Has REH peaked?, page-36

@vic_wattle

We can prognosticate and rationalise until we're blue in the face, or until we get the answer our hearts are yearning for. But I think The Dude would probably say (if he was sober enough), "Man I dunno, just check out the historical data."

So here it is, unvarnished.

Compound average annual change, 12 years (FY1984 to FY1995):​

(x%) = nominal aggregate change ; [y%] = real per capita change​

​

- population growth: 1.3%​

- CPI: 5.3%​

- total $ building activity: (9.2%) [2.4%]​

- residential $ building activity (10.5%) [3.7%]​

- residential $ reno activity (12.6%) [5.6%]​

- household, garden & bldg retail $ turnover (6.9%) [0.2%]​

​

Compound average annual change, 12 years (FY1995 to FY2006):​

(x%) = nominal aggregate change ; [y%] = real per capita change​

​

- population growth: 1.1%​

- CPI: 2.8%​

- total $ building activity: (7.7%) [3.6%]​

- residential $ building activity (7.0%) [2.9%]​

- residential $ reno activity (8.2%) [4.1%]​

- household, garden & bldg retail $ turnover (7.8%) [3.7%]​

​

Compound average annual change, 12 years (FY2006 to FY2017):​

(x%) = nominal aggregate change ; [y%] = real per capita change​

​

- population growth: 1.6%​

- CPI: 2.5%​

- total $ building activity: (5.5%) [1.3%]​

- residential $ building activity (5.6%) [1.4%]​

- residential $ reno activity (3.4%) [-0.7%]​

- household, garden & bldg retail $ turnover (4.1%) [0.0%]​

​

Compound average annual change, 5 years (FY2006 to FY2017):​

(x%) = nominal aggregate change ; [y%] = real per capita change​

​

- population growth: 1.6%​

- CPI: 2.0%​

- total $ building activity: (6.5%) [2.9%]​

- residential $ building activity (9.6%) [5.8%]​

- residential $ reno activity (3.3%) [-0.3%]​

- household, garden & bldg retail $ turnover (6.5%) [2.8%]​

​

So, in conclusion, the total building and residential building sectors (which are by far the largest sectors) have gone through long periods of real per capita growth of sub 2%, whilst the much smaller reno and retail (household, garden & bldg) sectors have gone through long periods of zero real per capita growth. Importantly however (I think) the smaller sectors have frequently been uncorrelated with the larger sectors, or even with each other.

So, perhaps, pessimistically (and no doubt simplistically), we could say that todays REH earnings yield (all else equal) comes with an +inflation hedge ("+" to the tune +1.5% [population] +1.5% [real per capita bldg activity], giving a total of inflation +3%). An asset that can deliver a yield that can grow at CPI+3% is a very valuable asset (assuming it can).

On a separate note, I'm not so sure that population growth is the biggest driver, over multi-year periods (say 5 to 10 years). Though no doubt, over the very long term, it is highly influential. Each cycles is probably more influenced by the usual dynamic of supply outstripping demand, then demand getting ahead of supply, as is usual with a product that involves investment decisions with long lead times. But I suspect that the most significant longer term cyclical factors will be more driven by changing preferences that drive occupants per household, including changing family size. In the longer term, changing demographics due to ageing, I would suspect, are a large factor. But then, some of these "cyclical" factors may be best thought of as structural rather than cyclical.

What does it all mean for the future? Well dude, there you're on your own.