I have been waiting for this for five years and anyone looking for an outlook into the way the property market is shaped by demographics should be excited as well.
Australian Bureau of Statistics and Census
Every five years the Australian Bureau of Statistics (ABS) counts every single person and household across Australia. These statistics are used to help us understand ourselves as our population and demographics change over time. These statistics are public to all and should be every property investor’s best friend. Critical analysis of demographics can help you identify potential gaps in the market and opportunities that others may have overlooked. This analysis can form part of your investment search criteria. Along with local and state government plans and housing strategies congruent with certain future truths to occur in Australia over the next decade. (Population growth and an ageing population)
Tuesday, 10th August 2021 also known as ‘Census night’ is the official snapshot date of the Australian population. Unfortunately, the initial findings and statistics won’t get released until June 2022 over a three stage phase over the next twelve months. Despite this, now is the time to start your critical analysis journey. By learning how to find patterns and deduce conclusions from the evidence that you analyse.
A close friend of mine, extremely intellectual and very financially successful, always tells me the same anecdote after our conversations. “If you give a man a fish, he’ll eat for a day but if you teach a man how to fish, you’ll feed him for a lifetime.” He is a great teacher and understood the importance of not telling me what to see but showing me where to look.
Patterns in Statistics
Humans naturally search for patterns in every problem solving situations. Finding patterns is our way of understanding the world and working out what could possibly occur in a similar situation. In this pursuit we can be led to incorrectly deduce conclusions from data that has a correlation but not necessarily causation between variables. For example, if there was a positive correlation between the proportion of households that rented and higher house price growth.
This could lead us to the conclusion that suburbs with higher renting rates had higher price growth this is simply not accurate. As we neglect to look at all possible variables. Such as immigration and foreign visitor numbers as well as the nature of their employment and stay in Australia. It’s important not to make conclusions too early as correlation does not always mean causation. There is a multitude of factors that come into a pattern, especially with house price growth.
Drawing conclusions from incomplete data (conjecture)
There is also the pitfall of inversing correlations between variables. What I mean by this is creating a chicken and the egg scenario. The Eastern suburbs has a substantially higher proportion of its population with a household income higher than $3000 per week. It also has higher house prices compared to Greater Metropolitan Sydney as a whole. Does the Eastern Suburbs have high house prices because Eastern suburbs has people with higher household incomes or? Are there higher household incomes in the Eastern Suburbs because of its higher house prices?
Trends in Statistics
When the census statistics are released, looking at the information without the context of past statistics does not allow you to form an understanding of trends and the direction of where the statistics are saying we are heading. If we see that the population in the Eastern Suburbs is 284,380 persons in 2016. This information is useless on its own, you need to view it in comparison with past figures to be able to draw a picture of what is happening in the past.
Sample V Population in Statistics
I’ll show you why the census is a great tool based on its validity as a statistical measure. Almost all studies, investigations, and research projects source data using a sample. The selection and size of the sample are designed to be an adequate reflection of the ‘population’ or the subject that it is attempting to investigate. Unfortunately, this is not always the case and samples that are taken can be used to manipulate statistics and information on the population as a whole. For example, if we create a fictitious survey of 2000 people that reveals that “living in Sydney is getting harder.” These are some questions you need to ask yourself:
Who are these people
- Survey: People living in Sydney.
- Reality: People living in Sydney who agreed to take the survey.
How was the sample selected
- Mail outs, street interviews, telephones calls, Where were they sent?, Where were the interviews taken? How were the phone numbers selected?
- Therefore the survey could be people who agreed to take the survey who pick up unsolicited phone calls, have the time to engage and speak with street interviewers and reply to mail-outs.
How does this sample reflect the total population?
- Survey: 2000 person sample of a population of over 5 million
- Reality: 2000 people who agreed to take the survey, take unsolicited phone calls, and speak with a street interviewer at that particular time on that particular day in the area where the interviewer was. Take the time to reply to a mailout for what reason. Other than a possible bias where they probably feel strongly about the survey outcomes and believe the response could affect change.
As a result, the sample selection can lead to a myriad of assumptions that do not accurately depict the population. The smaller the sample the more variances between responses, the more assumptions that are made. If you flipped a coin ten times and it landed on Heads 8 times would you conclude the probability of landing on heads is 80%? The impressive thing about the census is that it’s compulsory for every household to complete. Albeit there are non-responses, statistical errors and sometimes false data. It is the most accurate reflection of our population for the simple fact that there is no sample.
In conclusion, it is great that we have access to census information over time to help build an understanding of ourselves and the direction that we are heading in order to make decisions in our property journey. Analysis of statistical data is thwarted with pitfalls and wrong turns. Understanding the nature of data and the relationships between variables can help you in forming correct patterns that accurately depict the trends that are occurring and perhaps the reasons why.
For more information. Please read for FREE How to lie with statistics by Darrell Huff. Published in 1954, this book has stood the test of time in helping people navigate statistics.