Diagram under the microscope : property price.

[McDuck]

Basically we have three boxes.

Box 1: People.

Box 2: Houses.

Box 3: Gold Coins.

That's it.

Moving on to clarify box 2; HOUSES.

That's not ALL houses.
It's JUST the houses in play at the moment of our freeze.

That means houses FOR SALE.
Not houses planned, or half built, or for rent.

[McDuck]

So what we now have is a simple thing.

Two boxes, coming together, to produce a third box.

All frozen in time, for clarity.



But who can use these three boxes?
Well, these boxes are mainly of use to policy makers.

One might ask oneself:

Q: How can I alter the price by adding or removing HOUSES from play?

Q: How can I alter the price by Adding or removing PEOPLE from the play?

Q: How can I alter the price by adding or removing COINS from the play.

[McDuck]

That would generate more ideas:

Q: Where do people come from?
Q: Are they born?
Q: Do they come from outside the diagram (overseas)?
Q: Do they move from renting to owning?
Q: Do they break away from other houses (children leaving home)
Q: Where do people go to?
and so on.

Once all the frozen Ideas are done,
one might unfreeze the diagram.
And introduce "TIME".

More specifically "RATE OF CHANGE".

How fast can I introduce more houses?
How fast can I introduce more people?
How fast can I introduce more coins?

And finally, do I want equilibrium?, and if not, how far off equilibrium do I wish to stay at?.
And why.

SEE V V V VV

https://www.investopedia.com/terms/e/equilibrium.asp

[McDuck]

Old diagram:






New Diagram.

P=D/S

Now that we have our simplified diagram,
we can plug the ideas from the old diagram into it.

Remember, the new simplified has only three boxes. 1: PEOPLE, 2: HOUSES, 3: COINS.

[McDuck]

I suppose we should start to break down and clarify the old boxes.

Some factors are easy to change, others aren't.

Lets look at old box 2.[POPULATION GROWTH AND IMMIGRATION].

This is really bad!

Lumping in both.

First we need to break them down.

[POPULATION GROWTH] + [ IMMIGRATION].

[Population growth] is odd, a baby can not buy a house.
As a baby is not READY, WILLING or ABLE.

So policy 20 years ago is in control of this figure!

[McDuck]

[POPULATION GROWTH] + [ IMMIGRATION].

66 Thousand people Last year.

That's how much extra burden other countries put on our housing demand.

And 11 Thousand New Zealanders left.

So lightened the load by that much.

[McDuck]

Well, that's the demand side, [POPULATION GROWTH] + [ IMMIGRATION ].

But remember, there are two other boxes that can take a property.
firstly, [ PEOPLE OVERSEAS ] and secondly[ CORPORATES ].

(After the recent law changes, [ OVERSEAS ] seems to have dropped from about 10% to about 2%
That's very approximate).

But [ CORPORATE ] is still running at at 20%
I'm not exactly sure what's included in [ CORPORATE ] though.

[Chris W]

A 2009 / 2010 report by the Dept of Building and Housing recognises two types of demand
1) underlying housing demand
2) effective housing demand

1) Underlying housing demand

?Underlying demand? refers to the number of houses needed to accommodate households in the population. Population increase in the age range of 20?40 (which is when people tend to form independent households) leads to smaller household sizes and more single-person households. Further, positive net migration increases underlying demand for housing. A ?household? means either one person who usually lives alone, or two or more people who usually live together and share facilities in a private dwelling.

Natural population growth rates, internal migration, housing preferences and household formation rates all tend to change relatively slowly, and therefore changes in underlying demand caused by these factors are reasonably predictable. By contrast, the level of external migration depends on policy rules and incentives, as well as on wider domestic and international economic conditions, and it therefore tends to have a more volatile, less predictable impact on underlying housing demand

2) Effective housing demand

Effective housing demand is the combined effect of both 1) the desire to rent or buy a house, and 2) the financial ability to rent or buy a house. This aspect of demand is what shows up in the housing market statistics for sales, prices and construction. It also largely accounts for the changes in housing and tenure choices over time.

The New Zealand housing market has not only experienced increased underlying demand from population growth and higher net immigration; it has also (until the recent global financial crisis) experienced an increase in effective demand as a result of higher incomes, lower unemployment, cheaper and easier access to credit, and the preference of New Zealanders, for various reasons, to invest in housing over other forms of investment.

The difference between underlying and effective demand is a function of:
? buyer wealth and income
? the cost and availability of finance
? the state of the economy
? individual consumer preferences (for example, location, or between renting and owning)
? the attractiveness of housing as an investment good.


Source:

[Chris W]

For more, refer this thread

https://www.propertytalk.com/forum/showthread.php?42341-Housing-demand-calculation-methodology

[McDuck]

A 2009 / 2010 report by the Dept of Building and Housing recognises two types of demand
1) underlying housing demand
2) effective housing demand

..

Thanks Chris.
I'll have to read that several times - to fully get the pattern of their categories.

"Time" itself is an often ignored quantity in every sentence or equation.
So it's important to get a hold of that first.
I really like the idea that you broke things up into "short time and long time".
Or "underlying and effective", in this case.

Note that I deliberately started out my diagram by freezing time.
That's important.
Mostly to stop foolish people from counting things twice.
Well, to be honest, to stop people fooling you, by counting things twice.

[McDuck]

So, refining the diagram with what we now know.

We want a numerator and a denominator type arrangement

First , remove all three middle boxes,

[McDuck]

We need a different type of box, to deal with everything on the demand side.
Because the best way to consider demand is as { PEOPLE }.

So people can join the game if they are: { WILLING } + { READY } + { ABLE }
(A person must jump over those three hurdles, in order to join the game).

The difference between the { WILLING } step and the { ABLE } step causes dissatisfaction, and disengagement.

The only sort of device I can think of, to emulate this hurdle process is a {LOGIC GATE}.
More specifically a triple {AND} gate. (but could be done in an XL spreadsheet too).
A = 1 , B= 1, C = 1. D = A+B+C. if D=3 then player = go. if D=2, 1, 0. then player = stop.
Still trying to do it with water, in the MONIAC style.
If anyone knows the math notation for a triple AND gate, please share.


* Note to self : Land is important on the supply side. it's just not boxes to sleep in , but the laws enabling title over dirt.
* note 2 : land can go vertical, as in high rise, but with extra cost. ** and deceptive infrastructure loading also.
* Side observation : present system of increasing density horizontally and vertically disguise the real cost to infrastructure.
* Costs extend many levels beyond what is presently understood.
* There are no interconnected metrics to detect these costs accurately.

[donna]

Hi McDuck,

Is it something like this used in electronics..there are many tutorials.

cheers,

Donna

[McDuck]

Hi McDuck,

Is it something like this used in electronics..there are many tutorials.

cheers,

Donna

Ha!

Yes Donna.

Spot on.

You can make a triple AND gate with those!
Just feed the output of one, into the input of another.

An XL spreadsheet can do the same thing, but in software.
That's why I'm such a fan.

I'm really just playing around with the raw ideas behind housing supply.

You can consider things in so many ways.
See this for fun.

https://www.youtube.com/watch?v=jGvFjZNCk60

[McDuck]

OK,
Back to analyzing this diagram.

It's pretty clear it's got bad structure.
And the irrelevant things have been added to the diagram.
And that there is inconsistent hierarchy.

But since I have great respect for the quality of thinking at Oxford and Cambridge, I'm going to guess that the author had just been misquoted or misunderstood.
(I wish the workloads at these places was coordinated between lecturers).

Anyho...

It's pretty clear that ; In New Zealand:


1: The price point of housing is way too high relative to incomes.
2: Employers are motivated to keep incomes down.
3: Employers are able to import workers, who will accept lower wages and lower conditions.
(because the perks of New Zealand's infrastructure and lifestyle, act as part of their pay supplement).
4: Clearly we see employers self interest blowing out immigration, increasing the demand on housing and prices.
5: Self interest from employers in choosing to import trained people rather than in house training is also a motivator, essentially companies are privatizing the gain and socializing the loss.

7: Outsourcing via the internet also erodes incomes.
8: People presently overseas and not being citizens of this country, are working in New Zealand via the internet.
9: Old fashioned thinking about location and physicality, is hindering the tax man from treating this as if there were illegal immigrants working here.

10: This is being covered up by issuing debt.
11: also known as kicking the can down the road.
12: All this would be fine, if houses were stand alone units.
13: Unfortunately, houses are not, they are just the tip of an infrastructure branch.
14: It takes much much longer to get the total infrastructure tree in place than it does for the employers to increase immigrant numbers.
15: Essentially you have a very fast thing and a very slow thing.

16: It's Solvable.
17: Other areas need work, this is just one part of the puzzle.
18: Total side note: The speed of house price distortion could be slowed significantly by banning auctions. Removing the irrational content from price choice. A new law to state that all sellers must choose a price and advertise that.
Mostly this would work by introducing a type of "price friction".
It takes people out of the demand side of the equation, simply because they are unaware.
Basically, the real estate game has become so self serving and destructive, that it's more or less bought legislation in on itself.