increasing housing affordability by identifying and monitoring property cycles
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Increasing Housing Affordability by Identifying and Monitoring Property Cycles 16 th Annual European Real Estate Society Conference 24-27 June 2009 – Stockholm Richard G Reed Deakin University Melbourne 3010 Australia Email: [email protected] Hao Wu - PowerPoint PPT PresentationTRANSCRIPT
Increasing Housing Affordability by Identifying and Monitoring Property Cycles
16th Annual European Real Estate Society Conference24-27 June 2009 – Stockholm
Richard G ReedDeakin University Melbourne 3010 Australia
Email: [email protected]
Hao WuUniversity of Melbourne 3010 Australia
Email: [email protected]
• Housing stress and affordability• Cycle theory and analysis• Melbourne case study• Methodology and analysis• Findings and conclusions
Introduction
Table 1. Housing Stress for Households and Individuals
Affordable (3.0 & under)
Moderately Unaffordable
(3.1-4.0)
Seriously Unaffordable
(4.1-5.0)
Severely Unaffordable (5.1 & over)
Total Median
Australia 0 0 3 24 27 6 Canada 1 15 5 4 34 3.5 Ireland 0 0 2 3 5 5.4 NZ 0 0 1 7 8 5.7 UK 0 0 6 10 16 5.2 US 7 59 23 16 175 3.2 Total 8 74 40 64 265
(Source: Cox et al. 2009)
Table 2. Housing Stress for Households and Individuals
2001 2002 2003 2004 2005 2006 All Household 10.6 10.9 11.2 11.5 11.5 12.3 Individual 8.7 9 9 9.4 9.3 9.9 Owners Household 5.3 5.4 5.6 6.1 6.4 8.1 Individual 4.8 4.8 5 5.5 5.9 7.2 Renters Household 23.9 24.4 25.3 24.8 24.3 23.1 Individual 20.1 21.6 21 21.4 19.9 18.4
(Source: Marks and Sedgwick 2008)
“Business cycles are a type of fluctuation found in the aggregate economic activity of nations that organize their work mainly in business enterprises: a cycle consists of expansions occurring at about the same time in many economic activities, followed by similarly general recessions, contractions, and revivals which merge into the expansion phase of the next cycle; this sequence of changes is recurrent but not periodic; in duration business cycles vary from more than one year to ten or twelve years; they are not divisible into shorter cycles of similar character with amplitudes approximating their own” (Burns and Mitchell 1946, p3).
Figure 1. How the Building Cycle Works
(Source: Barras 1994)
Real economy Property market money economy
Economic up-turn Credit expansionIncreased proeprty demand
Supply shortage
Rising rents / falling yields
Economic boom Building boom Credit boom
Increased supplyEconomic down-turn (+) Slankening demand Rising interest rates
Falling rents / rising yields
Recession Property slump Credit squeeze
Table 3. Summary of Cycles per Suburb
Total number of suburbs 138 Suburbs with one cycle 138 Suburbs with two cycles 36 Suburbs with three cycles 10 Suburbs with four cycles 4 Suburbs with five cycles 2
Figure 2. Amplitude of the First Cycle for each Suburb
0.00E+00
2.00E+11
4.00E+11
6.00E+11
8.00E+11
1.00E+12
1.20E+12
1.40E+12
1.60E+12
Suburb
Sp
ec
tra
l D
en
sit
y
Table 4. Cycle Characteristics
Range (yrs) Average (yrs) 1st property cycle 6-40 39 2nd property cycle 4-24 5 3rd property cycle 2-5 3 4th property cycle 3 3 5th property cycle 2 2
• Understanding cycles will reduce risk and increase housing affordability
• Cycles are evident at the micro level
• Cycle length and amplitude vary
• Most expensive suburb has the largest shock
• Inner-city suburbs have multiple cycles
• Spectrum analysis is not common for property cycle analysis
• Further research required re: correlation with demographic characteristics
Conclusions and Further Research
Increasing Housing Affordability by Identifying and Monitoring Property Cycles
16th Annual European Real Estate Society Conference24-27 June 2009 – Stockholm
Richard G ReedDeakin University Melbourne 3010 Australia
Email: [email protected]
Hao WuUniversity of Melbourne 3010 Australia
Email: [email protected]