Tuesday, December 8, 2009

A graph I promised to make

There is a lot of talk about population and number of new dwellings in the housing market debate.  What is generally overlooked is that at any point in time everybody is living somewhere.  Occupancy rate is fluid, prices change, and in the long term, population growth in an area can't happen without prior construction of housing. 

The graph shows the new dwellings constructed per new person (per person of population growth).  We do notice a recent decline in the number of dwellings being constructed nationwide compared to the population growth, which is reflected in the later graph showing increased occupancy rates.  The direction of causation amongst these variables remains unclear, and in all likelihood, they are interdependent.

Regression with net new dwellings per person of population growth as an explanatory variable for change in the capital city price index gives a negative coefficient (-0.011) but really, has no explanatory power (r2 of 0.006).

That means that analysis of population growth and dwelling construction figures has no power in explaining housing price changes.


  1. That is a tailored interpretation.


    Answer the questions:
    1. Is this persons per household increase due to an increase in the family unit size?

    2. If so will that mean a "breakout in new households" in some years hence.

    3. Is the PPH increase due to other pressures such as high cost of housing that deters family members from leaving home.

    4. If 3. above applies at what point will a tipping point be reached.

    5. Is it due to a lack of available housing alternatives.

    6. Is it a social trend where more individuals share dwellings to reduce individual costs, thus replacing the previous trend for smaller households numbers.

    Cameron your a clever guy. Write down every posibility that you can think of and then answer each question individually.

    Don't throw stones that skim across the surface, throw a big rock that goes all the way to the bottom.

    Have a nice day Cam.

  2. Short answers -

    1. No
    2. Maybe, but...
    3. yes
    4. ... what will change to make housing cheap enough for them to move out later - incomes rise or real housing costs fall.
    5. Do you mean small suburban apartments for example? I don't think so.
    6. Yes, which make my point about interdependence (and the fact there is no magic stone to get to the bottom of all this - interdependence is the magic stone, but it doesn't provide nice linear predictions.)

    For example, higher prices encourage more group households, which can in turn pay more for housing, which in turn may influence prices, which then influences housing decisions and so on.

    We'll pick this up again next time.

  3. Cameron I disagree with your interpretation on point 6 which is not a lifestyle choice preferred option.
    The new generation is not only making house purchase decisions a little later than the previous generation, they are also a bit shy to tackle such a momentous financial committment when surrounded by doomsayers on the economy.
    They are young, well paid, educated and internet dependant for information. And just look at the information being provided on the internet.

    In the same position I would also have delayed buying when so many options are available. What that means though is that a some (perhaps delayed) point they will make that committment almost en masse.

    The world turns quickly, and in the very near future house prices in countries such as the US and the UK where we take our lead, will start to rise, and they will rise quickly from a low base.

    Bear that in mind in your investment decisions. Sorry I can't give you a date for that prediction.

    Sorry if I occasionally "pick" but that is really meant as encouragement. Keep up the process.