupied by local households originally in the lower quality submarkets, newcomers would have negative impact on housing for the locals. Based on this theoretical analysis, the conditions under which adverse affects on rural households would occur are identified. Further, an econometric model is proposed that could explore the extent to which theoretical predictions are supported by empirical evidence. This analysis provides a clearer picture on the consequences of counter-urbanisation in the rural community; therefore will be beneficial in terms of policy decision making concerning the rural areas."