The evidence is mounting that future returns of US stocks will be very poor. We might see a 40 - 50% down turn of US stocks soon. I then ran through the history of MSCI Asia x Japan to see if there were points in time when Asian / Emerging Market stocks rose while US stocks fell. I could find nothing.

There were periods where Asia x J was sideways while US rose: 1994 - 1997, 2011 - 2013. There was even a period, during the Asian Crisis in 1997 - 98 when Asia crashed while the US continued to rise. There were periods when Asia x J outperformed US stocks in a bull run. But never have I seen Asia / EM stocks rise when US fall.

Perhaps we are still export driven and dependent on the consumption of OECD countries. Perhaps the majority of our institutional funds come from the west and if they pull their money out, we have no "spine" to our markets.

Things may change the next time US crashes, but I'll remain extremely cautious for the next 12 - 24 months.

Stocks Are Now So Fantastically Expensive That They Will Likely Have Negative Returns For Years

Henry Blodget in 3 hours Bookmark 9

As regular readers know, I am increasingly worried about the level of stock prices.
So far, this concern has seemed unwarranted. And I hope it will remain so. (I own stocks, and I’m not selling them.)
But my concern has not diminished.
On the contrary, it grows by the day.
I’ve discussed the logic behind my concern in detail here. Today, I’ll just focus on the primary element of it:
Price.
Stocks are now more expensive than at any time in history, with the brief (and very temporary) exceptions of 1929 and 2000.
Importantly, today’s high prices do not mean that stock prices can’t go even higher. They can. And they might. What it does mean is that, at some point, unless it is truly “different this time,” stock prices are likely to come crashing back down, likely well below today’s levels. Just as they did after those two historic market peaks.
(I unfortunately know this especially well. Because I was one of the people hoping it was “different this time” in 1999 and 2000. For many years, it did seem different — and stocks just kept going up. But then they crashed all the way back down, erasing three whole years of gains. This was a searing lesson for me, as it was for many other people. It was also a lesson that cost me and others a boatload of money.)
Anyway, here are three charts for you…
First, a look at price-earnings ratios over 130 years. The man who created this chart, Professor Robert Shiller of Yale, uses an unusual but historically predictive method to calculate P/Es, one that attempts to mute the impact of the business cycle. Importantly, this method is consistent over the whole 130 years.
As you can see, today’s P/E, 27X, is higher than any P/E in history except for the ones in 1929 and 2000. And you can also see how quickly and violently those P/Es reverted toward the mean:

Second, a chart from fund manager John Hussman showing the performance predictions for 7 different historically predictive valuation measures, including the “Shiller P/E” shown above. Those who want to remain bullish often attack the Shiller P/E measure, pointing out that it is useless as a timing tool (which it is). Those folks may also want to note that the 6 other measures in the chart below, including Warren Buffett’s favourite measure, same almost exactly the same thing.

Third, a table from the fund management firm GMO showing predictions for the annual returns of various asset classes over the next 7 years.
As you can see, the outlook for all stocks, but especially U.S. stocks, is bleak. Specifically, GMO foresees negative real returns for U.S. stocks for the next 7 years. Even after adding back the firm’s inflation assumption of 2.2% per year, the returns for most stocks are expected to be flat or negative. The lone bright(er) spot is “high quality” stocks — the stocks of companies that have high cash flow and low debt. Those are expected to return only a couple of per cent per year. (Returns for international stocks are expected to be modestly better, but still far below average).

The real bummer for investors, as GMO’s chart also makes clear, is that no other major class offers compelling returns, either. The outlook for bonds and cash is lousy, too. This puts investors in a real predicament. The only asset class forecasted to provide compelling returns over the next 7 years is… timber. And most of us can’t go out and buy trees.
To be crystal clear:
There is only one way that stocks will keep rising from this level and stay permanently above this level. That is if it really is “different this time,” and all the historically valid valuation measures described above are no longer relevant.
It is possible that it is different this time.
It is not likely, however.
And one thing to keep in mind as you listen to everyone explain why it’s different this time is that one of the things everyone does when stocks get this expensive is attempt to explain the high prices (and justify even higher ones) by looking for reasons why it’s different this time.
That’s what most of us did in 1999 and 2000.
For a while, we seemed “right,” and we were heroes because of it.
But then, suddenly, without much warning, we were drastically, violently wrong.
And we — or me, at least — learned that searing lesson that I referred to above: That it’s almost never “different this time.”

People Don't Like It When I Say Stocks Might 'Crash,' So I Won't Use That Word, But...

Henry Blodget Sep 25 2014, 11:52 PM Bookmark

•                  

For the past year, I have been worrying out loud about US stock valuations and suggesting that a decline of 40%-50% would not be a surprise.
I haven’t predicted a drop like this, though I certainly think one is possible. I also haven’t made a specific timing call: I have no idea what the market will do over the next year or two. But I do think it is highly likely that stocks will deliver way below-average returns for the next 7-10 years.
So far, the market has shrugged off these concerns: The S&P 500 is up about 8% from from last fall’s 1,850 level.
That’s good for me, because I own stocks. But my concerns haven’t changed. And I’m not expecting this performance to continue.
I am feeling increasingly alone, however. Over the past year, one by one, most cautious pundits have capitulated and started arguing that valuations don’t matter, that the US economic recovery is only just really getting started, and that stocks are going to keep going up for years.
I hope so.
But it’s not just price that concerns me.
There are three reasons I think future stock performance will be lousy:

• Stocks are very expensive on almost all historically predictive measures
• Corporate profit margins are still near record highs
• The Fed is now tightening

Below, I’ll discuss those concerns one at a time.
Before I do, though, a quick note: Sometimes people are confused by my still owning stocks while getting increasingly worried about a sharp price decline. If I think the market might drop, they ask, why don’t I sell? Here’s why I don’t sell:

1. I’m a long-term investor,
2. I’m a taxable investor, which means that if I sell I have to pay taxes on gains,
3. I don’t know for sure what the market will do (no one knows for sure, and the bulls might be right),
4. I think market timing is a dumb strategy
5. I’m mentally prepared for a sharp decline (I won’t get spooked into selling if stocks crash — on the contrary, I’ll buy more),
6. I think stocks will eventually recover, and
7. There’s nothing else I want to invest in (every other major asset class is also priced so high that they will all likely deliver lousy returns)

Yes, if stock prices decline 40%-50% over the next couple of years and then we enter a Japan-like scenario in which they continue to drop for two decades, I’ll feel like an idiot. But otherwise, I’m ok with sharp price declines. I’m a long-term bull. And crashes create the opportunity to buy stocks with much higher likely future returns.
Here’s more on those three big concerns…

Price: Stocks are very expensive

In the past year or two, stocks have moved from being “expensive” to “very expensive.” In fact, according to one historically valid measure, stocks are now more expensive than they have been at any time in the past 130 years with the exception of 1929 and 2000 (and we know what happened in those years).

The chart below is from Yale professor Robert Shiller. It shows the cyclically adjusted price-earnings ratio of the S&P 500 for the last 130 years. As you can see, today’s PE ratio of 26X is miles above the long-term average of 15X. In fact, it’s higher than at any point in the 20th century with the exception of the months that preceded the two biggest stock-market crashes in history.

Does a high PE mean the market is going to crash? No. Sometimes, as in 2000, the PE just keeps getting higher for a while. But, eventually, gravity takes hold. And in the past, without exception, a PE as high as today’s has foreshadowed lousy returns for the next 7-10 years.
But is it “different this time?”
Now, it’s possible that it’s “different this time.” The words “it’s different this time” aren’t always the most expensive words in the English language. Sometimes things do change, and investors clinging to old measures that are no longer valid miss decades of market gains before they realise their mistake.
One example of this is the famous bond yield / stock yield inversion in the 1950s. For decades, stock yields had been higher than bond yields. This seemed to make sense: Stocks were more risky than bonds, so of course they should have higher yields. But then stock prices rose so much that stock yields dropped below bond yields. This caused many panicked investors to rush to the sidelines. Alas, stock yields stayed below bond yields for half a century. And the bears got clobbered by inflation and missed decades of gains.
Why did the stock yield / bond yield relationship no longer work? Because the US had gone off the gold standard. For the first time in the country’s history, inflation became the norm. And inflation clobbers the value of bonds.
That fundamental change was obvious in hindsight. But it wasn’t obvious at the time.
So is it possible that it’s different this time, too, that Professor Shiller’s PE ratio is no longer valid? Yes, it’s possible. A smart market analyst, the anonymous financial blogger “Jesse Livermore,” analysed Professor Shiller’s PE last year and made a compelling argument that it’s no longer valid because accounting rules have changed. Livermore makes a persuasive point. It certainly seems possible that the future average of Professor Shiller’s PE ratio will be significantly higher than it has been in the past 130 years. But it would take a major change indeed for the average PE ratio to shift upwards by, say, 50%.
So, yes, it’s possible that it’s a bit different this time. But I doubt it’s entirely different.
While we’re at it, please note something else in the chart above. Please note that, sometimes — as in the entire first 70 years of the last century — PEs (blue line) can be low even when interest rates (red line) are low. That’s worth noting because, today, you often hear bulls say that today’s high PEs are justified by today’s low interest rates. Even if this were true — even if history did not clearly show that you can have low PEs with low rates — this argument would not protect you from future losses, because today’s low rates could eventually regress upwards to normal. But it’s also just not true that low rates always mean high PEs.
And in case some of your bullish friends have convinced you that Professor Shiller’s P/E analysis is otherwise flawed, check out the chart below. It’s from fund manager John Hussman. It shows six valuation measures in addition to the Shiller PE that have been highly predictive of future returns. The left scale shows the predicted 10-year return for stocks according to each valuation measure. The coloured lines (except green) show the predicted return for each measure at any given time. The green line is the actual return over the 10 years from that point (it ends 10 years ago). Today, the average expected return for the next 10 years is slightly positive — just under 2% a year. That’s not horrible. But it’s a far cry from the 10% long-term average.

And, lastly, lest you’re tempted to dismiss both Shiller and Hussman as party-pooping idiots, here’s one more chart. This one’s from James Montier at GMO. Montier, one of Wall Street’s smartest strategists, is also very concerned about today’s valuations. He does not think it’s “different this time.”
Montier’s chart shows that another of the common arguments used to debunk Professor Shiller’s PE chart is bogus. Bulls often say that Professor Shiller’s PE is flawed because it includes the crappy earnings year during the financial crisis. Montier shows that this criticism is misplaced. Even when you include 2009 earnings (purple), Montier observes, 10-year average corporate earnings (blue) are well above trend (orange). This suggests that, far from overstating how expensive stocks are, Prof. Shiller’s chart might be understating it.

In short, Montier thinks that all the arguments you hear about why today’s stock prices are actually cheap are just the same kinds of bogus arguments you always hear in the years leading up to market peaks: Seemingly sophisticated attempts to justify more buying by those who have a vested interest in more buying.
So, go ahead and tell yourself that stocks aren’t expensive. But be aware of what you’re likely doing. What you’re likely doing is what others who persuaded themselves to buy stocks near previous market peaks (as I did in 2000) were doing: Saying, “it’s different this time.”
That’s price. Next comes profit margins.

Today’s profit margins are extremely, abnormally high

One reason many investors think stocks are reasonably priced is that they are comparing today’s stock prices to this year’s earnings and next year’s expected earnings. In some years, when profit margins are normal, this valuation measure is meaningful. In other years, however — at the peak or trough of the business cycle — comparing prices to one year’s earnings can produce a very misleading sense of value.
Profit margins tend to be “mean-reverting,” meaning that they go through periods of being above or below average but eventually — sometimes violently — regress toward the mean. As a result, it is dangerous to conclude that one year of earnings is a fair measure of long-term “earning power.” If you look at a year of high earnings and conclude these high earnings will go on forever, for example, you can get clobbered.
(It works the other way, too. In years with depressed earnings, stocks can look artificially expensive. That’s one reason a lot of investors missed the buying opportunity during the financial crisis. Measured on 2009′s clobbered earnings, stocks looked expensive. But they weren’t. They were actually undervalued.)
Have a glance at this recent chart of profits as a per cent of the economy. Today’s profit margins are the highest in history, by a mile. Note that, in every previous instance in which profit margins have reached extreme levels like today’s — high and low — they have subsequently reverted to (or beyond) the mean. And when profit margins have reverted, so have stock prices.

After-tax profits as a per cent of GDP.

Now, again, you can tell yourself stories about why, this time, profit margins have reached a “permanently high plateau,” as a famous economist remarked about stock prices just before the crash in 1929. And, unlike that economist, you might be right. But as you are telling yourself these stories, please recognise that what you are really saying is “It’s different this time.”

And then there’s Fed tightening…

For the last five years, the Fed has been frantically pumping more and more money into Wall Street, keeping interest rates low to encourage hedge funds and other investors to borrow and speculate. This free money, and the resulting speculation, has helped drive stocks to their current very expensive levels.
But now the Fed is starting to “take away the punch bowl,” as Wall Street is fond of saying.
Specifically, the Fed is beginning to reduce the amount of money that it is pumping into Wall Street.
To be sure, for now, the Fed is still pumping oceans of money into Wall Street. And if you limit your definition of “tightening” to “raising interest rates,” the Fed is not yet tightening. Yet. But, in the past, it has been the change in direction of Fed money-pumping that has been important to the stock market, not the absolute level.
In the past, major changes in direction of Fed money-pumping have often been followed by changes in direction of stock prices. Not immediately. And not always. But often.
Let’s go to the history …
Here’s a look at the last 50 years. The blue line is the Fed Funds rate (a proxy for the level of Fed money-pumping.) The red line is the S&P 500. We’ll zoom in on specific periods in a moment. Just note that Fed policy goes through “tightening” and “easing” phases, just as stocks go through bull and bear markets. And sometimes these phases are correlated.

Now, lets zoom in. In many of these time periods, you’ll see that sustained Fed tightening has often been followed by a decline in stock prices. Again, not immediately, and not always, but often. You’ll also see that most major declines in stock prices over this period have been preceded by Fed tightening.
Here’s the first period, 1964 to 1980. There were three big tightening phases during this period (blue line) … and three big stock drops (red line). Good correlation!

Now 1975 to 1982. The Fed started tightening in 1976, at which point the market declined and then flattened for four years. Steeper tightening cycles in 1979 and 1980 were also followed by price drops.

From 1978 to 1990, we see the two drawdowns described above, as well as another tightening cycle followed by flattening stock prices in the late 1980s. Again, tightening precedes crashes.

And, lastly, 1990 to 2014. For those who want to believe that Fed tightening is irrelevant, there’s good news here: A sharp tightening cycle in the mid-1990s did not lead to a crash! Alas, two other tightening cycles, one in 1999 to 2000 and the other from 2004 to 2007 were followed by major stock market crashes.

One of the oldest sayings on Wall Street is “Don’t fight the Fed.” This saying has meaning in both directions, when the Fed is easing and when it is tightening. A glance at these charts shows why.
On the positive side, the Fed’s tightening phases have often lasted a year or two before stock prices peaked and began to drop. So even if you’re convinced that sustained Fed tightening now will likely lead to a sharp stock-price pullback at some point, the bull market might still have a ways to run.

In conclusion…

I’m still nervous about stock prices and think stocks will likely deliver lousy returns over the next 7-10 years. I also would not be surprised to see the stock market drop sharply from this level, perhaps as much as 30%-50% over a couple of years.
None of this means for sure that the market will crash or that you should sell stocks (Again — I own stocks, and I’m not selling them.) It does mean, however, that you should be mentally prepared for the possibility of a major pullback and lousy long-term returns.

Expect Low Returns in Coming Years: The Final Stretch

This is a good article by Goldman Sachs. I have the following funds in my portfolio:

1. For CPFSA: First State Bridge (Asian Equities and Bonds), Templeton Global Balanced Fund (Global Equities / Bonds).

2. CPFOA: First State Dividend (Asian Equities), Templeton Global Fund (Global Equities), First State Regional China (Greater China Equities), First State Global Resource (Mining and Energy Equities, a small position leftover after I have cut my position).

3. Cash: Schroder Asian Income (Asian Equities / Bonds), JPMorgan Global Income (Global Equities / Bonds).

For equities, I prefer China due to the cheap valuation and growth at around 5 - 10% per year. I also believe that Asian equities will outperform the US or Europe going forward.

One thing though, I don't foresee European or Japanese equities outperforming, even though these two regions are the only ones embarking in QE from now on, with the US exiting finally. The earnings from Europe and Japan simply aren't coming through. I believe that Europe has a better chance of outperforming in future than Japan though, because Europe seems to be more capable of reform than Japan. For Japan, the key problem is the third arrow, which has failed to execute properly. Domestic demand can never pick up without population growth.


So ride along for the final stretch. In 2015, I believe some cracks will begin to show. It could be China's credit bubble finally breaking, some high yield bond defaults.... But generally, the picture is that of growth and recovery in the west, including Japan. So I'm 6/10 in terms of bullishness for equities.

For currencies, I am shorting EURUSD and long USDJPY too. These are the two best bets in FX...

Expect low returns in coming years

Goldman: Growth gap between US and rest of world will narrow, helping global stocks to catch up with US equities

Japan's Topix index will rise 18 per cent by the end of 2015, while the S&P 500 Index will increase about 3 per cent, according to a team of Goldman Sachs analysts led by Dominic Wilson.

   

 

21 Nov5:50 AM

New York
GLOBAL markets from stocks to bonds are "priced to offer low absolute rates of return" in coming years, with equities, particularly in Japan, poised for the biggest gains, according to Goldman Sachs Group Inc. Japan's Topix index will rise 18 per cent by the end of 2015, while the S&P 500 Index will increase about 3 per cent, according to analysts including Dominic Wilson who focus on translating Goldman Sachs' economic views into market forecasts. Yields on sovereign bonds from the US to Japan and Germany will climb as the global economic recovery broadens while commodities from oil to gold will stay low after recently tumbling, the analysts predicted.
The forecasts reflect expectations that the US economic recovery will continue at a rate similar to 2014 while expansions in Europe and Japan benefit from lower energy costs and "some relaxation in lending conditions", the analysts wrote. Increases in US gross domestic product will probably outstrip Europe. 

"While we also think there is a real downside risk scenario in the euro area, we are not convinced that the market is adequately reflecting the prospect for US growth over the next few months," analysts led by Mr Wilson wrote in a report on Wednesday. US stocks are beating global equities this year as the economy strengthens in the face of slowdowns from China to Europe. The S&P 500 has jumped 11 per cent, compared with 7.4 per cent in the Topix and 3.2 per cent in the Stoxx Europe 600 Index.

As the US Federal Reserve prepares to raise interest rates and central banks from Japan and Europe add stimulus, the growth gap between the US and the rest of the world will narrow, helping global stocks to catch up with American equities, according to Goldman Sachs. Mr Wilson's team forecast the European benchmark index to rise 9 per cent in 2015.
"From an equity market perspective, we tend to place a great deal of emphasis not only on economic growth, but also on its rate of change," the analysts wrote. "The forecast pick-up in growth could be meaningful for non-US markets, particularly after a year of lagging significantly."
The team forecast that US 10-year Treasury yield will reach 3 per cent by the end of 2015, up from 2.35 per cent now. German Bund yields will rise to 1.25 per cent from 0.8 per cent while Japanese 10-year rates will increase to 0.8 per cent from 0.5 per cent, they predicted.
The US dollar will continue to strengthen against other currencies, reaching US$1.15 per euro and 130 yen by the end of 2015, the forecasts showed.
The dollar reached a seven-year high against the Japanese currency on Wednesday, touching 117.94 yen. The 18-nation euro recently traded at US$1.25.
"We have high conviction that dollar strength is likely to be most pronounced against the euro and yen," Mr Wilson's team wrote. "We expect the weakness in both currencies against the dollar to be prolonged past the end of 2015, and expect EUR/USD to trade at parity in 2017 and USD/JPY at 140."

In the commodities market, Goldman Sachs expected Brent crude to stay near US$80 a barrel next year and a stronger dollar will push gold prices to US$1,050 an ounce, down from US$1,190 recently. Gold fell 9 per cent last quarter and oil entered a bear-market decline of 20 per cent.
Commodities with below-trend supply growth, such as nickel, zinc and aluminium, will outperform, while copper will continue to lag behind other metals because of rising supply and sluggish demand in China, the analysts said.
"Our market outlook overall is quite benign," they wrote in a section titled Living in a Low-Return World. "But, under the surface, it is striking that many asset prices are priced to offer low absolute rates of return over the coming years."  BLOOMBERG

Are You Buying the Right Stuff?

Below is an article by a real estate commentator from Australia. But the same can be applied to Singapore. In Australia's capital cities, future demand will be 55% in houses, 45% in units.

Houses are defined as non-strata homes. Units are referred to townhouses (stratified) and apartments.

Yet, in cities like Melbourne and Sydney, > 50% of the approvals are for units. It means the city is building the wrong type of homes for future demand and the price appreciation for units will be inferior to well located houses.

In Singapore, the trend is the same. 90% of the existing housing stock is either HDB, private apartments or townhouses. Only 10% is non strata homes. Of the approved dwellings, 95% are units and 5% houses.

Let's look at the units in Singapore. The trend is towards smaller sizes. The average size of private apartments sold in the last 2 years fell from around 1200 sf 10 years ago to 750 sf. This is a huge 37.5% fall in floor area! Have you ever tried living in a 750 sf apartment? My wife and I rented a 2 room 1 bath HDB a few years ago, which was around 700 sf. We felt extremely claustrophobic and felt sick very often. The master bedroom was around 200 sf. There was no en suite. The common room was around 150 sf. Because there was no store room, we used the common room as a store room. The living room was around 150 sf, kitchen 200 sf (I don't understand why the kitchen has to be so disproportionately big). Needless to say we moved out in less than 1 year. It was more suitable for a single person than a couple.

Our home is around 1100 sf, with 2 people, we felt a lot better. But now that we have a new addition to the family and a maid, 1100 sf is beginning to feel a little small because the baby needs to have his own room preferably. We need to look for a place with 3 bedrooms, > 1300 sf for sure. I will have to look for old townhouses or apartments in the CCR to meet this need in the next 3 years.

Demand for > 1000 sf Will Increase

Now if most of the apartments built are < 800 sf, it could only cater for singles and at best, childless couples, although with so much "dead spaces" like aircon ledges and bay windows, I doubt it is suitable even for couples. The older apartments of > 1000 sf must be in greater demand.

I therefore infer that prices of 2 beds, 2 baths apartments with 1000 - 1300 sf will increase faster in future.

Retirees To Downgrade To 800 - 1000 sf 2 Bedroom Apartments

What about the ageing population? How will it affect future demand? There will be an increase in demand from retirees without children living with them. It will drive up the demand of smaller apartments of around 800 - 1000 sf, 2 bedrooms and above. It is very inconceivable for retirees to want homes with 1 bedroom because they would prefer their grand kids and kids to stay over in their visits or an extra room to look after the grand kids.

Demand For > 1300 sf Apartments / Townhouses to Drop

As family sizes get smaller and the average household size to fall from 3.5 to 3 in future, the demand for 4 bedrooms and above houses and apartments will fall. Imagine a typical family of 2 adults, 1 domestic help and 1 child. The demand will be at most for a bigger 3 bedroom apartment with 1 domestic helper room. There will be a need for 2 bathrooms at least.

Anything larger than that will be unaffordable. Imagine a 1500 sf house at 1200 psf. That will cost SGD1.8m. The average household income is SGD111,360. The apartment will cost 16.2x of household annual income.

I am an exception however as I crave for more space if I were to live in Singapore for a few more years. I desire a 1300 - 1500 sf apartment of 3 to 4 bedrooms (1 master, 1 for the child, another for the helper and a spare for guests), 3 bathrooms, in a small project that is centrally located. It will not come cheap. But why compromise when one can migrate and live freely as an investor / business person?

ARE WE BUILDING THE RIGHT STUFF?

Oct 30, 2014

Michael Matusik

I believe that demographics, eventually, shape everything.  And whilst there is a demand for more compact housing, the want to live on top of each other (and the ability to afford the premium to do so) is at odds with Australia’s future demographic shape – and more importantly, what our key buying groups want & can afford.
The same thinking also applies to new McMansions in outer suburbia.
Let’s start from the top
As we outlined several months ago, we don’t use the more traditional generational demographic markers, such as Baby Boomers, when assessing underlying housing need or demand; we think they are too broad.
Instead, we break the housing demographic market into six distinct buyer segments:

• Young renters
• First home buyers
• Upgraders
• Downsizers
• Retirees
• Aged care

Children, when it comes to housing need, are captured in older segments.
The first chart below shows the relative size (by no. of residents) within each key demographic segment within Australia today.
But it is the change in household formation that best determines future housing need, as shown by our second chart below.

Our second chart suggests that over the next ten years there will be a need to build more homes for first home buyers; people downsizing & retirees.
Annual housing need for young renters is projected to decline (and so, I have to ask who is actually going to rent out all those little inner city boxes?), as too is the demand for upgrader housing.  So the need for those new, big suburban homes should also wane.
Housing required for aged care – for now – is likely to remain steady.
Working out how many new homes are needed (and what and where these new homes should be), is more than just dividing the annual projected total population growth by the average number of residents per dwelling.
What we like to do is work out what is happening in each of the six distinct buying segments.  This provides us with a guide as to the real underlying need for new homes (remember, it is about household formation & not just population growth), and a better understanding as to what homes are actually wanted.
Let me demonstrate this by using first home buyers & those looking to downsize, as examples.
A bit more about first home buyers
Fast facts:

• 35 to 44 years
• 3.3 people per household
• 36% no children at home
• 30% couples or living alone (lucky buggers!)
• A projected 20% of total new housing demand over next decade

Brief description: HECS; partnering later; parents as friends; travel; options galore – so it is not until their mid-30s to-early 40s that many buy their 1st home.
Important housing considerations: room to grow; affordability & property improvement
Preferred housing options: some apartments (inner city); some townhouses/duplexes & small houses (middle suburbs); larger detached & dual-income homes (outer suburbs)
What most buy: a property that can be improved & is capable of taking in a tenant/s to help pay the mortgage
And what about downsizers?
Fast facts:

• 60 to 74 years
• 2.1 people per household
• 92% no children at home
• 71% couples or living alone
• A projected 32% of total new housing demand over next decade

Brief description: As their title suggests, many want to move into something smaller & if possible in their existing neighbourhood.
Important housing considerations: low maintenance; convenience; like-minded residents; existing location; small projects
Preferred housing options: spacious apartments (inner city); townhouses/villas & dual-income homes (middle-outer suburbs)
What most buy: well-priced, usually in smaller complexes; private; secure & with space for visitors & grandchildren
Of course, some first home buyers might buy a small downtown apartment or many might choose to continue renting; just as those looking to downsize might just decide to stay put & age in their existing home.
Some from either group might buy a large home in outer suburbia, too.
But if the right housing is provided & importantly at the right prices, then many in these two sample markets – along with those in our other four key buyer groups – would buy.  So factoring in considerations such as housing affordability is also important.
Housing that’s really wanted
Our second graphic below outlines what we think is needed when it comes to new housing across Australia over the next ten years.

Our modelling varies, according to location & local economics.  For example, in a middle-ring suburb, many would opt for a two-bedroom property rather than one with a single bedroom.  Many would prefer, in this situation, a three-bedroom dwelling, assuming they could afford it.
A household’s housing preference will usually change by location; with more opting for one-bedroom stock closer to the CBD & more wanting three+ bedroom properties in the more outer suburbs.
So the proportional range for each housing type shown in the graphic above, caters for location spread ranging from inner city suburbs to our regional centres.
End note
We need to provide much more diversity when it comes to our new housing stock across Australia.  Some places are getting this right, whilst too many are not.
There needs to be much more choice in the housing mix than essentially tall things downtown & big boxes in the outer suburbs.
Town planning dogma is forcing too much new supply in the wrong places & for the wrong reasons.  Governments at all levels are not interested in improving Australia’s housing choice.
All housing – not just new stock – is too expensive as a result.
We are not building the right stuff.
Many more Australians would move into more suitable digs if it was available to them.  Not everyone wants to (or can afford to) either live in a three+ bedroom detached house or an expensive shoebox in the sky.