How big data and The Sims are helping us to build the cities of the future

From The Conversation.

By 2050, the United Nations predicts that around 66% of the world’s population will be living in urban areas. It is expected that the greatest expansion will take place in developing regions such as Africa and Asia. Cities in these parts will be challenged to meet the needs of their residents, and provide sufficient housing, energy, waste disposal, healthcare, transportation, education and employment.

So, understanding how cities will grow – and how we can make them smarter and more sustainable along the way – is a high priority among researchers and governments the world over. We need to get to grips with the inner mechanisms of cities, if we’re to engineer them for the future. Fortunately, there are tools to help us do this. And even better, using them is a bit like playing SimCity.

A whole new (simulated) world

Cities are complex systems. Increasingly, scientists studying cities have gone from thinking about “cities as machines”, to approaching “cities as organisms”. Viewing cities as complex, adaptive organisms – similar to natural systems like termite mounds or slime mould colonies – allows us to gain unique insights into their inner workings. Here’s how.

Complex organisms are characterised by individual units that can be driven by a small number of simple rules. As these relatively simple things live and behave, the culmination of all their individual interactions and behaviours generate more widespread aggregate phenomena. For example, the beautiful and complex patterns made by flocking birds are not organised by a leader. They come about because each bird follows some very simple rules about how close to get to each other, which direction to fly in, and how to avoid predators.

Similarly, ant colonies can exhibit very sophisticated and seemingly intelligent behaviour. But this sophistication doesn’t come about as a result of a good leader. It is the result of lots of ants following relatively simple rules, without any regard for the bigger picture. It is easy to see how this perspective could be applied to human systems to explain phenomena like traffic jams.

So, if cities are like organisms, it follows that we should examine them from the bottom-up, and seek to understand how unexpected large-scale phenomena emerge from individual-level interactions. Specifically, we can simulate how the behaviour of individual “agents” – whether they are people, households, or organisations – affect the urban environment, using a set of techniques known as “agent-based modelling”.

Using The Sims to build your own city. haljackey/Flickr, CC BY

This is where it gets a bit like SimCity. It’s apt that the computer game was originally based on the work of Jay Forrester, a world-renowned system scientist with an interest in urban dynamics. In the game, individual agents are given their own characteristics and rules, and allowed to interact with other agents and the environment. Different behaviour emerges through these interactions and drives the next set of interactions.

But while computer games can use generalisations about how people and organisations behave, researchers have to mine available data sets to construct realistic and robust rule sets, which can be rigorously tested and evaluated. To do this effectively, we need lots of data at the individual level.

Modelling from big data

These days, increases in computing power and the proliferation of big data give agent-based modelling unprecedented power and scope. One of the most exciting developments is the potential to incorporate people’s thoughts and behaviours. In doing so, we can begin to model the impacts of people’s choices on present circumstances, and the future.

For example, we might want to know how changes to the road layout might affect crime rates in certain areas. By modelling the activities of individuals who might try to commit a crime, we can see how altering the urban environment influences how people move around the city, the types of houses that they become aware of, and consequently which places have the greatest risk of becoming the targets of burglary.

To fully realise the goal of simulating cities in this way, models need a huge amount of data. For example, to model the daily flow of people around a city, we need to know what kinds of things people spend their time doing, where they do them, who they do them with, and what drives their behaviour.

Without good-quality, high-resolution data, we have no way of knowing whether our models are producing realistic results. Big data could offer researchers a wealth of information to meet these twin needs. The kinds of data that are exciting urban modellers include:

  • Electronic travel cards that tell us how people move around a city.
  • Twitter messages that provide insight into what people are doing and thinking.
  • The density of mobile telephones that hint at the presence of crowds.
  • Loyalty and credit-card transactions to understand consumer behaviour.
  • Participatory mapping of hitherto unknown urban spaces, such as Open Street Map.

These data can often be refined to the level of a single person. As a result, models of urban phenomena no longer need to rely on assumptions about the population as a whole – they can be tailored to capture the diversity of a city full of individuals, who often think and behave differently from one another.

Missing people

There are, of course, serious practical and ethical considerations to take into account, when integrating big data into urban models. The volume of background noise in new data sources can make it difficult to extract useful and reliable information. For example, it can often be difficult to distinguish Twitter messages posted by bots from those by real people.

Some of us still do things the old-fashioned way. from www.shutterstock.com

We must also make sure that we understand who is well-represented in our data, and who is not. The digital divide is alive and well and research suggests a class divide separating those who do and do not produce digital content. This means that there are probably large sections of the population missing from data sets.

We also need to find new ways of making these methods ethical. Traditionally, consumer and research ethics have been structured around informed consent. Before taking part in interviews or surveys, participants need to sign consent forms that give the researchers permission to use their data. But now, individuals are digitising aspects of their lives such as moods, thoughts, feelings, and behaviours that have historically gone undocumented. And, importantly, these are often released publicly on the internet.

And while an individual might have ticked a box that gives permission for their data to be used, that’s no guarantee that they’ve read and understood the terms. iTunes’ June 2015 terms and conditions, for example, are more than 20,000 words long (20 times the length of this article). Researchers and service providers need to ask themselves how many people really get to grips with these documents, and whether their agreement fulfils our idea of consent.

We may never be able to simulate every individual in a city, and we’ll probably never want to. But we are getting closer to being able to simulate the richness of the fabric that weaves together to shape our cities. If we can do this, then we will be able to provide useful input on how best to shape cities in the future – perhaps even down to the last street light, bus and block of flats.

Authors: Alison Heppenstal, Associate Professor in Geocomputation, University of Leeds; Nick Malleso, Lecturer in Geographical Information Systems, University of Leeds.

 

National Residential Land Sales Increased by 17.6 per cent to June 2015

The latest HIA-CoreLogic RP Data Residential Land Report provided by the Housing Industry Association, and CoreLogic RP Data, shows there was some relief from the tight conditions in Australia’s residential land market in the June 2015 quarter.

In the June 2015 quarter, national residential land sales increased by 17.6 per cent, while the weighted median residential lot price increased by 0.6 per cent over the quarter to be 5.2 per cent higher than 12 months earlier.

“Today’s update shows that a rise in land sales was accompanied by an easing off in the pace of price increase in Australia’s residential land market,” said HIA economist, Diwa Hopkins. “This compares with previous quarters which saw strong price increases amid declining land sales.”

“While the June quarter result is an encouraging development, what needs to occur is similar results being sustained over the longer run. That is, a larger and more consistent flow of shovel-ready land needs to be brought online.”

“For this to happen, policy reform needs to address the key land supply bottlenecks including unnecessarily long planning delays; slow and insufficient release of residential land; excessive and inappropriate infrastructure funding arrangements, and; excessive zoning restrictions,” added Ms Hopkins.

According to CoreLogic RP Data research director, Tim Lawless, the break in the trend of declining land sales is a positive outcome after three consecutive quarters of declining sales.

“A 17 per cent jump in vacant land sales is impressive, but land sales remain lower than the June quarter of last year and comes after three quarters where volumes consistently fell and prices rose. The most encouraging sign is that this quarterly rise in vacant land sales is broad based with five of the six states showing a substantial boost in sales.”

“With detached housing approvals remaining relatively flat since early 2014, the likelihood of this recent surge in vacant land sales developing into a stronger trend is unlikely.”

Residential Building Work Higher

The ABS released their Building Activity to June 2015. Residential building rose in the quarter on a trend basis. Victoria shows the greatest momentum currently. We may be reaching “peak construction”, but there is little to indicate an impending fall at the moment.

The trend estimate of the value of total building work done rose 1.5% in the June 2015 quarter. The trend estimate of the value of new residential building work done rose 2.5%, with value of work done on new houses up 2.2% and other residential building up 3.0%.

Work-Done-June-2015The state mix is interesting, with Victoria the largest contributor at $4.5bn, against NSW $4.0bn, helped by large volumes of units being constructed.

ResidentialByStateJune2015 The trend estimate of the value of non-residential building work done fell 0.1% in the June quarter.

The total number of dwelling units commenced rose 0.6% following a rise of 1.9% in the March quarter.

The trend estimate for new private sector house commencements fell 0.8% in the June quarter following a fall of 0.2% in the March quarter.

The trend estimate for new private sector other residential building commencements rose 0.6% in the June quarter following a rise of 3.0% in the March quarter.

Home Sales Higher In August – HIA

The HIA New Home Sales Report, a survey of Australia’s largest volume builders, recorded an increase in August 2015, with the level of activity only just short of the high reached in April this year. They report a decline in unit sales, but a rise in houses.

“Total seasonally adjusted new home sales increased by 2.3 per cent in August this year, driven by a 3.5 per cent rise in detached house sales,” said economist, Diwa Hopkins. “Multi-unit sales, however, declined by 1.7 per cent.”

“It is becoming increasingly apparent that total sales activity has already peaked this year, but today’s update shows that sales are remaining elevated.”

“The overall developments in both HIA New Home Sales and the equivalent ABS measure, building approvals, are consistent with our outlook for actual new home building activity in 2015/16.”

“We’re forecasting total dwelling commencements to ease back from what we expect to have been the peak level in the financial year just passed, but still remain elevated.”

Detached house sales increased by 3.5 per cent in August 2015, but were 5.1 per cent below the monthly peak that occurred back in April 2014. For ‘multi-units’, it is May 2015 that is shaping up to represent a peak in monthly sales, with declines occurring in each of the subsequent months. Multi-unit sales in August this year were down from the May level by 8.5 per cent.

In the month of August detached house sales increased in four out of the five the mainland states. Detached house sales increased by 10.2 per cent South Australia, 7.0 per cent in Queensland, 3.2 per cent in New South Wales and 3.4 per cent in Victoria. In Western Australia, detached house sales declined by 1.4 per cent.

HIA-Sales-August-2015

Building Approvals Fall Again

Australian Bureau of Statistics (ABS) Building Approvals data shows that the number of dwellings approved fell 0.7 per cent in August 2015, in trend terms, and has fallen for five months.

Dwelling approvals decreased in August in Tasmania (6.8 per cent), Victoria (4.2 per cent), Western Australia (1.8 per cent), Northern Territory (0.6 per cent) and Queensland (0.2 per cent) but increased in the Australian Capital Territory (8.1 per cent), South Australia (4.5 per cent) and New South Wales (1.4 per cent) in trend terms.

In trend terms, approvals for private sector houses fell 0.1 per cent in August. Private sector house approvals rose in Queensland (2.0 per cent), New South Wales (0.4 per cent) and South Australia (0.2 per cent) but fell in Western Australia (2.8 per cent). Private house approvals were flat in Victoria, in trend terms.

The value of total building approved rose 0.8 per cent in August, in trend terms, and has risen for four months. The value of residential building rose 0.2 per cent while non-residential building rose 2.1 per cent in trend terms.

Blaming the baby boomers for the housing crisis ignores the real issue: a lack of supply

From The Conversation.

Baby boomers have a greater share of the UK’s wealth than any previous generation in the modern era. And unlike their parents and grandparents, the boomer generation also holds a much higher share of this wealth in housing. Meanwhile, with house prices high relative to their incomes, many younger people and families are are unwilling or unable to accrue wealth through home ownership. Increasingly, 25 to 34-year-olds rent.

This housing wealth inequality between the generations seems unfair. But can we blame the housing wealth of the boomers for preventing younger generations from getting on the property ladder? While baby boomers have generally profited from rising property values, the real reason for the UK’s housing problem is a lack of supply.

Boomer beneficiaries

The boomer generation mostly owned their homes already before the housing boom started around 2001, as shown in the chart below. So they got to enjoy the wild ride in house values with relatively little debt to pay off. Meanwhile, wealth inequality across generations increased during this period.

Home ownership rates by age and birth cohort. IFS calculations using Family Expenditure and Family Resources surveys.

Younger households either managed to buy when prices were high with the help of large mortgages only to see their house value drop, perhaps, during the subsequent bust that began in 2008. Or, if they hadn’t got on the ladder yet, the falling earnings and rising credit standards of the post-financial crisis years meant they were then unable to climb onto the ladder at all.

Not the boomers’ fault

Now, with house values again rising faster than earnings around London, it is perhaps irritating to some that so many older households sit in underused homes, while younger generations struggle to find affordable housing. The Intergenerational Foundation is particularly upset. But for the most part, this isn’t the boomers’ fault.

The relatively large climb in home values is mostly the result of a restricted supply of housing combined with demand factors that are largely unrelated to the ageing of Britain’s population. While older households have benefited from this confluence, they share only perhaps some indirect blame for it.

Boom1House prices rose sharply across England from 1996 to 2005, hugely benefiting the many boomers that had bought their homes during the previous decade. This turn of the millennium boom was the result of rising demand for a limited supply of housing stock. This was in turn fuelled by a number of smaller national trends including relaxed lending standards, increased immigration and, at least initially, widespread growth in household incomes and wealth. Perhaps underneath all this were “exuberant expectations” of continued out-sized capital gains. Changing demographics, a much lower-frequency phenomenon, probably contributed little to the demand-side push on house prices.

Geographic evidence

Since the subsequent housing bust, London has claimed the lion’s share of the increase in English house prices. Much of England north of London has seen relatively little – if any – increase in prices since then. This does not match up with where the majority of baby boomers are – they have been ageing in the wrong place to be the cause of this southerly tilt in the housing recovery.

Outside of London, England and Wales are getting older:Boom2The young are moving in droves to London. If anything, those grandparents with all their superfluous bedrooms in the villages in the north are the only ones keeping the lights on (and keeping house values from collapsing). Instead, the London-based recovery in house values relies on youth and foreigners. The young want to live in London and foreigners want to invest in it.

All the above factors have been shifting housing demand. If Britain would simply build more houses, prices needn’t have responded so drastically to this rising demand. Of course, the British housing supply problem has long been known.

Moreover, if Britain built more houses, it could build them in the places most needed and with the specifications most demanded. Supply should expand more rapidly in London and the south-east, where demand is highest. Plus, Britain’s ageing population and shifting social norms has created an ever larger demand for housing better suited to the needs of older households. Older households would be far more likely to downsize if this kind of retirement housing were built.

Supply blockers

Of course, older households, who are more likely to vote as well as to own, probably do bear some responsibility politically for blocking supply. Voting homeowners, and disproportionately so older homeowners, tend to disapprove of politicians that approve new building in their neighbourhoods. This has led to brazen political cycles in construction, which perverts the planning process, misallocates housing and raising prices.

Picture a retired couple in their mid-60’s, with children who’ve long since moved out and grandchildren who may just be old enough to visit the odd week during the summer, an empty bedroom or two still furnished with their parents’ childhoods dustily waiting for them. Barring a large change in circumstance, this couple will likely stay in their family home for many years. They know their neighbourhood. The furniture they’ve collected over the years fits just so in their present space. And if they own the average house in England, its value has grown a bit under 4% (in real, inflation adjusted, terms) on average for the last 20 years.

Over the next decade, as the boomer generation slowly ages into its golden years, the UK will have more and more of these households. Given the many risks they face and the relatively few housing choices available to them, clinging on to a house that is too large for their everyday needs is mostly rational.

Besides their pension, a house is far and away the largest store of wealth for those in their 60’s and beyond. Releasing equity by downsizing to a smaller home in a new location may be attractive in theory but there are high transaction and psychological costs in these moves. And, besides, with house prices generally growing again, the returns to be had from staying are too tempting.

Rather than using economic incentives (such as capital gains and stamp taxes) to lever boomers into smaller houses, Britain should look to correct the misaligned political and economic incentives that local councils have to block new housing from being built.

A healthy housing market with the right policies would channel the huge foreign desire to invest in English housing towards building homes for younger (and older) households. House prices would be less buoyant. Retirees with “too much house” would downsize of their own volition, in turn releasing equity for their own consumption and putting a family home back into the market for a new generation to enjoy.


This article is part of a series on What’s next for the baby boombers?

r: Jonathan Halket, Lecturer in Economics at University of Essex

 

So, Is Housing Lending On The Turn?

The ABS data on housing finance today suggests that the momentum in housing is shifting, as the tighter restrictions on investment lending bites; this despite strong market demand and the fact that investor property finance has never been higher at 38.9%.  Looking at the monthly flow trend data, lending overall rose 0.52% in the month, by $169 m. Within that, monthly approvals data shows that owner occupied lending rose 0.84% (up $105 m from last months approvals), refinancing up 0.72% ($44 m) and Investment lending up 0.14% ($19 m). In seasonally adjusted terms, the total value of dwelling finance commitments excluding alterations and additions rose 1.5%.

Housing-Flows-July-2015Within these numbers, we see that owner occupied construction fell 1% compared with last month, owner occupied new property purchases rose 2.24%, owner occupied refinance rose 0.72% and owner occupied “other” purchases rose 1%. On the investment side of the equation, investment purchases by individuals fell 0.47%, whilst investment construction rose 4.3% and investment by other entities (including SMSFs) rose 2%. Still momentum, but the investment sectors is shifting. We expect to see ongoing strong demand from the SMSF sector.

Housing-Flow-Movements-July-2015Looking at first time buyers, both the original data from the ABS, shows a small fall in the month to 15.4% in July 2015 from 15.8% in June 2015, and the DFA data for investor FTB also fell. The number of first time buyers are still sitting at around 12,000 a month in total, still well below the peaks in 2009. Our surveys indicate strong FTB investor appetite. The changed underwriting requirements however are having an impact.

FTB-Adjusted-July-2015Looking at the loan stock data, the major banks still have the lion’s share, but we see that on the investment side, credit unions grew their books the largest in percentage terms, with a 1.1% rise in investment loans (compared with a rise of 0.52% by the banks and 0.68% for the building societies).  We suspect some investors are switching to smaller banks, credit unions and the non-bank sector when they find the larger players less willing to lend. Overall growth on the owner occupied side was 0.43%.

Housing-Loan-Stocvk-By-Lender-Type-July-2015Finally, looking at the overall stock of loans, we see that investment loans now make up a record 38.9% of the total portfolio, thanks partly to the recent restatement of loan types by some the banks. We think this is too-higher share of housing lending (it is more risky in a down-turn) and the banks 60% total loan portfolio in housing is also too high, sucking finance from business sectors which might contribute to real economic growth.

Stock-Housing-Loans-July-2015

Property developers pay developer charges, that’s why they argue against them

From The Conversation.

A good rule of thumb in debates on who bears the economic cost of a policy change is to look at the positions taken by vested interests in the matter. If anyone is going to know if they bear the cost, it is those who pay. In the case of infrastructure charges on new property developments, the vocal objections from the property industry are a sure sign that they bear the economic costs.

Infrastructure charges are levied by local governments on developers of new land estates, based on an increased load on essential infrastructure services the council is responsible for.

A research paper reported in The Conversation recently claimed that property developers could pass on these charges in the price of new homes with a mark-up of 400%. The paper also claimed that these charges had the same price effects on existing homes, meaning that new home buyers ultimately bear the cost of infrastructure charges, rather than developers.

But the logic of this should be challenged and is not borne out in the results of other rigorous academic studies of infrastructure charges, which have in fact found the opposite.

The idea that costs of developer charges can be passed on through new home prices sounds intuitive. But it is based on an incorrect notion that prices are determined by costs.

In fact, developers already charge the maximum the market will bear. To not do so would be the equivalent of selling your house for half the market price, just because it only cost you that amount 10 years ago when you bought it. You wouldn’t do it, and nor would a developer.

Using a statistical analysis of a simple regression of home prices with developer charges, along with many hedonic control variables – as this study has – will find a positive correlation simply because charges are set in proportion to housing size. But that isn’t a causal relationship.

As Ian Davidoff and former academic economist (now the ALP’s shadow assistant treasurer) Andrew Leigh succinctly describe in their study on how stamp duty affects the market:

…if one were to simply regress the sale price on the tax payable on that property, the coefficient would capture both the mechanical fact that the tax amount is a function of the price, as well as any behavioural impact of taxes on prices.

It’s true that observations of this mechanical relationship have been widely interpreted as a behavioural effect in the literature on developer charges. But the best analysis does not interpret such results in this way.

A better way to observe behavioural impacts is take advantage of natural experiments, such as when a developer charge is increased in one area but not in a comparable adjacent area, then look at any subsequent price changes compared to the “control group”.

These types of natural experiments can alternatively be attempted with statistical controls, and a recent paper does just that when looking at the house price effects from additional costs imposed to finance infrastructure.

They find that not only are proper statistical controls very difficult to implement, but that prices decrease per dollar of additional infrastructure charge by somewhere in the range of $0.33 to $2.09.

This range captures the standard view that costs cannot be passed on in prices, which in the case of developer charges means that the developer or previous landowner bears the full cost of the charge, and not the home buyer. Davidoff and Leigh’s controlled results support this view on the incidence of stamp duties in Australia.

These more properly controlled results are consistent with the political actions of the property industry who oppose developer charges because they bear the full cost.

Why is all this important? Vested interests benefit from any illusion of unsettled academic debate. In the case of developer charges the property lobby can maintain an intelligent-sounding “Goldilocks” view in public debates that goes something like this: “The research is not settled. But it is likely that we don’t pay the full charge, nor do we pass it on completely in home prices. The cost is probably shared between us and the homebuyer.”

They capitalise on this apparent uncertainty by claiming that their interests are aligned with the home-buying community; a seductive “Goldilocks” view that is hard for politicians to ignore.

Author: Cameron Murray, Economist at The University of Queensland

Building Approvals Fell 0.7% In July

The Australian Bureau of Statistics (ABS) Building Approvals show that the number of dwellings approved fell 0.7 per cent in July 2015, in trend terms, and has fallen for five months.

Dwelling approvals decreased in July in Tasmania (5.6 per cent), Victoria (3.1 per cent), South Australia (2.1 per cent), Western Australia (1.8 per cent) and Queensland (0.8 per cent) but increased in the Northern Territory (7.3 per cent), Australian Capital Territory (4.4 per cent) and New South Wales (1.9 per cent) in trend terms.

BuildingApprovalsJuly2015BySTate
In trend terms, approvals for private sector houses fell 0.5 per cent in July. Private sector house approvals fell in Western Australia (2.3 per cent), Victoria (1.5 per cent) and South Australia (1.4 per cent) but rose in Queensland (1.2 per cent) and New South Wales (0.8 per cent).

The value of total building approved rose 0.6 per cent in July, in trend terms, and has risen for three months. The value of residential building fell 0.4 per cent while non-residential building rose 2.9 per cent in trend terms.

New Home Sales Past Peak – HIA

The HIA New Home Sales Report, a survey of Australia’s largest volume builders, showed a very modest decline of 0.4%. HIA say key leading indicators of home building, including HIA New Home Sales, suggest little prospect for further growth in new home construction in 2015/16.

Detached house sales increased by 0.7 per cent in July this year. The annual peak for detached house sales has passed. Over the three months to July this year detached house sales fell by 2.8 per cent to be 3.4 per cent lower when compared to the three months to July 2014. ‘Multi-unit’ sales peaked in May this year and fell by 4.2 per cent in July following a decline of 2.9 per cent in June. Over the three months to July this year multi-unit sales increased by 8.3 per cent, but it was the strength of the May result that drove the quarterly outcome.

In the month of July 2015 detached house sales increased by 4.2 per cent in New South Wales. Detached house sales fell by 2.3 per cent in Victoria and by 4.9 per cent in Western Australia. Sales were close to flat for the month in Queensland (-0.6 per cent) and South Australia (-0.2 per cent).

HIAHomeSalesJuly2015