I don't think there ever was an entity. There never was a reason to confine everyone to their homes except for control which is why the government gives no official reason to the public. You never actually see anything paranormal anywhere in the game, instead you fall into a maze where you're taunted by the same voice you eventually hear on your TV afterwards. They pump gas into your room to kill you "just in case" despite the fact that the entity is supposed to already be approaching, and you should be perfectly capable of using the knife anyway. They figure that you've learned of their ruse and decide to silence you by killing you. Besides how else would a complex pipe system like that be installed if they hadn't prepared beforehand?