Construction industry market forecast for housing driven by demographics.
Dynamic simulation model of micro-economic and market sectors.
MJMcCann Consulting
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Housing Market Dynamics.
The usual statistical approach.
The government statistical view was based on tracking house building and making projections based on the trend analysis. Over a period of time when there was great activity in the market (post war UK: 1945-1970) the trend had been upwards and activity was reasonably well projected by a gently changing, increasing level of activity. At the same time, correlations were made with mortgage interest rates and disposable income etc.

housing.gif (5357 bytes) Not the usual Statistical Approach.
We took a different approach. We wanted to know what really were the underlying drivers for the construction industry because our client had a lot of customers there and big development costs being dedicated to it. We recognised that for the next two decades, all the people who would be buying houses had already been born. We took account of the age specific activity rates, such as ages of marriage, rate of births per family, number of divorces and ages of divorcees and so on.
It turns out that many of these parameters change very slowly, society develops its norms of behaviour much more slowly than governments can change the rules. We created a model of the housing stock and the demographic distributions in the population and looked at how the resulting rate of household formation, which includes all the new singles as well as nuclear families, would create a demand for places to live. (dwellings including apartments (flats) as well as single family homes).

Good match to reality
From 1945 on to about 1970, our intrinsic demand model tracked the observed rate of creation of dwellings quite well. There was a glitch period, with far fewer houses built than our model predicted, but then we discovered that it had been a period of government imposed building restrictions (for material shortages). After the glitch, the real world caught up with our model again.

Projections into the Future
The next question was "what of the future?" The government sponsored statistical model said more of the same. When the house building market turned down one year, the trend line automatically adapted to droop a bit. Our model gave a different view; it said the bottom would drop out of the house building market over the next three years or so because the demographic drivers had gone. Indeed they had. In the next two years, just as we predicted, the market collapsed. The statistical projection was no help.

Other Experience
My experience with problems over these time scales is that people rarely expand their time horizons far enough to see the whole picture. Even if they try, they tend to miss interaction effects and think more in terms of extrapolating, sometimes with statistical models, from the recent past. My (MJMcC) observation is that the demographics and the compelling force of reality can be quantified to make a big improvement in perception. You only have to contact me to get help!

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Invitation. McCann can help if you have a design or operational problem that needs some technical support that is outside your team's experience, some quantitative assessment of what is really the cause of the difficulties, some design alternatives or just a fresh look by an intelligent interrogator.
If you have a problem with the behaviour of a market sector, plant, process or item of equipment and would like to get a quantitative handle on it to improve yield or optimise performance, then contact me. I'm always ready to give a little time to discuss a new puzzle, in confidence, of course. We'll only worry about fees when there is some defined work. I can be flexible about how I work with you.
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Dr M.J.McCann,
POB 902,
Chadds Ford PA
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T: 1 302 654-2953
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E: mjmccann@iee.org
Request. Please let me know how you found this website and your interests by following this feedback link. Thank you Date: 2014.08.23
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