5 MODELLING LIMITATIONS AND SCOPE FOR FURTHER DEVELOPMENT
The Scottish Model of Housing Supply and Affordability is a significant economic and econometric undertaking. Designed to operate as a simulation model and tool to aid policy design, the work detailed in this report explicitly examines the determination of house price growth, household formation, determination of labour market earnings, household migration within Scotland and households' choice of tenure (distinguishing between owner occupation and other tenure choices). During the course of the research project underpinning this model, a number of opportunities for further, future development of the modelling framework were identified. This includes the following:
- There is a case for further work designed to strengthen the macro-economic linkages in the labour market module. At present, the labour market module is effective in explaining and predicting the determination of earnings at the sub-national level. An extension to this module would explicitly model the determination of earnings at the Scotland level, primarily as a function of UK and international labour market and macro economic conditions. This development would give the simulation model greater value in terms of its ability to simulate the impact of macro-economic influences on housing supply and affordability.
- More detailed analysis of the role of international migration in the labour and housing markets. The simulation model permits the user to alternate between two sets of GROS population projections. One of these is designed around assumptions of higher international migration. While this aspect of international migration is covered by the simulation model, much less is known about the housing and labour market behaviour of recent international migrants. In terms of the labour market module, there is an assumption embedded in this work that international migrants expand the labour supply in a relatively simple way. Equally, new households formed by international migrants are assumed to generate additional housing demand no differently to more established Scottish households. These are fairly bold assumptions, though quite essential in the context of the work outlined here. A logical developmental step would be to examine these assumptions, and their ramifications, in more detail.
- Analysis of interactions between other tenures (particularly the private rented sector, but also social rented) and owner occupation. Such an analysis would yield valuable insights to the role of tenures other than owner occupation in the context of affordability. For example, in a period of declining house prices, is it to be expected that households will, at the margin, leave the private rented sector and seek housing opportunities in the owner occupied sector? What are the long-run ramifications on housing supply and affordability?
- Examination of the role of financial market liquidity on house price growth and housing supply. Meen et al (2005) report substantial analysis of credit market conditions, with an explicit linkage to their simulation model. This driver of housing market outcomes has been treated in a relatively simple way in the work outlined in this report and there is scope for further development. Such an extension to this work would potentially offer valuable insights regarding the importance of credit availability on both supply of, and demand for, housing.
The Scottish Model of Housing Supply and Affordability is a significant economic and econometric undertaking. Designed to operate as a simulation model and tool to aid policy design, the work detailed in this report explicitly examines the determination of house price growth, household formation, determination of labour market earnings, household migration within Scotland and households' choice of tenure (distinguishing between owner occupation and other tenure choices). During the course of the research project underpinning this model, a number of opportunities for further, future development of the modelling framework were identified. This includes the following:
- There is a case for further work designed to strengthen the macro-economic linkages in the labour market module. At present, the labour market module is effective in explaining and predicting the determination of earnings at the sub-national level. An extension to this module would explicitly model the determination of earnings at the Scotland level, primarily as a function of UK and international labour market and macro economic conditions. This development would give the simulation model greater value in terms of its ability to simulate the impact of macro-economic influences on housing supply and affordability.
- More detailed analysis of the role of international migration in the labour and housing markets. The simulation model permits the user to alternate between two sets of GROS population projections. One of these is designed around assumptions of higher international migration. While this aspect of international migration is covered by the simulation model, much less is known about the housing and labour market behaviour of recent international migrants. In terms of the labour market module, there is an assumption embedded in this work that international migrants expand the labour supply in a relatively simple way. Equally, new households formed by international migrants are assumed to generate additional housing demand no differently to more established Scottish households. These are fairly bold assumptions, though quite essential in the context of the work outlined here. A logical developmental step would be to examine these assumptions, and their ramifications, in more detail.
- Analysis of interactions between other tenures (particularly the private rented sector, but also social rented) and owner occupation. Such an analysis would yield valuable insights to the role of tenures other than owner occupation in the context of affordability. For example, in a period of declining house prices, is it to be expected that households will, at the margin, leave the private rented sector and seek housing opportunities in the owner occupied sector? What are the long-run ramifications on housing supply and affordability?
- Examination of the role of financial market liquidity on house price growth and housing supply. Meen et al (2005) report substantial analysis of credit market conditions, with an explicit linkage to their simulation model. This driver of housing market outcomes has been treated in a relatively simple way in the work outlined in this report and there is scope for further development. Such an extension to this work would potentially offer valuable insights regarding the importance of credit availability on both supply of, and demand for, housing.