Step 1 - Getting started

  • What is a housing market?
  • The complexity of the housing market
  • Defining the local housing market
  • Identifying the participants
  • Reviewing the strategic context
  • Setting market analysis objectives
  • The Housing Kit Database
  • Use of comparison areas
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    What is a housing market?

     

    In economic terminology a market is where buyers and sellers come together to exchange goods or services at an agreed price. The price mechanism is the means by which demand and supply are brought into balance. Excess demand will result in prices being bid up. Excess supply will mean that prices fall until buyers are found for the surplus goods or services.


    The supply of housing consists of the total stock of housing in all its forms. However, the total supply is less relevant. It is more important to distinguish the level of different sorts of housing stock according to dwelling type, tenure and price.


    The demand for housing consists of households who wish to enter the local housing market. It can be defined more precisely as the quantity of housing that households are willing and able to buy or rent (Sustainable Communities: Homes for All, Office of the Deputy Prime Minister, Cm 6424, 2005).The demand for housing in a local market is influenced by demographic factors, especially the rate at which new households are formed, prices in the local housing market and other housing markets, the economic circumstances of the households and of the local housing market, the perceived advantages of the local area in terms of its access to a range of goods and services, and the particular tastes or preferences of the consumers.


     

    The interaction of supply and demand generates market outcomes including market prices (both sale prices and rents). Rapid changes in these prices reflect a market imbalance (where demand and supply are not in balance).

    When analysing the local housing market both secondary and primary data sources can be used. Secondary data is data that has already been collected for other purposes. The most important source of secondary data is the Census of Population and Housing.


    Primary data is data collected for the purposes of the housing study, usually via a formal survey. In addition, a common source of data for the study will be a consultation process with key local stakeholders.


    The complexity of the housing market


    The housing market is particularly complex for a variety of reasons:

    • Shelter is a basic human requirement. Although housing is traded in the market place it is also a welfare issue for those who cannot afford to pay for their own shelter. 
    • Housing is a high price commodity. Individual purchases are usually financed over a long period of time and are subject to the influence of interest rates. The decision to purchase is therefore of great importance to individuals.
    • Housing has high transaction costs — that is, buying a home or moving home costs much more than most types of transactions. Costs include search costs, real estate fees, moving costs, legal fees, land transfer taxes, and deed registration fees. Transaction costs for the seller typically range between five per cent and ten per cent of the purchase price.
    • Housing is provided in a fixed location. You can have an excess supply in one region and a shortage in another area, but you can’t relocate dwellings to provide a balance in both areas. This is why we need to make local housing market studies.
    • Housing is both a consumer good (the person paying for the housing lives in it) and an investment good (an investor charges someone else to live in their property).
    • Construction of new dwellings in any year will comprise only a small proportion of the total housing stock at any point in time.
    • Housing is viewed as a form of status and many households will attempt to reflect improvements in their income levels with changes in their housing circumstances, such as trading up to a more prestigious neighbourhood. 
    • Housing is highly regulated. The location and volume of new development is controlled through the town planning system. Minimum quality standards are set for new building and existing housing. 
    • The market adjustment process is subject to significant time delays, due to the length of time it takes to finance, design, and construct new supply, and also due to the relatively slow rate of change of demand. Because of these lags there is a great potential for disequilibrium in the short run. Adjustment mechanisms tend to be slow, relative to more fluid markets.
    • Every piece of real estate is unique in terms of its location, the building itself, and its financing. This makes pricing difficult, increases search costs, creates information asymmetry (differences in information between the buyer and the seller) and greatly restricts substitutability.

    Defining the local housing market


    A functional housing market may overlap local government boundaries, or several housing different housing markets may be contained within a single local authority area. Different housing markets may also overlap spatially.  For example, the market for coastal homes is restricted to a narrow coastal strip, but this strip is spread across all the local government areas along the coast.  The UK Office of the Deputy Prime Minister (ODPM) (now the Department for Communities and Local Government) thus defined a local housing market as “where those moving without changing employment choose to stay”. So if someone who is looking to relocate would consider both LGA1 and LGA2, then the market area would include both LGAs. Alternatively, if they would only consider housing options within the LGA boundaries, then that LGA may be considered to be a housing market. 


     

    Lack of strict correspondence between the LGA boundaries and functional local housing market boundaries is an issue in metropolitan areas especially. Many LGAs are small and do not accurately reflect a local housing market. In non-metropolitan areas the reverse may be true: a housing market could be a particular town, rather than the whole LGA.


     

    Because local government boundaries are not always aligned with housing market functionality, the Housing Kit Database offers you flexibility in defining your local housing market. The Housing Kit data base provides information by LGA, but also for a series of regional and sub-regional boundaries, including the sub-regional boundaries outlined in the Sydney Metropolitan Strategy; Australian Bureau of Statistics (ABS) statistical divisions (SDs); and ABS statistical subdivisions (SSDs). Non-metropolitan LGAs will need to generate their own intra-LGA data to describe urban and non-urban markets. Adding data at the urban centre level is an area for further development of the database. The Housing Kit Database allows you to choose an appropriate geographic level of analysis for your council. Two or more adjoining councils could undertake a joint housing market analysis, for example, pooling their resources to do so. Another option might be to undertake an analysis for a sub-regional grouping of LGAs, such as for those proposed by the Department of Planning. If a council chooses to undertake an LGA-level analysis, it is a good idea to compare local indicators with those for the surrounding region or for neighbouring LGAs.


    Identifying the participants


    Councils can consider including other agency stakeholders and community participants when developing a local housing market analysis. Participants could include community housing groups, other government agencies, the development sector, and other community and business groups. Involving these stakeholders in the analysis exercise can help with identifying opportunities and assist decision-making about appropriate strategies to address housing issues and improve outcomes.


    Reviewing the strategic context


    A useful starting point for understanding the context in which your local housing market is operating is to review existing planning and housing policies and practice, together with other relevant literature. Start by reviewing the literature relating to past, current and future housing market trends, and identify any ‘gaps’ in the evidence base. It is particularly important to identify common local housing themes from relevant plans, especially in relation to any NSW Department of Planning objectives.


    The documents your strategy should consider might include:

    • regional housing statements/strategies
    • regional and sub regional spatial strategies
    • regional transport studies
    • any previous local housing strategies/local housing studies
    • local development plans and studies
    • local social plans and studies
    • local authority plans and strategic statements
    • community data sets and atlases.


    Setting market analysis objectives


    Identify the specific policy or planning objectives of your housing market analysis at the outset so that you know what data to collect and analyse. The objectives of an analysis might cover a wide range of issues, and may also take the form of research questions or even hypotheses.  The following are examples of research objectives:

    • Assess the future impact of economic, demographic and social trends upon the housing market, particularly on housing need and demand
    • Identify the factors that do, and will, influence the popularity of different types of housing in different parts of the housing market
    • Identify the factors that do, and will, influence household need for different types of housing in different parts of the housing market area

    A research question might be:

    • How does the potential supply of housing relate to housing need and demand (that is, housing shortfall or surplus) broken down by area, tenure, etc.?
    • What will the key features of the housing market be in five to ten years’ time, particularly in terms of characteristics, structure and issues?
    • Are the key drivers underpinning the housing market likely to change over the next five to ten years?
    • How might the housing market’s relationship with adjacent markets change over the next five to ten years?
    • What might this mean in terms of its sub-regional and regional role?

    You may already have some sense of what is happening in the local housing market, based on anecdotal evidence. This knowledge can be used to develop a set of hypotheses that can be tested through further research. Some hypotheses that might be tested could be:

     

    • Housing opportunities in the area are becoming increasingly constrained due to price increases, which is forcing many children of residents to find their first home other localities.
    • Boarding houses are providing critical accommodation for many lower income households.
    • There are public land holdings in the area that could be used for affordable housing projects.

    Also consider the policy issues that will be informed by the assessment’s findings. These might include:

    • achieving a better balance between housing supply and demand/need
    • providing for both private, market driven housing delivery as well as affordable housing delivery (at appropriate levels)
    • improving affordability, especially in high-demand areas
    • addressing issues of low housing demand, where for example, there is no demand for existing housing stock because it is too large or old or otherwise unsuited to market needs and may remain vacant 
    • addressing more complex market situations where there is a mix of high and low demand in close proximity, coupled with environmental or other constraints.

    These research objectives, questions, hypotheses or policy issues will influence the kind of data that is sought and the way in which the data is assessed.

     

    The next section introduces the Housing Kit database, a useful source of some of the basic data required to undertake a housing market analysis.

     

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    The Housing Kit Database


    The Housing Kit Database provides basic data inputs for the analysis of local housing markets, enabling the user to access basic demographic data that will assist in assessing the emerging relationship between housing needs and demands and housing supply, to identify various housing trends and to assess housing affordability. 


    It consists of a series of tables grouped under four headings:

    • Demography (D)
    • Economy   (E)
    • Supply   (S)
    • Market   (M)

    The full list of tables is shown below. 
     

         Housing Kit Data Base Tables

     

    Code Table name Source Updated b/w census periods

    Demography

    D1

    Population trends

    DoP

    Yes

    D2

    Age and sex

    ABS

    No

    D3

    Household type and family type

    ABS

    No

    D4

    Average household size 1996-2006

    ABS

    No

    Economic

    E1

    Income and occupation trends

    ABS

    No

    E2

    Industry structure

    ABS

    No

    E3

    Unemployment rates and labour force

    DEWR; ABS

    Yes

    Supply

    S1

    Dwelling structure

    ABS

    No

    S2

    Dwelling tenure incl. low cost rental

    ABS

    No

    S3

    New and total bond lodgements

    DoH (R&S)

    Yes

    S4

    Public housing stock

    DoH

    Yes

     

     

     

     

    Market

    M1

    Change in rents and house prices

    DoH (R&S)

    Yes

    M2

    Numbers of lower income households in housing stress

    DoH (ABS)

    Yes

    M3

     

    M4

     

    M5

    Proportion of rental and purchase stock that is affordable

     

    Median rent and median house price data

     

    Rental Affordability of CRA recipients

    CAH (ABS)

     

    DoH(R&S)

     

    Aust Govt

    Housing Data Set

    Yes

     

    Yes

     

    Yes

     

     

    Some of the tables are based on Census data and are only updated when new census data become available (every five years). Other tables are updated more regularly. For example, M1 is updated quarterly when a new Rent and Sales Report is released by Housing NSW.


    Using the Housing Kit Database as a starting point, you can generate tables for your own LGA as well as for a variety of comparison areas.

     

    Use of comparison areas

     

    Describing housing data in an LGA without comparison data makes the description very hard to follow. Burke and Ewing (1999) provide an excellent example of this issue:

     

    ‘The Municipality of Probus has 68 per cent home ownership and 20 per cent rental. Almost two-thirds of households are families with children and the age cohort with the greatest proportion is the age group 30–45.’This information can be enriched through  comparison with other areas.

     

    With a bit more data to provide benchmarks it could say: ‘Probus is very similar to the metropolitan average, with 68 per cent home ownership and 20 per cent rental. However, it is noteworthy that ownership has increased five percentage points over the last census period, compared to a decline for Melbourne. Almost two-thirds of households are families with children and the age cohort with the greatest proportion is the age group 30-45. This is greatly at odds with Melbourne as a whole, which has a much lesser proportion of stereotypical nuclear family households.

     

    When selecting comparison areas, you would select any LGAs that your LGA is normally benchmarked against (such as a neighbouring LGA with similar characteristics), your Statistical Subdivision, and Statistical Division. Your analysis would need to explain why you selected particular comparison areas.

     

    The Database also lets you examine a number of hypothetical example areas. The examples are not actual LGAs, but they mirror the characteristics of specific LGAs, including metropolitan and non-metropolitan cases. They show you how Housing Kit Database tables can be used to generate a text description of a housing market.
    More data sources


    The links below are for kit users who are interested in reading in more detail about the variety of data sources cited in this step-by-step guide to preparing a housing market analysis.

    Next step: Understanding the housing market

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    Last modified: Tuesday, 12 March 2013
    Housing NSW © 2014Date last modified: Tuesday, 12 March 2013