UBC Theses and Dissertations

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UBC Theses and Dissertations

A housing market model for the metropolitan area of Ottawa-Hull Miller, Richard Douglas 1982

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A HOUSING MARKET MODEL FOR THE METROPOLITAN AREA OF OTTAWA-HULL by RICHARD DOUGLAS MILLER B.E.S., The U n i v e r s i t y of Waterloo, 1971 A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE DEGREE OF MASTER OF SCIENCE (BUSINESS ADMINISTRATION) * i n THE FACULTY OF GRADUATE STUDIES (Commerce and Business Administration) We accept t h i s t h e s i s as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA October 1932 © Richard Douglas M i l l e r , 1982 AUTHORIZATION I n p r e s e n t i n g t h i s t h e s i s i n p a r t i a l f u l f i l m e n t o f t h e r e q u i r e m e n t s f o r an a d v a n c e d d e g r e e a t t h e U n i v e r s i t y o f B r i t i s h C o l u m b i a , I a g r e e t h a t t h e L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r r e f e r e n c e and s t u d y . I f u r t h e r a g r e e t h a t p e r m i s s i o n f o r e x t e n s i v e c o p y i n g o f t h i s t h e s i s f o r s c h o l a r l y p u r p o s e s may be g r a n t e d by t h e head o f my d e p a r t -ment o r by h i s o r h e r r e p r e s e n t a t i v e s . I t i s u n d e r s t o o d t h a t c o p y i n g o r p u b l i c a t i o n o f t h i s t h e s i s f o r f i n a n c i a l g a i n s h a l l n o t be a l l o w e d w i t h o u t my w r i t t e n p e r m i s s i o n . D e p a r t m e n t o f ec^^j Bt^-^j^ ' A^W-o^^Wfe,., The U n i v e r s i t y o f B r i t i s h C o l u m b i a 1956 M a i n M a l l V a n c o u v e r , Canada V6T 1Y3 Date i i ABSTRACT Much o f t h e l i t e r a t u r e on t h e r e s i d e n t i a l b u i l d i n g i n d u s t r y p e r t a i n s t o s t u d i e s t h a t a g g r e g a t e t h e n a t i o n a l p r o -d u c t i o n o f h o u s i n g . S i n c e l a n d d e v e l o p m e n t , i n c l u d i n g h o u s i n g , i s r e s t r i c t e d t o a p a r t i c u l a r p l a c e , t h e a u t h o r has a t t e m p t e d t o model a l o c a l h o u s i n g m a r k e t and t o e s t i m a t e t h e r e l a t i o n s h i p between t h e p r o d u c t i o n o f g r o u n d - o r i e n t e d h o u s i n g u n i t s i n a s p e c i f i e d m a r k e t a r e a and c e r t a i n s p e c i f i e d f a c t o r s p o s t u l a t e d t o a f f e c t t h e s u p p l y and demand o f t h e commodity. The h o u s i n g m a r k e t model has been b a s e d on t h e a s s u m p t i o n t h a t t h e number o f d w e l l i n g s t a r t s r e s p o n d s p r o p o r t i o n a l l y t o t h e d e s i r e d number o f u n i t s u n d e r c o n s t r u c t i o n , t h e o p e n i n g l e v e l o f s u c h an i n v e n t o r y , and t h e number o f c o m p l e t i o n s . W i t h r e -s p e c t t o t h e d e s i r e d number o f d w e l l i n g u n i t s u n d e r c o n s t r u c t i o n , p a r t i c u l a r a t t e n t i o n has b e e n made t o t h e e s t i m a t i o n o f t h e po-t e n t i a l p r o f i t a b i l i t y o f d e v e l o p i n g h o u s e s as w e l l as t h e s e v e r -i t y o f c r e d i t c o n d i t i o n s . An h y p o t h e s i s was made o f t h e e f f e c t o f c r e d i t a v a i l a b i l i t y , o r n o n - p r i c e c r e d i t t e r m s , on h o u s i n g s t a r t s ; and, a model o f t h e s u p p l y o f new g r o u n d - o r i e n t e d h o u s i n g has b een p o s t u l a t e d w i t h o p t i o n a l s p e c i f i c a t i o n s f o r a c r e d i t c o n d i t i o n s v a r i a b l e t o i d e n t i f y t h e r e l a t i o n s h i p w i t h t h e i m p o r -t a n t d e t e r m i n i n g v a r i a b l e s and t o d e t e r m i n e t h e e f f e c t o f c r e d i t a v a i l a b i l i t y . The model was t e s t e d w i t h e s t i m a t e s f o r a l l t h e d e p e n d e n t and d e t e r m i n i n g v a r i a b l e s f o r t h e O t t a w a - H u l l M e t r o p o l i t a n A r e a . S p e c i f i c a t i o n s o f t h e model have been a p p l i e d t o d a t a c o v e r i n g t h e p e r i o d f r o m 1968 t o 1977, and m u l t i p l e r e g r e s s i o n t e c h n i q u e s have b e e n u s e d t o e s t i m a t e t h e c o e f f i c i e n t s o f t h e e x p l a n a t o r y v a r i a b l e s . The p e r f o r m a n c e o f t h e h o u s i n g s t a r t s m o d e l , i n c l u d -i n g t h e use o f t h e c r e d i t c o n d i t i o n s v a r i a b l e s , has been a s s e s s e d on t h e b a s i s o f a number o f measurements o f t h e g o o d n e s s o f f i t o v e r t h e o r i g i n a l t e n y e a r p e r i o d as w e l l as t h e f o l l o w i n g two y e a r p e r i o d (1978 and 19 7 9 ) . The t e s t i n g o f t h e h o u s i n g s t a r t s model a p p e a r e d t o c o n -f i r m t h e h y p o t h e s i s t h a t g i v e n a l e v e l o f p r o f i t a b l e n e s s o f d e v e l o p i n g l a n d and t h e i n v e s t m e n t r e q u i r e d p e r u n i t , d e v e l o p e r s w o u l d d e s i r e t o m a i n t a i n a c e r t a i n number o f u n i t s u n d e r c o n -s t r u c t i o n . The s t u d y was g e n e r a l l y s u c c e s s f u l i n showing t h e r e l a t i o n s h i p between t h e number o f h o u s i n g s t a r t s , i n a l i m i t e d m a r k e t a r e a , and t h e m a j o r d e t e r m i n i n g v a r i a b l e s a t t r i b u t e d t o t h e l o c a l and n a t i o n a l e c o n o m i c e n v i r o n m e n t . The c r e d i t c o n -d i t i o n s v a r i a b l e s u s e d a p p e a r e d t o s u c c e s s f u l l y i n d i c a t e t h e e f f e c t o f t h e p r i c e and a v a i l a b i l i t y o f c r e d i t , b u t t h e r e was l i t t l e c o n v i n c i n g e v i d e n c e t o s u p p o r t t h e h y p o t h e s i s o f t h e s y m m e t r i c e f f e c t o f c r e d i t a v a i l a b i l i t y i n f a v o u r o f a h y p o t h e s i s o f t h e a s y m m e t r i c e f f e c t . ACKNOWLEDGEMENTS The a u t h o r i s i n d e b t e d t o P r o f e s s o r s , D e n n i s C a p o z z a , George Gau, P e t e r C h i n l o y , and i n p a r t i c u l a r L awrence J o n e s , f o r t h e i r h e l p f u l c r i t i c i s m s and e n c o u r a g e m e n t . I n a d d i t i o n , t h e s t a f f o f t h e Canada M o r t g a g e and H o u s i n g C o r p o r a t i o n , S t a t i s t i c s Canada, and t h e Bank o f Canada have been o f a s s i s t a n c e i n p r o v i d i n g t h e n e c e s s a r y d a t a and i d e n t i f y i n g v a r i o u s s t u d i e s o f i n t e r e s t . F i n a l l y , I t h a n k my w i f e , N a i r , f o r t h e e n d l e s s h o u r s o f p u n c h i n g computer c a r d s and h e l p i n g p r o o f r e a d t h e f i n i s h e d work. i v TABLE OF CONTENTS ABSTRACT i i i ACKNOWLEDGEMENTS i v L I S T OF TABLES v i i L I S T OF FIGURES v i i i C h a p t e r I . INTRODUCTION 1 I I . THE HOUSING-MORTGAGE MARKET THEORY 4 The H o u s i n g M a r k e t 4 The C o s t and A v a i l a b i l i t y o f C r e d i t 8 F o o t n o t e s 12 I I I . REVIEW OF PREVIOUS HOUSING MARKET MODELS 16 S e l e c t i o n C r i t e r i a 16 The M a i s e l M o d e l 16 The Huang M o d e l 18 The F a i r and J a f f e e M o d e l 19 The S m i t h M o d e l 22 The T r i n h M o d e l 24 Comments on P r e v i o u s M o d e l s 25 F o o t n o t e s 28 IV. METROPOLITAN AREA HOUSING MARKET MODEL . 29 O b j e c t i v e 29 B a s i c H o u s i n g S t a r t s M o d e l 29 A l t e r n a t i v e M o d e l 32 S u p p l e m e n t a r y M o d e l s 33 An O v e r v i e w o f t h e H o u s i n g M a r k e t M o d e l 37 E v a l u a t i o n o f t h e M o d e l s 39 F o o t n o t e s 41 V. SPECIFICATION OF MARKET AREA, VARIABLES, AND MODELS. 43 The M a r k e t A r e a and S t u d y P e r i o d 4 3 H i s t o r y o f L a n d A c q u i s i t i o n and D e v e l o p m e n t 43 M o d i f i e d P o t e n t i a l P r o f i t V a r i a b l e 48 C r e d i t C o n d i t i o n s V a r i a b l e 53 S p e c i f i c a t i o n o f M o d e l s f o r Endogenous and H o u s i n g S t a r t s V a r i a b l e s 55 F o o t n o t e s 59 v V I . ESTIMATING THE HOUSING MARKET MODEL ... 61 S u p p l e m e n t a r y M o d e l s ......... 61 H o u s i n g S t a r t s M o d e l s 82 C o n c l u s i o n 123 F o o t n o t e s . . . 126 BIBLIOGRAPHY 128 A p p e n d i x e s I . ESTIMATION OF THE DEPENDENT AND INDEPENDENT VARIABLES 133 I I . EXTENDING THE NEW HOUSE PRICE INDEX 166 I I I . AVERAGE LOT S I Z E , LOTS PER GROSS ACRE AND ROAD FRONTAGE PER LOT 16 8 IV. ESTIMATE OF SERVICING COSTS 174 V. COST OF RAW LAND 17 9 V I . PROPERTY TAXES 182 V I I . ESTIMATES OF PROPORTIONS OF CAPITAL FROM VARIOUS SOURCES 185 V I I I . ESTIMATES OF COMPLETIONS AND UNITS UNDER CONSTRUCTION 18 8 IX. ESTIMATE OF THE QUANTITY OF EMPLOYMENT 19 2 X. DATA 19 9 v i L I S T OF TABLES 1. M a r k e t A r e a H o u s i n g S t a r t s 47 2. D i s t r i b u t i o n o f G r o u n d - O r i e n t e d H o u s i n g S t a r t s .... 47 A - l . New G r o u n d - O r i e n t e d H o u s i n g i n t h e O n t a r i o P o r t i o n o f t h e M e t r o p o l i t a n A r e a - 1971 136 A-2. E s t i m a t e s o f t h e S e r v i c i n g C o s t s P e r F r o n t F o o t ... 175 A-3. G r o u n d - O r i e n t e d H o u s i n g U n i t s i n t h e H o u s i n g M a r k e t A r e a 2 00 A-4. A n n u a l L a n d T a x e s , S e r v i c i n g C o s t s , D i s p o s a b l e Income, and L a b o u r F o r c e i n t h e M a r k e t A r e a 204 A-5. C o n s t r u c t i o n I n d u s t r y S t r i k e s , D i s p o s a b l e Income, and S e a s o n s i n t h e H o u s i n g M a r k e t A r e a 206 A-6. Employment S t a t i s t i c s i n t h e H o u s i n g M a r k e t A r e a .. 210 A-7. M o r t g a g e I n t e r e s t R a t e s , M o r t g a g e A p p r o v a l s , and P r i c e I n d e x 214 A-8. C r e d i t C o n d i t i o n s V a r i a b l e s 218 A-9. P r o p o r t i o n o f C a p i t a l From V a r i o u s S o u r c e s 222 A-10. Components o f t h e W e i g h t e d - A v e r a g e C o s t o f C a p i t a l 224 A - l l . Tax R a t e s 228 A-12. Components o f t h e P r o f i t V a r i a b l e 230 A-13. S i n g l e - D e t a c h e d and Row H o u s i n g C o s t s D u r i n g D e v e l o p m e n t 2 34 A-14. I n v e s t m e n t R e q u i r e d P e r U n i t I n d e x 238 v i i L I S T OF FIGURES F i g . 1. F l o w c h a r t o f t h e H o u s i n g M a r k e t M o d e l 38 F i g . 2. S t u d y A r e a 44 F i g . 3. M o d i f i e d P o t e n t i a l P r o f i t V a r i a b l e 55 F i g . 4. S e l l i n g P r i c e R e l a t i v e t o D e v e l o p m e n t C o s t s .... 56 F i g . 5. I n v e n t o r y o f U n o c c u p i e d New Houses 57 F i g . 6. P r o f i t M o t i v a t e d G r o u n d - O r i e n t e d H o u s i n g S t a r t s 58 F i g . 7. A n a l y s i s o f R e s i d u a l s : M o d i f i e d P o t e n t i a l P r o f i t V a r i a b l e 63 F i g . 8. A n a l y s i s o f R e s i d u a l s : House P r i c e s * R e l a t i v e t o C o s t s ( E s t i m a t e 1) 67 F i g . 9. A n a l y s i s o f R e s i d u a l s : House P r i c e s R e l a t i v e t o C o s t s ( E s t i m a t e 2) 71 F i g . 10. A n a l y s i s o f R e s i d u a l s : I n v e n t o r y o f U n o c c u p i e d New Houses ( E s t i m a t e 1) 76 F i g . 11. A n a l y s i s o f R e s i d u a l s : I n v e n t o r y o f U n o c c u p i e d New Houses ( E s t i m a t e 2) , 79 F i g . 12. A n a l y s i s o f R e s i d u a l s : P r o f i t M o t i v a t e d H o u s i n g S t a r t s ( E s t i m a t e 1) 85 F i g . 13. A n a l y s i s o f R e s i d u a l s : P r o f i t M o t i v a t e d H o u s i n g S t a r t s ( E s t i m a t e 2) 90 F i g . 14. A n a l y s i s o f R e s i d u a l s : P r o f i t M o t i v a t e d H o u s i n g S t a r t s ( E s t i m a t e 3) 95 F i g . 15. A n a l y s i s o f R e s i d u a l s : P r o f i t M o t i v a t e d H o u s i n g S t a r t s ( E s t i m a t e 4) 102 F i g . 16. A n a l y s i s o f R e s i d u a l s : P r o f i t M o t i v a t e d H o u s i n g S t a r t s ( E s t i m a t e 5) 107 F i g . 17. A n a l y s i s o f R e s i d u a l s : P r o f i t M o t i v a t e d H o u s i n g S t a r t s ( E s t i m a t e 6) 112 F i g . 18. A n a l y s i s o f R e s i d u a l s : P r o f i t M o t i v a t e d H o u s i n g S t a r t s ( E s t i m a t e 7) 117 v i i i CHAPTER I INTRODUCTION As a c o n s e q u e n c e o f t h e i m p o r t a n c e o f and c o n c e r n a b o u t t h e a b i l i t y o f t h e b u i l d i n g i n d u s t r y t o r e s p o n d t o i n c r e a s e s i n h o u s i n g demand, and t h e u n d e s i r a b l e c o n s e q u e n c e s o f i n s t a b i l i t y i n r e s i d e n t i a l c o n s t r u c t i o n f o r b o t h t h e b u i l d i n g i n d u s t r y and t h e consumer, a l a r g e number o f s t u d i e s o f t h e r e s i d e n t i a l c o n -s t r u c t i o n s e c t o r , o f t h e economy, have been u n d e r t a k e n . T h e s e s t u d i e s have s o u g h t t o d e m o n s t r a t e t h e r e l a t i o n s h i p between t h e r e s i d e n t i a l c o n s t r u c t i o n c y c l e and t h e a v a i l a b i l i t y o f c r e d i t , t o d e t e r m i n e t h e s t o c k e l a s t i c i t i e s o f h o u s i n g demand w i t h r e s p e c t t o p r i c e and income, and t o e x p l a i n t h e volume o f r e s i d e n t i a l c o n s t r u c t i o n a c t i v i t y and t h e o p e r a t i o n o f t h e h o u s i n g m a r k e t as a w h o l e . I n t h i s s t u d y , t h e a u t h o r has a t t e m p t e d t o model a l o c a l h o u s i n g m a r k e t and t o e s t i m a t e t h e r e l a t i o n s h i p between t h e p r o -d u c t i o n o f g r o u n d - o r i e n t e d h o u s i n g u n i t s i n a s p e c i f i e d m a r k e t a r e a and c e r t a i n s p e c i f i e d f a c t o r s p o s t u l a t e d t o a f f e c t t h e s u p p l y and demand o f t h e commodity. I n v i e w o f t h e v a r i o u s e c o n o m e t r i c p a r a d i g m s t h a t may be u s e d t o model t h e h o u s i n g m a r k e t , two a p p r o a c h e s have been e v a l u a t e d , on t h e b a s i s o f a number o f c o m p a r a t i v e s t a t i s t i c a l measurements. The p a p e r f i r s t d i s c u s s e s t h e t h e o r y o f t h e h o u s i n g -m o r t g a g e m a r k e t and b r i e f l y r e v i e w s p r e v i o u s s t u d i e s p e r t a i n i n g t o h o u s i n g m a r k e t m o d e l s . An h y p o t h e s i s was made o f t h e e f f e c t 1 2 o f c r e d i t a v a i l a b i l i t y , o r n o n - p r i c e c r e d i t t e r m s , on h o u s i n g s t a r t s ; and, a model o f t h e s u p p l y o f new g r o u n d - o r i e n t e d h o u s i n g has been p o s t u l a t e d w i t h o p t i o n a l s p e c i f i c a t i o n s f o r a c r e d i t c o n d i t i o n s v a r i a b l e t o i d e n t i f y t h e r e l a t i o n s h i p w i t h t h e i m p o r -t a n t d e t e r m i n i n g v a r i a b l e s and t o d e t e r m i n e t h e e f f e c t o f c r e d i t a v a i l a b i l i t y . I n a d d i t i o n , t h r e e s u p p l e m e n t a r y m o d els were p r e -p a r e d t o e s t i m a t e t h e endogenous v a r i a b l e s ( o f t h e h o u s i n g s t a r t s model) i n r e d u c e d form., E s t i m a t e s have been made o f a l l t h e d e p e n d e n t and d e t e r -m i n i n g v a r i a b l e s , w i t h p a r t i c u l a r a t t e n t i o n t o t h e p o t e n t i a l p r o f i t v a r i a b l e , f o r t h e O t t a w a - H u l l M e t r o p o l i t a n A r e a . T h e r e -upon, s p e c i f i c a t i o n s o f a l l t h e m o d els have been a p p l i e d t o d a t a c o v e r i n g t h e p e r i o d f r o m 1968 t o 1977, and m u l t i p l e r e g r e s s i o n t e c h n i q u e s have been u s e d t o e s t i m a t e t h e c o e f f i c i e n t s o f t h e e x p l a n a t o r y v a r i a b l e s . F i n a l l y , t h e p e r f o r m a n c e o f t h e h o u s i n g s t a r t s m o d e l, and t h e u s e o f t h e v a r i o u s c r e d i t c o n d i t i o n s v a r i a b l e s , has b een a s s e s s e d on t h e b a s i s o f a number o f m easure-ments o f t h e g o o d n e s s o f f i t o v e r t h e o r i g i n a l t e n y e a r p e r i o d as w e l l as o v e r t h e f o l l o w i n g two y e a r p e r i o d (1978 and 1 9 7 9 ) . 3 F o o t n o t e L a w r e n c e B. S m i t h , "A B i - S e c t o r a l H o u s i n g M a r k e t M o d e l " , The C a n a d i a n J o u r n a l o f E c o n o m i c s , No. 4 (November, 1 9 6 9 ) , P. 588. CHAPTER I I THE HOUSING-MORTGAGE MARKET THEORY The H o u s i n g M a r k e t H o u s i n g , an E c o n o m i c Commodity I n an economy where t h e p r o d u c t i o n o f a good i s b a s e d on t h e r e l a t i o n s h i p between t h e q u a n t i t y o f a good p e o p l e w o u l d buy and t h e q u a n t i t y w i l l i n g t o be s u p p l i e d , a t a g i v e n p r i c e , when a n a l y z i n g t h e p r o d u c t i o n o f a s p e c i f i c good, s u c h as h o u s i n g , one must c o n s i d e r t h e f a c t o r s t h a t g o v e r n t h e demand and s u p p l y o f t h e s p e c i f i c commodity. U n l i k e many c o m m o d i t i e s , t h e i m m o b i l i t y o f r e a l e s t a t e r e s u l t s i n t h e m a r k e t f o r r e a l p r o p e r t y b e i n g l o c a l i n n a t u r e ( i . e . r e s t r i c t e d t o a p a r t i c u l a r place)."'" The f o r c e s w h i c h d e t e r m i n e t h e c h a r a c t e r i s t i c s o f b o t h demand and s u p p l y , t h e r e f o r e , a r e p r e d o m i n a n t l y g o v e r n e d by t h e d e m o g r a p h i c and e c o n o m i c p r o c e s s e s o p e r a t i n g w i t h i n a l o c a l m a r k e t a r e a . E v e n t h o u g h t h e s e l o c a l m a r k e t s a r e n o t i n s u l a t e d f r o m t h e a g g r e -g a t e e c o n o m i c e n v i r o n m e n t o f t h e c o u n t r y , t h e y m a i n t a i n u n i q u e 2 and i n d e p e n d e n t c h a r a c t e r i s t i c s . S m i t h n o t e d t h a t t h e h o u s i n g m a r k e t i s n o t r e a l l y a m a r k e t i n t h e c l a s s i c a l s e n c e b u t a s e r i e s o f o v e r l a p p i n g s u b m a r k e t s d i f f e r e n t i a t e d by l o c a t i o n , t y p e o f d w e l l i n g , t y p e o f t e n u r e , 3 age and q u a l i t y . E a c h o f t h e s u b m a r k e t s i s i n f l u e n c e d by d i f f e r e n t i n s t i t u t i o n a l c o n s i d e r a t i o n s and b e h a v i o u r o f t h e p a r t i c i p a n t s i n t h e s e s u b m a r k e t s o f t e n d i f f e r s c o n s i d e r a b l y . 4 5 Demand F a c t o r s The t h e o r y o f consumer b e h a v i o u r i n d i c a t e s t h a t t h e demand f o r a good o r s e r v i c e s h o u l d be a f u n c t i o n o f income and o f t h e p r i c e o f t h e good o r s e r v i c e r e l a t i v e t o a l l o t h e r p r i c e s . P e r c a p i t a demand f o r h o u s i n g s e r v i c e s s h o u l d t h u s be a f u n c t i o n o f p e r c a p i t a income and o f t h e p r i c e o f h o u s i n g s e r v i c e s r e l a t i v e t o o t h e r p r i c e s . D e m ographic f a c t o r s , s u c h as t h e age d i s t r i b u -t i o n o f t h e p o p u l a t i o n s h o u l d a l s o have some e f f e c t on t h e p e r c a p i t a demand f o r h o u s i n g s e r v i c e s . F o r p e o p l e who own t h e i r own home, t h e p r i c e o f h o u s i n g s e r v i c e s depends n o t o n l y on t h e p r i c e o f t h e h o u s e , b u t a l s o on t h e c o s t o f b o r r o w i n g t h e f u n d s t o f i n a n c e t h e p u r c h a s e o f t h e house and on e x p e n s e s f o r t a x e s and 4 m a i n t e n a n c e . I n a d d i t i o n t o t h e c o s t o f mortgage c r e d i t , r e p r e -s e n t e d by t h e mortgage r a t e , t h e r e a r e n o n - p r i c e m o r t g a g e t e r m s ( l o a n - t o - v a l u e r a t i o , m ortgage s i z e s and d e b t s e r v i c e r a t i o s e t c . ) t h a t a f f e c t t h e a v a i l a b i l i t y o f mortgage c r e d i t and t h u s t h e demand f o r h o u s i n g . S u p p l y F a c t o r s The s u p p l y s i d e o f t h e h o u s i n g m a r k e t i n c l u d e s t h e c o n -s t r u c t i o n s e c t o r . I n t h e c a s e o f p r o p e r t i e s f o r home-ownership, a d i s t i n c t i o n s h o u l d be made between homes b u i l t by m e r c h a n t b u i l d e r s f o r s u b s e q u e n t s a l e and c u s t o m - b u i l t homes, w h i c h a r e p r e - s o l d o r owner b u i l t . ~* A b u i l d e r ' s d e c i s i o n on w h e t h e r t o b u i l d a house ( o r s e t o f h o u s e s ) w o u l d depend upon, among o t h e r t h i n g s , t h e e x p e c t e d s e l l i n g p r i c e o f t h e house r e l a t i v e t o t h e e x p e c t e d c o s t o f b u i l d i n g t h e h o u s e . F o r many b u i l d e r s , t h e d e c i s i o n may a l s o d epend upon t h e e x p e c t e d p r o f i t a b i l i t y o f non-r e s i d e n t i a l c o n s t r u c t i o n . P a r t o f t h e c o s t o f b u i l d i n g a house 6 would be the cost of short-term c r e d i t , i n addition to material and labour costs. However, what makes the construction sector d i f f i c u l t to analyze i s the dependence of a builder's decision on expectations. The expected p r o f i t a b i l i t y of building a house i s a function of the (subjective) p r o b a b i l i t i e s of being able to s e l l the house at various prices, and i t i s d i f f i c u l t to determine 7 empirically the factors that influence these p r o b a b i l i t i e s . When the demand for owner-occupancy dwelling accommodation increases, the price of these dwellings, r e l a t i v e to comparatively fixed construction costs, increases, which may induce higher ex-pectations of p r o f i t and lead to an increase i n the volume of new construction undertaken by merchant builders. At the same time, the greater the demand for owner occupancy dwelling accommodation, the greater w i l l be the volume of construction of custom-built homes. In addition to the impact of the cost and a v a i l a b i l i t y of short-term financing on expectations of p r o f i t , the merchant builders assess the cost and a v a i l a b i l i t y of long-term financing to the consumer and may c u r t a i l building a c t i v i t y when they believe borrowing terms are too stringent for prospective pur-9 chasers to absorb. S i m i l a r l y , the volume of custom-home building would decline when borrowing terms become too stringent for the builders of these homes. In the case of multiple dwelling units, increases i n the f i n a l demand for rental accommodations would lead to higher rents and lower vacancy rates which would increase the l i k e l i h o o d that new construction projects would be p r o f i t a b l e , and, hence be undertaken.^ Since developers of multiple unit projects plan either to s e l l t h e i r buildings once they have been completed and rented or retain them for long-term investments, the d e s i r a b i l i t y 7 o f a p r o j e c t depends upon t h e r e l a t i o n s h i p between i t s e x p e c t e d s e l l i n g p r i c e and i t s t o t a l c o n s t r u c t i o n c o s t , o r upon t h e d e v e l -o p e r s e x p e c t e d y i e l d on i n v e s t e d c a p i t a l . B e c a u s e r e a l e s t a t e , j u s t as o t h e r l o n g - t e r m i n v e s t m e n t s w o u l d be p u r c h a s e d on a y i e l d b a s i s , t h e d e s i r a b i l i t y o f a p r o j e c t f r o m e i t h e r t h e " s a l e " o r " y i e l d " v i e w - p o i n t w o u l d depend upon t h e n e t c a s h f l o w , t h e amount o f m o r t g a g e f i n a n c e o b t a i n a b l e and t h e c o n s t r u c t i o n c o s t s a s s o c i a t e d w i t h t h e p r o j e c t , as w e l l as t h e a v a i l a b i l i t y o f t a x s h e l t e r s . 1 1 The c a s h f l o w depends upon t h e g r o s s r e n t a l income, as w e l l as o p e r a t i n g and f i n a n c i n g c o s t s ( i . e . m a i n t e n a n c e , r e p a i r s , p r o p e r t y t a x e s , i n t e r e s t and p r i n c i p l e r e p a y m e n t s , and o t h e r c u r r e n t e x p e n s e s ) . E q u i l i b r i u m A t any one t i m e t h e r e i s a c e r t a i n number o f h o u s e s e i t h e r o c c u p i e d o r v a c a n t and a v a i l a b l e f o r o c c u p a n c y and a c e r t a i n number o f h o u s e s u n d e r c o n s t r u c t i o n , b a s e d on t h e l e v e l o f demand 12 f o r new h o u s i n g u n i t s . The s u p p l y o f h o u s e s a t any one t i m e i s 13 t h u s f i x e d . I f a t t h e e x i s t i n g s e t o f p r i c e s t h e q u a n t i t y o f h o u s e s demanded i s e q u a l t o t h e a v a i l a b l e s u p p l y l e s s t h e n o r m a l l e v e l o f v a c a n c i e s , t h e n t h e h o u s i n g m a r k e t i s i n e q u i l i b r i u m ; 14 o t h e r w i s e n o t . I f t h e q u a n t i t y demanded i s g r e a t e r t h a n t h e s u p p l y b e i n g p r o v i d e d l e s s t h e n o r m a l l e v e l o f v a c a n c i e s , t h e n t h e a c t u a l l e v e l o f v a c a n c i e s w i l l be l e s s t h a n n o r m a l and t h e r e may be p e o p l e who w o u l d l i k e t o buy o r r e n t h o u s e s a t t h e a v a i l -a b l e p r i c e s who c a n n o t f i n d any. T h i s s i t u a t i o n s h o u l d o v e r t i m e c a u s e p r i c e s t o r i s e and b u i l d e r s t o b u i l d more h o u s e s t h a n t h e y o t h e r w i s e w o u l d t o meet t h e n o r m a l g r o w t h o f h o u s i n g needs c a u s e d by r e m o v a l s and p o p u l a t i o n g r o w t h . 1 ^ I f t h e q u a n t i t y demanded i s 8 s m a l l e r t h a n t h e s u p p l y b e i n g p r o v i d e d l e s s t h e n o r m a l l e v e l o f v a c a n c i e s , t h e n t h e a c t u a l l e v e l o f v a c a n c i e s w o u l d be g r e a t e r t h a n n o r m a l and t h e r e may be p e o p l e who w o u l d l i k e t o s e l l t h e i r h o u s e s a t t h e a v a i l a b l e p r i c e s who c a n n o t f i n d anyone t o buy them. T h i s s i t u a t i o n , o v e r a d u r a t i o n o f t i m e , w o u l d c a u s e p r i c e s t o f a l l and b u i l d e r s t o b u i l d f e w e r h o u s e s t h a n t h e y o t h e r w i s e w o u l d . How q u i c k l y t h e h o u s i n g m a r k e t moves t o w a r d e q u i l i b r i u m , w i t h r e s p e c t t o t h e s u p p l y o f new h o u s i n g u n i t s , w o u l d depend, among o t h e r t h i n g s , on how q u i c k l y b u i l d e r s r e s p o n d t o p r i c e and v a c a n c y 16 c h a n g e s . B u i l d e r s may i n f a c t o v e r r e s p o n d i n t h e s h o r t - r u n and b u i l d h o u s e s t h a t t h e y end up h a v i n g t o s e l l a t a l o s s . The C o s t and A v a i l a b i l i t y o f C r e d i t The u n s t a b l e f l o w o f m o r t g a g e money has b een i d e n t i f i e d as 17 t h e most i m p o r t a n t c a u s e o f i n s t a b i l i t y i n h o u s i n g c o n s t r u c t i o n . The r e l a t i v e s u p p l y o f m o r t g a g e f u n d s a f f e c t p r e v a i l i n g p r i c e s (mortgage r a t e s ) and n o n - p r i c e c r e d i t t e r m s . However, t h e a b s o l u t e l e v e l o f i n t e r e s t r a t e s may be a m i s l e a d i n g i n d i c a t o r o f t i g h t n e s s o r e a s e o f c r e d i t c o n d i t i o n s , b e c a u s e m o r t g a g e i n t e r e s t r a t e s may be d e t e r m i n e d by f a c t o r s exogenous t o t h e h o u s i n g m a r k e t and b e c a u s e o f t h e b e h a v i o u r o f l e n d i n g i n s t i -18 t u t i o n s . S t u d i e s o f c r e d i t c o n d i t i o n s and l e n d i n g i n s t i t u t i o n s have f o c u s e d on t h e i m p o r t a n c e o f i n t e r e s t r a t e d i f f e r e n t i a l s , as w e l l as n o n - p r i c e l e n d i n g t e r m s and c o n d i t i o n s , w h i c h i n c l u d e t h e l o a n - t o - v a l u e r a t i o , d e b t s e r v i c e r a t i o , m a t u r i t y , and 19 c u s t o m e r r e l a t i o n s h i p i n t h e a l l o c a t i o n o f f u n d s . D u r i n g p e r i o d s i n w h i c h t h e r e a r e s h i f t s i n t h e demand a n d / o r s u p p l y c u r v e s f o r m o r t g a g e c r e d i t , m o r t g a g e r a t e s may n o t a d j u s t r a p i d l y 20 t o c l e a r t h e m o r t g a g e m a r k e t . C o n s e q u e n t l y , t e m p o r a r y q u a l i t a -9 t i v e c h a n g e s i n n o n - p r i c e c r e d i t t e r m s , r e p r e s e n t t h e mechanism 21 t o a d j u s t t h e a l l o c a t i o n o f a v a i l a b l e f u n d s . The phenomena o f l e n d e r s a l l o c a t i n g a v a i l a b l e f u n d s by means o f n o n - p r i c e c r e d i t 22 t e r m s has b e e n d e f i n e d a s c r e d i t r a t i o n i n g . A l t h o u g h s h i f t s i n t h e demand a n d / o r s u p p l y c u r v e s b r i n g a b o u t c r e d i t r a t i o n i n g , i t has p r i m a r i l y been s h i f t s t o t h e l e f t o f t h e s u p p l y c u r v e , r e s u l t i n g f r o m c h a n g e s i n m o n e t a r y p o l i c y , t h a t h as been t h e f a c t o r l e a d i n g t o c r e d i t r a t i o n i n g i n t h e home 23 m o r t g a g e m a r k e t . F a i r has a r g u e d t h a t when i n t e r e s t r a t e s do n o t r i s e t o c l e a r t h e m o r t g a g e m a r k e t , and c r e d i t i s r a t i o n e d , 24 t h e m a r k e t w o u l d n o t be i n e q u i l i b r i u m . However, K e n t n o t e d t h a t when c r e d i t t e r m s have been t i g h t e n e d s u f f i c i e n t l y , t h e demand c u r v e c o u l d be s h i f t e d s u c h t h a t t h e mortgage m a r k e t w o u l d 25 be i n e q u i l i b r i u m . The u s e o f n o n - p r i c e t e r m s by l e n d e r s i n 2 6 t h i s manner has been d e f i n e d as " e q u i l i b r i u m c r e d i t r a t i o n i n g " . However, an a l t e r n a t i v e t y p e o f c r e d i t r a t i o n i n g may t a k e p l a c e where t h e d i s c r i m i n a t i o n o f b o r r o w e r s g o v e r n s l o a n a p p r o v a l s w i t h -o u t a l t e r i n g common n o n - p r i c e t e r m s and s h i f t i n g t h e demand c u r v e . I n t h i s c a s e t h e q u a n t i t y o f mortgage f u n d s s u p p l i e d may be much l e s s t h a n t h e q u a n t i t y o f m o r t g a g e f u n d s demanded, and t h e m a r k e t w o u l d r e m a i n i n d i s e q u i l i b r i u m ( i . e . d i s e q u i l i b r i u m c r e d i t r a t i o n -. . 27 i n g ) . T u c k e r has n o t e d t h a t w h i l e t h e i n t e r e s t r a t e a d j u s t m e n t i s d e l a y e d , i n v e s t m e n t w i l l i n i t i a l l y f a c e t h e f u l l i m p a c t o f 2 8 c r e d i t r a t i o n i n g , t o w h i c h i t r e s p o n d s more r a p i d l y . The c r e d i t r a t i o n i n g may d i s a p p e a r b e f o r e i n v e s t m e n t h a s a d j u s t e d v e r y f a r , b u t d u r i n g t h e s h o r t i n t e r v a l o f c r e d i t r a t i o n i n g , i t w o u l d move f u r t h e r t o w a r d e q u i l i b r i u m t h a n i t w o u l d have w i t h an i n s t a n t a n e o u s i n t e r e s t r a t e a d j u s t m e n t . I t w o u l d a p p e a r , t h e r e -10 f o r e , t h a t m o r t g a g e r a t e s a l o n e w o u l d be i n s u f f i c i e n t t o measure t h e s u p p l y o f m o r t g a g e f u n d s . F a i r h a s a r g u e d t h a t t h e m o r t g a g e m a r k e t has an a s y m m e t r i c -29 a l e f f e c t on t h e h o u s i n g m a r k e t . I f t h e m o r t g a g e r a t e was t o o h i g h i n t h e s e n s e t h a t t h e s u p p l y o f m o r t g a g e s was g r e a t e r t h a n t h e demand ( a t t h a t p r i c e ) , t h i s w o u l d have l i t t l e e f f e c t on t h e h o u s i n g m a r k e t . He s t a t e d t h a t b u i l d e r s ( i n c l u d i n g p e o p l e who b u i l d t h e i r own homes) w o u l d be a b l e t o g e t a l l o f t h e m o r t g a g e commitments t h a t t h e y wanted, and t h e f a c t t h a t f i n a n c i a l i n t e r -m e d i a r i e s w o u l d l i k e t o i s s u e more commitments t h a n t h e b u i l d e r s w o u l d be t a k i n g s h o u l d n o t i n g e n e r a l i n d u c e t h e b u i l d e r s t o t a k e any more. I n a d d i t i o n , F a i r a r g u e d t h a t , o n l y i f e x c e s s s u p p l y i n t h e m o r t g a g e m a r k e t c a u s e d b u i l d e r s t o change t h e i r e x p e c t a -t i o n s a b o u t s e l l i n g p r i c e s , w o u l d e x c e s s s u p p l y i n t h e m o r t g a g e m a r k e t be e x p e c t e d t o h a v e a s i g n i f i c a n t e f f e c t on t h e h o u s i n g m a r k e t ; b u t he n o t e d t h a t t h i s w o u l d n o t seem v e r y l i k e l y . F u r t h e r m o r e , he a r g u e d t h a t e x c e s s s u p p l y i n t h e m o r t g a g e m a r k e t w o u l d n o t have a s i g n i f i c a n t e f f e c t on t h e demand f o r h o u s e s u n l e s s t h e c o s t o f m o r t g a g e c r e d i t f e l l . However, t h e v i e w t h a t i n c r e a s e s i n t h e s u p p l y o f m o r t g a g e c r e d i t ( w i t h o u t a change i n t h e m o r t g a g e r a t e ) w o u l d be i n s u f f i c i e n t t o i n c r e a s e t h e demand f o r h o u s e s w o u l d a p p e a r t o be c o n t r a r y t o t h e arguments p r e s e n t e d by o t h e r s . F i s h e r and Siegman have n o t e d t h a t s h o r t - t e r m v a r i a t i o n s i n p r i v a t e r e s i d e n t i a l c o n s t r u c t i o n o c c u r i n r e s p o n s e t o c h a n g i n g 31 c r e d i t c o n d i t i o n s . They a l s o a r g u e t h a t t h e l a c k o f a v a i l a b l e l o n g - t e r m f i n a n c i n g may have been t h e d o m i n a n t f a c t o r a c c o u n t i n g f o r c y c l i c a l d e c l i n e s i n p r i v a t e h o u s i n g o u t p u t and t h a t h i g h and r i s i n g c o s t s o f m o r t g a g e c r e d i t seemed t o have a l e s s e r s i g n i f i -11 c a n c e . C o n s i s t e n t w i t h t h e above argument, G r e b l e r (and o t h e r s ) f o u n d t h a t w i t h r e g a r d t o b o r r o w e r demand f o r f u n d s , v a r i a t i o n s i n downpayments and i n t h e p e r i o d i c d e b t s e r v i c e c h a r g e s a r e . , 32 c r u c i a l . I t w o u l d a p p e a r , t h e r e f o r e , t h a t t h e a v a i l a b i l i t y o f mortgage c r e d i t , r a t h e r t h a n t h e c o s t (measured by t h e mortgage i n t e r e s t r a t e ) , may have an i m p o r t a n t r o l e i n t h e demand f o r h o u s i n g . I f more p e o p l e a r e a b l e t o o b t a i n c r e d i t t h e i r o t h e r -w i s e l a t e n t demand f o r h o u s i n g may be made e f f e c t i v e , s i n c e t h e i r c u r r e n t income becomes a d e q u a t e t o a c q u i r e an o t h e r w i s e u n a f f o r d -a b l e a s s e t . A l t h o u g h t h e above c o n c e p t i d e n t i f i e s t h e i m p o r t a n c e o f n o n - p r i c e c r e d i t t e r m s i n r e l a t i o n t o mortgage i n t e r e s t r a t e s , i t s h o u l d be n o t e d t h a t t h e r e i s some e v i d e n c e t h a t co-movement p a t t e r n s i n s t r i n g e n t i n t e r e s t r a t e and n o n - p r i c e t e r m s a r e p r e -v a l e n t , where t h e l a t t e r r e s p o n d s more q u i c k l y t o a c h a n g i n g 33 e c o n o m i c e n v i r o n m e n t . I n v i e w o f t h e above, t h e r e w o u l d a p p e a r t o be two main c o n c e p t s p e r t a i n i n g t o t h e e f f e c t o f an i n c r e a s e i n t h e a v a i l a -b i l i t y o f c r e d i t . T h e s e c o n c e p t s may be e x p r e s s e d by a h y p o t h e s i s and i t s a l t e r n a t e : H y p o t h e s i s : T h a t l e s s s t r i n g e n t n o n - p r i c e t e r m s a r e s u f f i c i e n t ( i f n o t c r u c i a l ) t o i n d u c e an i n c r e a s e i n demand f o r h o u s i n g ( i . e . c r e d i t a v a i l a b i l i t y t e n d s t o be s y m m e t r i c i n i t s a f f e c t on h o u s i n g s t a r t s ) . A l t e r n a t e T h a t l e s s s t r i n g e n t n o n - p r i c e t e r m s a r e i n s u f f i c i e n t H y p o t h e s i s : t o i n d u c e an i n c r e a s e i n t h e demand f o r h o u s i n g ( i . e . c r e d i t a v a i l a b i l i t y t e n d s t o be a s y m m e t r i c i n i t s a f f e c t on h o u s i n g s t a r t s ) . 12 F o o t n o t e s "^Richard U. R a t c l i f f , U r b a n L a n d E c o n o m i c s ( T o r o n t o : M c G r a w - H i l l Company o f Canada, 1949), p. 280. 2 F a c u l t y o f Commerce and B u s i n e s s A d m i n i s t r a t i o n , U n i v e r s i t y o f B r i t i s h C o l u m b i a , R e a l E s t a t e and A p p r a i s a l D i p l o m a C o u r s e :  E c o n o m i c s o f R e a l P r o p e r t y ( V a n c o u v e r : U n i v e r s i t y o f B r i t i s h C o l u m b i a , 1 9 7 5 ) , pp. 85 and 86. 3 Lawrence B. S m i t h , "A B i - S e c t o r a l H o u s i n g M a r k e t M o d e l " , The C a n a d i a n J o u r n a l o f E c o n o m i c s , No. 4 (November 1 9 6 9 ) , p. 5 58. 4 Ray C. F a i r , " D i s e q u i l i b r i u m i n H o u s i n g M o d e l s " , The  J o u r n a l Of F i n a n c e , V o l . 27 (May 1 9 7 2 ) , p. 207. 5 S m i t h , "A B i - S e c t o r a l H o u s i n g M a r k e t M o d e l " , p. 560. F a i r , " D i s e q u i l i b r i u m i n H o u s i n g M o d e l s " , p. 208. 7 I b i d . , p. 208. Q S m i t h , "A B i - S e c t o r a l H o u s i n g M a r k e t M o d e l " , p. 56 0. 9 I b i d . , p. 560. 1 0 I b i d . , p. 560. i : L I b i d . , p. 560. 12 D a v i d S. Huang, "A S t u d y o f t h e M a r k e t f o r New H o u s i n g U n i t s " , P r o c e e d i n g s o f t h e B u s i n e s s and E c o n o m i c S t a t i s t i c s  S e c t i o n o f t h e A m e r i c a n S t a t i s t i c a l A s s o c i a t i o n ( 1 9 6 9 ) , p. 705. 13 F a i r , " D i s e q u i l i b r i u m i n H o u s i n g M o d e l s " , p. 209. 1 4 I b i d . , p. 209. 1 5 I b i d . , p. 209. 1 6 I b i d . , p. 209 17 J o s e p h H. Chung, C y c l i c a l I n s t a b i l i t y i n R e s i d e n t i a l  C o n s t r u c t i o n i n Canada (Ottawa: E c o n o m i c C o u n c i l o f Canada, 1 9 7 6 ) , p. 33. 18 Chung's model o f t h e C a n a d i a n c o n v e n t i o n a l m o r t g a g e i n t e r e s t r a t e f a i l e d t o e s t i m a t e c o e f f i c i e n t o f t h e income and t h e s t o c k o f d w e l l i n g s p e r f a m i l y v a r i a b l e s (demand d e t e r m i n i n g ) t h a t were " s i g n i f i c a n t a t t h e u s u a l p r o b a b i l i t y l e v e l , a l t h o u g h t h e y a p p e a r w i t h t h e c o r r e c t s i g n " . 13 Chung, p. .81. and C l i n t o n and Masson f o u n d a s t r o n g r e l a t i o n s h i p between t h e c o n v e n t i o n a l m o r t g a g e i n t e r e s t r a t e and t h e l a g g e d v a l u e s o f o n e - t o - t h r e e - y e a r r a t e m a t u r i t i e s o f Government o f Canada bonds and t h e a v e r a g e y i e l d on c o r p o r a t e , m u n i c i p a l , and p r o v i n -c i a l b o n d s . F u r t h e r m o r e , t h e s e bonds were a f u n c t i o n o f D o m e s t i c and U.S. T r e a s u r y B i l l s as w e l l as f i v e - t o - t e n - y e a r m a t u r i t y Government o f Canada and U.S. b o n d s . K e v i n C l i n t o n and P a u l Masson, A M o n t h l y M o d e l o f t h e  C a n a d i a n F i n a n c i a l S y s t e m . T e c h n i c a l R e p o r t No. 4 (Ottawa: Bank o f Canada, 1 9 7 5 ) , p. 38. 19 G e r a l d K. Bouey, A c c o u n t i n g f o r M o n e t a r y P o l i c y , Remarks o f b e f o r e a M e e t i n g o f t h e C e r t i f i e d G e n e r a l A c c o u n t a n t s A s s o c i -a t i o n o f O n t a r i o , T o r o n t o , J a n u a r y 30, 1969 (Ottawa: Bank o f Canada, 1 9 6 9 ) , pp. 10-11; G e r a l d K. Bouey, " R e c e n t M o n e t a r y D e v e l o p m e n t " , Bank o f Canada Review (Ottawa: Bank o f Canada, O c t o b e r , 1 9 7 3 ) , p. 21; Lawrence B. S m i t h , P o s t w a r C a n a d i a n  H o u s i n g R e s i d e n t i a l M o r t g a g e M a r k e t ( T o r o n t o : U n i v e r s i t y o f T o r o n t o P r e s s , 1974), p.777; Chung, pp. 35 and 51; J . V. P o a p s t , D e v e l o p i n g t h e R e s i d e n t i a l M o r t g a g e M a r k e t , V o l . 1 (Ottawa: Canada M o r t g a g e and H o u s i n g C o r p o r a t i o n , 1 9 7 5 ) , p. 7; Duane G. H a r r i s , " I n t e r e s t R a t e s , N o n - P r i c e Terms and t h e A l l o c a t i o n o f Bank C r e d i t " , S o u t h e r n E c o n o m i c J o u r n a l , V o l . 40 ( C h a p e l H i l l , N. C a r o l i n a : U n i v e r s i t y o f N o r t h C a r o l i n a , 1 974), pp. 428-433; and R i c h a r d J . K e n t , " C r e d i t R a t i o n i n g and t h e Home Mo r t g a g e M a r k e t " , Money, C r e d i t , and B a n k i n g , V o l . 12, No. 3 ( A u g u s t , 1 9 8 0 ) , p. 488. 20 F a i r , " D i s e q u i l i b r i u m i n H o u s i n g M o d e l s " , p. 209. 21 P o a p s t , p. 7; Chung, pp. 33, 34 and 36; and James O s t a s and F r a n k Zahn, " I n t e r e s t and N o n - I n t e r e s t R a t i o n i n g i n t h e M o r t g a g e M a r k e t " , J o u r n a l o f M o n e t a r y E c o n o m i c s , V o l . 1, No. 2 ( A p r i l , 1975), p. 187. 2 2 K e n t , p. 489. 23 A l t h o u g h K e n t makes t h i s c o n c l u s i o n b a s e d on t h e e x p e r -i e n c e i n t h e U n i t e d S t a t e s , S m i t h h a s o b s e r v e d t h a t t h r o u g h o u t most o f t h e p o s t w a r p e r i o d ( i n C a n a d a ) , v i r t u a l l y a l l t h e f l u c t u a t i o n s i n t h e volume o f new r e s i d e n t i a l c o n s t r u c t i o n may be a t t r i b u t e d t o f l u c t u a t i o n s i n t h e a v a i l a b i l i t y o f m o r t g a g e f i n a n c i n g . F u r t h e r m o r e , S m i t h h a s n o t e d t h a t a l t h o u g h m o n e t a r y p o l i c y has n o t been f o r m u l a t e d e s p e c i a l l y t o i n f l u e n c e t h e l e v e l o f r e s i d e n t i a l c o n s t r u c t i o n , i t has e x e r t e d a tremendous i n -f l u e n c e upon r e s i d e n t i a l c o n s t r u c t i o n a c t i v i t y b y a f f e c t i n g t h e a v a i l a b i l i t y o f m o r t g a g e f u n d s and t h e demand f o r t h i s c r e d i t . 14 K e n t , p. 489; Lawrence B. S m i t h , "The P o s t w a r C a n a d i a n R e s i d e n t i a l M o r t g a g e M a r k e t " , u n p u b l i s h e d Ph.D. t h e s i s , H a r v a r d U n i v e r s i t y , 1966, q u o t e d i n Chung, p. 33; and Lawr e n c e B. S m i t h , H o u s i n g i n Canada, R e s e a r c h Monograph 2 o f U r b a n Canada: P r o b l e m s and P r o s p e c t s (Ottawa: Canada M o r t g a g e and H o u s i n g C o r p o r a t i o n , 1971), p. 67. 2 4 F a i r , p. 209. 2 5 K e n t , p. 490. 2 6 I b i d . , p. 480. 2 7 I b i d . , p. 490. and T u c k e r h a s n o t e d t h a t Banks may t e n d t o c o n c e n t r a t e a g i v e n amount o f r a t i o n i n g on a few b o r r o w e r s , g i v i n g them n o t h i n g , o r m e r e l y c u t p o r t i o n s f r o m l o a n r e q u e s t s o f many more b o r r o w e r s . However t h e r e has been an i n i t i a l t e n d e n c y f o r c r e d i t r a t i o n i n g t o c o n c e n t r a t e h e a v i l y on a few b o r r o w e r s , who c a n n o t accommodate t h e m s e l v e s t o t h e d r a s t i c r e d u c t i o n i n money b a l a n c e s t h a t w o u l d be i m p o s e d on them i f t h e y were t o c o n t i n u e t o spend as much as t h e y had p l a n n e d . D o n a l d P. T u c k e r , " C r e d i t R a t i o n i n g , I n t e r e s t R a t e L a g s , and M o n e t a r y P o l i c y S peed", Q u a r t e r l y J o u r n a l o f E c o n o m i c s , V o l . 82 ( F e b r u a r y , 1 9 6 8 ) , p. 61. and P o a p s t n o t e s t h a t d u r i n g t i g h t money c o n d i t i o n s , i n s t i t u -t i o n a l l e n d e r s may d i s c r i m i n a t e between p o t e n t i a l b o r r o w e r s b a s e d on c r i t e r i a o t h e r t h a n p e r t a i n i n g t o t h e c a p a c i t y t o c a r r y o u t t h e m o r t g a g e c o n t r a c t . P o a p s t , p. 7. 2 8 T u c k e r , p. 59. 29 F a i r , p. 210. 30 I b i d . , p. 211. 31 R o b e r t M. F i s h e r and C h a r l e s J . Siegman, " H o u s i n g and F i n a n c i a l R e s t r a i n t : O b s e r v a t i o n s on F o r e i g n E x p e r i e n c e " , i n Ways t o M o d e r a t e F l u c t u a t i o n s i n H o u s i n g C o n s t r u c t i o n , F e d e r a l R e s e r v e S t a f f S t u d y ( W a s h i n g t o n , D . C : P u b l i c a t i o n S e r v i c e s , B o a r d o f G o v e r n o r s o f t h e F e d e r a l R e s e r v e System, March, 1972) , p. 136. 32 Leo G r e b l e r , D a v i d B l a n k , and L e w i s W m n i c k , C a p i t a l  F o r m a t i o n i n R e s i d e n t i a l R e a l E s t a t e : T r e n d s and P r o s p e c t s (New Y o r k : N a t i o n a l B u r e a u o f E c o n o m i c R e s e a r c h , 1956), p. 236. 15 H a r r i s , " I n t e r e s t R a t e s , N o n - P r i c e Terms and t h e A l l o c a t i o n o f Bank C r e d i t " , p. 234; and S m i t h , P o s t w a r C a n a d i a n H o u s i n g  R e s i d e n t i a l M o r t g a g e M a r k e t , p. 77. CHAPTER I I I REVIEW OF PREVIOUS HOUSING MARKET MODELS S e l e c t i o n C r i t e r i a A number o f e c o n o m e t r i c m o d els o f t h e h o u s i n g m a r k e t a r e a v a i l a b l e i n t h e l i t e r a t u r e . F i v e o f t h e s e m o d e l s have been s e l e c t e d and r e v i e w e d h e r e on t h e b a s i s o f t h e i r a t t e n t i o n t o v a r i o u s e x p l a n a t o r y v a r i a b l e s , t h e i r a t t e m p t s t o d i s a g g r e g a t e t h e h o u s i n g m a r k e t o r t o p r o v i d e a d i f f e r e n t a n a l y t i c a l s t r u c t u r e , and t h e i r p e r t i n e n c e t o h o u s i n g d e v e l o p m e n t i n Canada. An a t t e m p t has b e en made t o summarize t h e c o n t e n t s o f t h e s t u d i e s i n c l u d i n g t h e v a r i a b l e s c o n s i d e r e d , and t h e s u c c e s s o f e a c h m o d e l . The M a i s e l M odel M a i s e l f o c u s e d on h o u s i n g f l u c t u a t i o n s and p r e s e n t e d a m a r k e t model d e s i g n e d t o s p e c i f i c a l l y a i d i n t h e a n a l y s i s o f t h e c y c l i c a l b e h a v i o u r o f h o u s i n g s t a r t s . 1 M a i s e l a r g u e d t h a t s h o r t r u n i n s t a b i l i t i e s t h a t c h a r a c t e r i z e d h o u s i n g s t a r t s have numerous c a u s e s d e e p l y imbedded i n t h e c o n s t r u c t i o n p r o c e s s . I n c o n t r a s t , movements i n u n d e r l y i n g demand f o r m a more s t a b l e e q u i l i b r i u m a r o u n d w h i c h i n v e n t o r i e s f l u c t u a t e . M a i s e l c o n s t r u c t e d a b a s i c model and d i s c u s s e d t h e i n t e r -r e l a t i o n s h i p s among t h e m a r k e t components, i l l u s t r a t e d t h e v a r i a b l e s , and s e l e c t e d some o f t h e "more o b v i o u s " r e l a t i o n s h i p s f o r a n a l y s i s and s t a t i s t i c a l t e s t i n g . W i t h i n t h e s y s t e m h y p o t h e -1 6 17 s i z e d , t h e " l a g s , a c c e l e r a t i o n , p a r t i a l a m p l i f i c a t i o n " , w o u l d t e n d t o p r o d u c e an i n h e r e n t i n s t a b i l i t y . The b a s i c m odel h y p o t h e -s i z e d t h a t t h e number o f s t a r t s was e q u a l t o t h e sum o f t h e n e t h o u s e h o l d f o r m a t i o n ( i . e . t h e change i n t h e number o f h o u s e h o l d s ) , t h e number o f r e m o v a l s i n t h e s t o c k , t h e change i n t h e number o f v a c a n c i e s a b o u t t h e i r t r e n d , and t h e change i n t h e i n v e n t o r i e s u n d e r c o n s t r u c t i o n . The n e t h o u s e h o l d f o r m a t i o n was c o n s i d e r e d a f u n c t i o n o f t h e p o p u l a t i o n , d i s p o s a b l e income, unemployment, c r e d i t , p r i c e s and t i m e (a p r o x y f o r s o c i a l f a c t o r s ) . N e t r e m o v a l s f r o m t h e a v a i l a b l e h o u s i n g was c o n s i d e r e d a f u n c t i o n o f g o vernment a c t i o n , income, v a c a n c i e s , s t o c k o f h o u s i n g and t i m e . Changes i n v a c a n c i e s a b o u t t h e t r e n d were c o n s i d e r e d d e p e n d e n t upon c o n s t r u c t i o n c o s t s , e x p e c t a t i o n s a b o u t t h e s u p p l y and demand i n t h e m a r k e t , t e r m s and p r i c e s o f c r e d i t , r e n t and h o u s e p r i c e s , and v a c a n c i e s above t h e e q u i l i b r i u m . Changes i n i n v e n t o r i e s u n d e r c o n s t r u c t i o n were c o n s i d e r e d d e p e n d e n t upon t h e d i f f e r e n c e between s t a r t s i n a p e r i o d and c o m p l e t i o n s w h i c h were c o n s i d e r e d a f u n c t i o n o f p r e v i o u s s t a r t s . M a i s e l s t a t e d t h a t t h e a v a i l a b i l i t y o f c r e d i t may be more i m p o r t a n t t h a n i t s c o s t , b u t t h i s l i n e o f argument was n o t p u r s u e d b e y o n d u s i n g a s h o r t - t e r m r a t e r a t h e r t h a n a l o n g - t e r m r a t e i n t h e e q u a t i o n e x p l a i n i n g h o u s i n g s t a r t s . The e q u a t i o n d i d n o t a l l o w f o r t h e e f f e c t o f c r e d i t r a t i o n i n g e x c e p t t h a t t h e use o f t h e s h o r t - t e r m r a t e may i m p l y t h a t d u r i n g t h o s e p e r i o d s when l o n g -t e r m r a t e s d i d n o t r e f l e c t p r e v a i l i n g c r e d i t c o n d i t i o n s c r e d i t was r a t i o n e d . However, t h e mere i n c l u s i o n o f t h e s h o r t - t e r m r a t e , as an e x p l a n a t o r y v a r i a b l e i n t h e e q u a t i o n , d i d n o t p r o v i d e f o r t h e p o t e n t i a l a s y m m e t r i c a l e f f e c t o f c r e d i t r a t i o n i n g . 18 S t a t i s t i c a l t e s t i n g o f t h e model i n v o l v e d u t i l i z i n g a r e d u c e d f o r m o f t h e b a s i c model i n v i e w o f m i s s i n g v a r i a b l e s and i n e x a c t e s t i m a t e s i n t h e a v a i l a b l e d a t a . The m odel was c o n s i d e r e d t o meet t r a d i t i o n a l s t a t i s t i c a l t e s t s and t h e e x i s t e n c e o f c o e f f i c i e n t s w i t h t h e c o r r e c t s i g n , t h e h i g h R s q u a r e d v a l u e , and t h e a b i l i t y o f t h e model t o p r e d i c t t u r n i n g p o i n t s i n t h e number o f h o u s i n g s t a r t s , p r o v i d e d e v i d e n c e o f t h e a p p r o p r i a t e -n e s s o f t h e s t r u c t u r e o f t h e m o d e l . The Huang M o d e l Huang p r e s e n t e d a s t o c k a d j u s t m e n t model o f a h o u s i n g m a r k e t t o i d e n t i f y t h e r e l a t i o n s h i p between s p e c i f i c v a r i a b l e s 2 c o n t r i b u t i n g t o s h o r t - r u n f l u c t u a t i o n s i n h o u s i n g s t a r t s . He s e p a r a t e d t h e a n a l y s i s o f t h e demand f o r , and s u p p l y o f , s i n g l e -f a m i l y and m u l t i - f a m i l y u n i t s . The h o u s i n g s t a r t s model was b a s e d on t h e t h e o r i z e d s h o r t - r u n b e h a v i o u r o f t h e h o u s e c o n -s t r u c t i o n i n d u s t r y and i n c l u d e d a measure o f t h e b u i l d e r ' s e x p e c t e d p r o f i t , t h e c o s t o f s h o r t - t e r m c r e d i t and t h e g e n e r a l a v a i l a b i l i t y o f c r e d i t , as w e l l a s t h e e x c e s s s u p p l y i n t h e s t o c k o f h o u s i n g . The p r i c e o f ( r e n t o f ) h o u s i n g w h i c h e n t e r e d t h e i n d i c a t o r o f t h e b u i l d e r s ' e x p e c t e d p r o f i t was c o n s i d e r e d a f u n c t i o n o f t h e e x c e s s s u p p l y o f h o u s i n g , c o n s t r u c t i o n c o s t s and l a g g e d h o u s e p r i c e s ( r e n t s ) . The e x c e s s s u p p l y o f h o u s i n g v a r i a b l e was e s t i m a t e d by t h e d i f f e r e n c e between t h e e q u a t i o n e x p r e s s i n g t h e demand f o r h o u s i n g ( s i n g l e h o u s e s o r m u l t i p l e ) and c o m p l e t i o n s . The g e n e r a l a v a i l a b i l i t y o f c r e d i t was i n d i c a -t e d by t h e n e t f r e e r e s e r v e s o f t h e F e d e r a l R e s e r v e member b a n k s . The demand f o r s i n g l e h o u s e s was b a s e d on l a g g e d demand, e x p e c t e d income, t h e change i n a number o f n o n - p r i c e c r e d i t v a r i a b l e s , and 19 t h e e x p e c t e d r e n t t o h o u s e p r i c e r a t i o . W i t h r e s p e c t t o new m u l t i - f a m i l y u n i t s f o r r e n t a l accommodation t h e demand e q u a t i o n was b a s e d on l a g g e d demand, e x p e c t e d income, and r e n t r e l a t i v e t o t h e c o s t o f o t h e r goods and s e r v i c e s r e p r e s e n t e d by t h e consumer p r i c e i n d e x . I n Huang's model t h e m o r t g a g e m a r k e t a f f e c t e d demand t h r o u g h t h e mortgage r a t e , t h e l o a n - t o - v a l u e r a t i o , and t h e a m o r t i z a t i o n v a r i a b l e . The non-mortgage f i n a n c i a l s e c t o r a f f e c t -ed s t a r t s t h r o u g h t h e s h o r t - t e r m i n t e r e s t r a t e and t h e f r e e -r e s e r v e s v a r i a b l e . However, t h e mere us e o f t h e f r e e - r e s e r v e s v a r i a b l e and t h e l o a n - t o - v a l u e r a t i o , as e x p l a n a t o r y v a r i a b l e s i n t h e m o d e l , d i d n o t p r o v i d e f o r t h e p o t e n t i a l a s y m m e t r i c a l e f f e c t o f c r e d i t r a t i o n i n g . When e s t i m a t i o n s o f t h e e q u a t i o n s i n t h e model were made, most o f t h e e s t i m a t e d c o e f f i c i e n t s had t h e c o r r e c t s i g n and many were c o n s i d e r e d s i g n i f i c a n t u n d e r c o n v e n t i o n a l t e s t s . However, s u b s e q u e n t e f f o r t s i n f u r t h e r e s t i m a t e s were c o n s i d e r e d f r u s t r a -t e d b e c a u s e " d a t a f o r many c r u c i a l v a r i a b l e s were n o t a v a i l a b l e " . The F a i r and J a f f e e M o d e l F a i r and J a f f e e were c o n c e r n e d w i t h e c o n o m e t r i c p r o b l e m s a s s o c i a t e d w i t h e s t i m a t i n g s u p p l y and demand s c h e d u l e s i n d i s -3 e q u i l i b r i u m m a r k e t s . On t h e b a s i s o f t h e a s s u m p t i o n t h a t t h e h o u s i n g m a r k e t was a m a r k e t w h i c h was n o t a l w a y s i n e q u i l i b r i u m and i n w h i c h r a t i o n i n g o c c u r r e d , t h e y h y p o t h e s i z e d t h a t i n t h e a b s e n c e o f an e q u i l i b r i u m c o n d i t i o n t h e o b s e r v e d q u a n t i t y t r a d e d i n t h e m a r k e t w o u l d n o t s a t i s f y b o t h t h e demand and s u p p l y s c h e d u l e s . S t a r t i n g w i t h a s i m p l e b a s i c model f o r demand and f o r s u p p l y , f o u r methods were u s e d t o e s t i m a t e t h e r e l a t i o n s h i p 2 0 between t h e number o f h o u s i n g s t a r t s o b s e r v e d and t h e demand f o r h o u s i n g and t h e s u p p l y o f mo r t g a g e money. The b a s i c h o u s i n g m o d e l s u s e d were d e v e l o p e d w i t h i n t h e c o n t e x t o f an a g g r e g a t e f o r e c a s t i n g m o d e l . The demand f o r h o u s -i n g s t a r t s , d u r i n g a month, was assumed t o be a f u n c t i o n o f p o p u l a t i o n g r o w t h and t r e n d income ( b o t h o f w h i c h were a p p r o x i -mated by a t i m e t r e n d ) , t h e s t o c k o f h o u s e s i n e x i s t e n c e o r u n d e r c o n s t r u c t i o n d u r i n g t h e p r e v i o u s month, and t h e mortgage r a t e l a g g e d two months. The s u p p l y o f h o u s i n g s t a r t s , d u r i n g a month, was assumed t o be a f u n c t i o n o f t h e mo r t g a g e r a t e l a g g e d one month, t h e f l o w o f b o r r o w i n g s by t h e s a v i n g s and l o a n a s s o c i a t i o n s f r o m t h e F e d e r a l Home L o a n Bank, and a t i m e t r e n d t o p i c k up t h e p o s s i b l e t r e n d i n c r e a s e i n t h e d e p o s i t - h o u s i n g s t a r t s r a t i o . B o t h f u n c t i o n s were augmented by e l e v e n dummy v a r i a b l e s t o p r o v i d e f o r s e a s o n a l i t y and a "work day" v a r i a b l e was added t o a c c o u n t f o r t h e number o f work d a y s i n a month. The f i r s t method u s e d t o e s t i m a t e t h e r e l a t i o n s h i p was t h e maximum l i k e l i h o o d method f o r f i n d i n g t h e o p t i m a l s e p a r a t i o n o f t h e sample i n t o s u p p l y and demand r e g i m e s . The o t h e r t h r e e methods d i s c u s s e d b e l o w u s e d p r i c e - s e t t i n g i n f o r m a t i o n t o r e d u c e c o m p u t a t i o n a l d i f f i c u l t i e s and t o make more u s e o f t h e a v a i l a b l e d a t a . Method two u s e d t h e movements i n t h e d i r e c t i o n (0_)of t h e mo r t g a g e i n t e r e s t r a t e t o s e p a r a t e t h e sample i n t o p e r i o d s o f + e x c e s s demand ( 0 ) and e x c e s s s u p p l y ( 0 ) . Method t h r e e u s e d t h e movements i n t h e d i r e c t i o n (CJ) o f t h e mortgage i n t e r e s t r a t e t o d i v i d e t h e sample i n t o a p e r i o d o f e x c e s s demand (-) and a p e r i o d o f e x c e s s s u p p l y (+), as w e l l as d i f f e r e n t sample s e p a r a t i o n s c o r r e s p o n d i n g t o a l t e r n a t i v e a s s u m p t i o n s a b o u t t h e e x c e s s demand 21 s t a t u s o f t h e m a r k e t d u r i n g ' d o u b t f u l p e r i o d s ' ( 0 ) . The f o u r t h p r o c e d u r e , o r q u a n t i t a t i v e a p p r o a c h , u s e d t h e movements i n t h e d i r e c t i o n o f t h e mortgage i n t e r e s t r a t e t o a d j u s t t h e s u p p l y and t h e demand e q u a t i o n s , e a c h t o be e s t i m a t e d o v e r t h e e n t i r e sample p e r i o d , by a d d i n g t h e change i n t h e m o r t g a g e i n t e r e s t r a t e as an i m p l i e d a d j u s t m e n t f o r t h e amount o f r a t i o n i n g . W i t h r e s p e c t t o t h e demand c u r v e , i f t h e mortgage r a t e was i n c r e a s i n g , o r e q u a l t o z e r o , t h e change i n t h e r a t e was e n t e r e d as an e x p l a n a t o r y v a r i a b l e ; however, i f i t was f a l l i n g t h e v a l u e e n t e r e d was z e r o . W i t h r e s p e c t t o t h e s u p p l y c u r v e , i f t h e m o r t g a g e r a t e was d e c r e a s i n g , o r e q u a l t o z e r o , t h e change i n t h e m o r t g a g e r a t e was e n t e r e d w i t h a n e g a t i v e s i g n as an e x p l a n a t o r y v a r i a b l e , a l t e r n a t i v e l y t h e v a l u e z e r o was e n t e r e d . The F a i r and J a f f e e model was d e s i g n e d t o p r o v i d e f o r an a s y m m e t r i c e f f e c t o f t h e mortgage m a r k e t on h o u s i n g s t a r t s . How-e v e r , t h e model d i d n o t a p p e a r t o p r o v i d e f o r t h e p o s s i b i l i t y o f a s u s t a i n e d change i n t h e a v a i l a b i l i t y o f mortgage f u n d s as i n d i c a t e d by ( f o r example) a h i g h e r l o a n - t o - v a l u e r a t i o w h i c h may ( o r may n o t ) be co m p e n s a t e d by a h i g h e r i n t e r e s t r a t e . A l t h o u g h t h e t i m e t r e n d i n t h e demand e q u a t i o n may have c a p t u r e d t r e n d s i n n o n - p r i c e c r e d i t t e r m s , t h e i n d e p e n d e n t i m p o r t a n c e o f t h e s e v a r i a b l e s w o u l d n o t be d e t e r m i n e d . F u r t h e r m o r e , s i n c e movements i n m o r t g a g e r a t e s w o u l d l i k e l y l a g b e h i n d movements i n more r e s -p o n s i v e r a t e s , t h e u s e o f s u c h movements t o i n d i c a t e c h a n g e s i n c r e d i t c o n d i t i o n s w o u l d a p p e a r t o be q u e s t i o n a b l e t o m o d e l i n g s h o r t - r u n b e h a v i o u r . A t t e m p t s t o e s t i m a t e t h e e q u a t i o n s w i t h t h e maximum l i k e -l i h o o d t e c h n i q u e d i d n o t p r o v e s u c c e s s f u l , b e c a u s e t h e r e d i d n o t 22 a p p e a r t o be an a p p r o p r i a t e a l g o r i t h m t o i d e n t i f y t h e s w i t c h i n g p o i n t s , where t h e q u a n t i t y o b s e r v e d r e f l e c t e d e i t h e r t h e s u p p l y o r demand s c h e d u l e s , s h o r t o f s c a n n i n g a l l c o m b i n a t i o n s . Method two p r o v i d e d good f i t s o f t h e d a t a , and t h e c o e f f i c i e n t e s t i m a t e s were t h e e x p e c t e d s i g n s . Method t h r e e p r o v i d e d good f i t s and t h e s i g n s were c o r r e c t ; however, t h e c o e f f i c i e n t e s t i m a t e p e r t a i n i n g t o t h e m o r t g a g e i n t e r e s t r a t e a p p e a r e d t o be t o o l a r g e i n a b s o l u t e v a l u e , and e x - a n t e f o r e c a s t i n g had p o o r r e s u l t s . E s t i m a t e s o f t h e e q u a t i o n s , u s i n g t h e q u a n t i t a t i v e method, had c o e f f i c i e n t s w i t h an a p p r o p r i a t e s i g n , and t h e a u t h o r s c o n s i d e r e d t h e r e s u l t s c o n f i r m e d t h e h y p o t h e s i s t h a t demand was g r e a t e r t h a n s u p p l y when t h e change i n t h e m o r t g a g e r a t e was p o s i t i v e and l e s s t h a n s u p p l y when t h e change i n t h e m o r t g a g e r a t e was n e g a t i v e . The S m i t h M o d e l S m i t h a t t e m p t e d t o i n v e s t i g a t e t h e d i f f e r e n c e between t h e s i n g l e and m u l t i p l e d w e l l i n g u n i t s e c t o r s o f t h e h o u s i n g m a r k e t and t o d e v e l o p a b i - s e c t o r a l model t o e x p l a i n s i n g l e and m u l t i p l e 4 h o u s i n g s t a r t s , h o u s i n g p r i c e s and r e n t s i n Canada. The p a p e r was d i v i d e d i n t o f o u r s e c t i o n s . The f i r s t s e c t i o n i n d i c a t e d some o f t h e d i f f e r e n c e s between h o u s i n g m a r k e t s e c t o r s , and p r e s e n t e d t h e o v e r - a l l s t r u c t u r e o f t h e m o d e l . The s e c o n d s e c t i o n e x amined and s t a t i s t i c a l l y e s t i m a t e d t h e d e t e r m i n a n t s o f s i n g l e and m u l t i p l e h o u s i n g s t a r t s , w h i l e t h e t h i r d s e c t i o n d i d t h e same f o r h o u s i n g p r i c e s and r e n t s . The f i n a l s e c t i o n d i s c u s s e d t h e i m p l i -c a t i o n s o f t h e b i - s e c t o r a l model and compared t h e i n f o r m a t i o n i t p r o v i d e d w i t h t h a t p r o v i d e d by more a g g r e g a t i v e m o d e l s . S m i t h d i s a g g r e g a t e d t h e h o u s i n g m a r k e t i n t o two b a s i c s e c t o r s — t h e s i n g l e ( p r i m a r i l y owner o c c u p a n c y ) d w e l l i n g s e c t o r 2 3 and t h e m u l t i p l e ( p r i m a r i l y r e n t a l o c c u p a n c y ) d w e l l i n g s e c t o r — and a t t e m p t e d t o examine t h e b e h a v i o u r o f t h e p a r t i c i p a n t s i n e a c h o f t h e s e s e c t o r s s e p a r a t e l y . The o v e r - a l l s t r u c t u r e o f t h e model u n d e r l y i n g t h e work, was d e s c r i b e d as a s t o c k - f l o w model i n w h i c h t h e volume o f h o u s i n g s t a r t s depended upon a c o m p a r i s o n o f h o u s i n g p r i c e s o r r e n t s and v a c a n c y r a t e s w i t h c o n s t r u c t i o n , l a n d and f i n a n c i n g c o s t s , and t h e a v a i l a b i l i t y o f p u b l i c and p r i v a t e m o r t g a g e c r e d i t . P r i c e s , r e n t s , and v a c a n c y r a t e s were c o n s i d e r -ed d e t e r m i n e d by t h e demand f o r , and s u p p l y o f , e a c h t y p e o f h o u s i n g accommodation. S m i t h a r g u e d t h a t t h e demand f o r s i n g l e d w e l l i n g s d e pended upon t h e p r i c e and c a r r y i n g c o s t s o f t h i s f o r m o f accommodation compared w i t h t h e r e n t f o r a l t e r n a t i v e f o r m s o f accommodation and t h e p r i c e o f n o n - h o u s i n g goods and s e r v i c e s , p e rmanent r e a l d i s p o s a b l e income, d e m o g r a p h i c f a c t o r s , and t h e c o s t and a v a i l a b i l i t y o f m o r t g a g e c r e d i t . The demand f o r r e n t a l a ccommodation was c o n s i d e r e d d e p e n d e n t upon t h e s e same v a r i a b l e s , e x c e p t t h a t r e n t s , h o u s i n g p r i c e s and t h e c o s t and a v a i l a b i l i t y o f m o r t g a g e c r e d i t e x e r t t h e o p p o s i t e i n f l u e n c e upon demand i n t h i s s e c t o r . The S m i t h model p r o v i d e d f o r s y m m e t r i c c r e d i t r a t i o n i n g w i t h t h e a v a i l a b i l i t y o f p r i v a t e m o r t g a g e c r e d i t i n d i c a t e d by t h e d i f f e r e n t i a l between t h e a v e r a g e mortgage r a t e and bonds l a g g e d one p e r i o d . P u b l i c c r e d i t a v a i l a b i l i t y was i n d i c a t e d b y Canada M o r t g a g e and H o u s i n g C o r p o r a t i o n d i r e c t m o r t g a g e a p p r o v a l s ( i n c o n s t a n t d o l l a r s ) i n t h e c u r r e n t p r e v i o u s p e r i o d , and a dummy v a r i a b l e t o p r o v i d e f o r a s p e c i f i c h o u s e - b u i l d i n g i n c e n t i v e p r o -gramme . H a v i n g s p e c i f i e d t h e m o d e l s , S m i t h made a number o f " s l i g h t m o d i f i c a t i o n s " b e f o r e t h e model was s t a t i s t i c a l l y e s t i m a t e d i n 24 v i e w o f " d a t a l i m i t a t i o n s and i n s t i t u t i o n a l c o n s i d e r a t i o n s " . The v a c a n c y v a r i a b l e was d e l e t e d and dummy v a r i a b l e s were i n t r o d u c e d f o r s e a s o n a l v a r i a t i o n s . The a p p r o p r i a t e n e s s o f t h e model was t e s t e d by f i t t i n g o r d i n a r y and t w o - s t a g e l e a s t s q u a r e r e g r e s s i o n s t o q u a r t e r l y d a t a o v e r t h e 1954 t o 1965 p e r i o d . The r e g r e s s i o n s r e p o r t e d l y " t e n d t o c o n f i r m t h e a p p r o p r i a t e n e s s " o f t h e m o d e l s and " a c c e n t u a t e t h e d i s t i n c t i o n s between t h e s i n g l e and m u l t i p l e d w e l l i n g s e c t o r s " . I n t h e s i n g l e s r e g r e s s i o n b o t h t h e c o s t and a v a i l a b i l i t y o f p r i v a t e m o r t g a g e c r e d i t v a r i a b l e s were f o u n d t o e x e r t a h i g h l y s i g n i f i c a n t i n f l u e n c e upon t h e volume o f h o u s i n g s t a r t s . The T r i n h M o d e l The T r i n h e c o n o m e t r i c model w o u l d a p p e a r t o be d e s i g n e d p r i m a r i l y f o r f o r e c a s t i n g t h e i m p l i c a t i o n s o f v a r i o u s F e d e r a l Government p o l i c i e s on a n n u a l C a n a d i a n h o u s i n g c o n s t r u c t i o n o f 5 s i n g l e and m u l t i p l e d w e l l i n g s . The s t a t e d i n t e n t i o n o f t h e model was t o i n t e g r a t e v a r i a b l e s a s s o c i a t e d w i t h s h o r t - r u n and l o n g - t e r m f l u c t u a t i o n s i n h o u s i n g c o n s t r u c t i o n . A l t h o u g h demand v a r i a b l e s s u c h as t h e number o f f a m i l i e s and h o u s i n g s t o c k were p r e s e n t i n t h e m o d e l , f i n a n c i a l v a r i a b l e s s u c h as i n t e r e s t r a t e s and t h e a v a i l a b i l i t y o f m o r t g a g e f u n d s p l a y e d a m a j o r r o l e i n d e t e r m i n i n g h o u s i n g s t a r t s . An u n u s u a l f e a t u r e o f t h e model was t h a t h o u s e h o l d f o r m a t i o n was c o n s i d e r e d endogenous, and t h a t i t was a f u n c t i o n o f , among o t h e r e c o n o m i c and d e m o g r a p h i c v a r i a b l e s , t h e a v a i l a b i l i t y o f h o u s i n g . The s i n g l e s t a r t s model was b a s e d on t h e p r e m i s e t h a t s t a r t s were d e t e r m i n e d by t h e a v a i l a b i l i t y o f m o r t g a g e c r e d i t , t h e a v e r a g e m o r t g a g e i n t e r e s t r a t e , t h e r a t i o o f t h e s t o c k o f 2 5 s i n g l e h o u s e s t o t h e number o f f a m i l y h o u s e h o l d s , and t h e r a t i o o f f a m i l y h o u s e h o l d s t o t o t a l h o u s e h o l d s . The l a t t e r v a r i a b l e was i n c l u d e d on t h e b a s i s o f t h e a s s u m p t i o n t h a t t h e m a j o r i t y o f f a m i l i e s h a d a c l e a r p r e f e r e n c e f o r t h i s t y p e o f h o u s i n g . The m u l t i p l e h o u s i n g s t a r t s model had a s i m i l a r s p e c i f i c a t i o n e x c e p t t h a t t h e s t o c k o f h o u s i n g u n i t s and n o n - f a m i l y h o u s e h o l d s were s p e c i f i e d s e p a r a t e l y and a r e n t - t o - h o u s e p r i c e r a t i o was i n t r o -d u c e d t o c a p t u r e t h e r e l a t i v e p r i c e o f r e n t i n g i n s t e a d o f t h e m o r t g a g e r a t e as i n t h e s i n g l e s t a r t s e q u a t i o n . The a v a i l a b i l i t y o f m o r t g a g e c r e d i t has b e e n i n d i c a t e d by t h e a c t u a l t o t a l m o r t g a g e a p p r o v a l s i n d o l l a r s f r o m t h e p r i v a t e and p u b l i c s o u r c e s r e l a t i v e t o a h o u s i n g p r i c e i n d e x . B e c a u s e t h e a c t u a l amount o f m o r t g a g e a p p r o v a l s r e p r e s e n t e d b o t h t h e amount o f f u n d s s u p p l i e d and demanded, c r e d i t r a t i o n i n g was i n -h e r e n t l y i n c l u d e d . However, t h e i n d e p e n d e n t a f f e c t o f a change i n t h e s u p p l y o f c r e d i t c a n n o t be i s o l a t e d , and t h e r e may be d i f f i c u l t i e s i n e s t i m a t i n g t h e e q u a t i o n b e c a u s e o f t h e l a c k o f i n d e p e n d e n c e between m o r t g a g e a p p r o v a l s and t h e r e m a i n i n g d e t e r -m i n i n g v a r i a b l e s . The m o d e l s were e v a l u a t e d b y c o m p a r i n g t h e a c t u a l v a l u e s w i t h t h e s i m u l a t e d v a l u e s . The r e s u l t s o f t h e h o u s i n g s t a r t s m o d e l s were c o n s i d e r e d f a i r l y good e x c e p t t h e model f o r t h e m u l t i p l e h o u s i n g u n i t s t a r t s d i d n o t p e r f o r m as w e l l as t h e model f o r s i n g l e h o u s i n g u n i t s t a r t s . Comments on P r e v i o u s M o d e l s A number o f i s s u e s and p r o b l e m s have b e e n n o t e d p e r t a i n i n g t o p r e v i o u s s t u d i e s o f t h e r e s i d e n t i a l c o n s t r u c t i o n s e c t o r o f t h e economy, w h i c h i n c l u d e t h e f o l l o w i n g : 1. I n p r e v i o u s work, t h e r e has been a t o t a l r e l i a n c e on f a c t o r s i n f l u e n c i n g demand and many m o d e l s have n o t c a p t u r e d , i n an a d e q u a t e way, t h e i n t e r a c t i o n between t h e h o u s i n g and m o r t g age m a r k e t s . However, t o e x p l a i n s h o r t - r u n f l u c t u a t i o n s i n c o n s t r u c t i o n a c t i v i t y on a m o n t h l y o r q u a r t e r l y b a s i s , v a r i a t i o n s i n m o r t g a g e c r e d i t s u p p l y , b u i l d e r s ' i n v e n t o r i e s , and o t h e r s u p p l y v a r i a b l e s , may o f f e r more e x p l a n -a t o r y s i g n i f i c a n c e t h a n demand d e t e r m i n i n g v a r i a b l e s as demography and t a s t e , w h i c h change r e l a t i v e l y 7 l i t t l e i n t h e s h o r t - r u n . 2. The b a s i c demand and s u p p l y c o n d i t i o n s w i t h r e s p e c t t o c r e d i t and o t h e r r e l e v a n t f a c t o r s o f t h e m a r k e t have n o t been w e l l s p e c i f i e d . The f r e q u e n t u s e o f p r o x i e s r a t h e r t h a n d i r e c t d a t a , t h e l a c k o f t h e r e c o g n i t i o n o f t h e e c o n o m i c r o l e s o f v a r i a b l e s s u c h as s t a r t s , demand f l o w o f h o u s i n g u n i t s , c o m p l e t i o n s , and t h e i n v e n t o r y u n d e r c o n s t r u c t i o n have p r e s e n t e d p r o b l e m s . ^ 3. The s t a t e o f s t a t i s t i c a l d a t a on h o u s i n g l e f t much t o be d e s i r e d w i t h r e s p e c t t o t h e q u a l i t y o f a v a i l a b l e 9 s e r i e s and t o t h e a v a i l a b i l i t y o f i m p o r t a n t s e r i e s . 4. T h e r e has b e e n an a b s e n c e o f s e p a r a t e a n a l y s i s o f h o u s i n g s u b m a r k e t s w h i c h may d i f f e r c o n s i d e r a b l y w i t h r e s p e c t t o t h e i n f l u e n c e o f d i f f e r e n t i n s t i t u t i o n a l f a c t o r s and t h e b e h a v i o u r o f p a r t i c i p a n t s i n t h e s u b -m a r k e t s . I n a d d i t i o n t o t h e p r o b l e m s n o t e d above, i t w o u l d a p p e a r t h a t t h e n a t i o n a l f o c u s i n p r e v i o u s C a n a d i a n s t u d i e s has n o t 2 7 i n c o r p o r a t e d t h e i m p o r t a n c e o f r e g i o n a l a n a l y s i s i n h o u s i n g c o n -s t r u c t i o n a c t i v i t i e s . The g e o g r a p h i c i m m o b i l i t y o f o u t p u t com-b i n e d w i t h t h e h e t e r o g e n e o u s s o c i o e c o n o m i c c o n d i t i o n s o f v a r i o u s r e g i o n s i s bound t o p r o d u c e v a r y i n g d e g r e e s and p a t t e r n s o f c y c l i c a l v a r i a t i o n s , and f o r t h i s r e a s o n a t t e n t i o n s h o u l d be p l a c e d i n a n a l y z i n g i d e n t i f i a b l e g e o g r a p h i c s u b m a r k e t s . 1 1 F u r t h e r m o r e , p r e v i o u s a t t e m p t s t o d i s a g g r e g a t e t h e m a r k e t i n t o h o u s i n g t y p e s ( s i n g l e / m u l t i p l e ) have n o t a p p e a r e d t o r e c o g n i z e t h e c l o s e s u b s t i t u t i o n o f g r o u n d - o r i e n t e d d w e l l i n g u n i t s ( i . e . s i n g l e - d e t a c h e d , d o u b l e s and row h o u s i n g ) . I t w o u l d a l s o a p p e a r t h a t t h e e m p h a s i s upon t h e s e l e c t i o n o f d e t e r m i n i n g v a r i a b l e s t h a t p r o v i d e d s u c c e s s i n t r a c k i n g f l u c t u a t i o n s i n h o u s i n g s t a r t s o v e r s h a d o w e d t h e d i f f i c u l t y o f i n t e r p r e t i n g t h e e s t i m a t e d c o -e f f i c i e n t s . 28 F o o t n o t e s "''Sherman J . M a i s e l , "A T h e o r y o f F l u c t u a t i o n s i n R e s i d e n -t i a l C o n s t r u c t i o n S t a r t s " , The A m e r i c a n E c o n o m i c Review, V o l . L I I I ( J u n e , 1 9 6 3 ) , pp. 359-379. 2 D a v i d S. Huang, "A S t u d y o f t h e M a r k e t f o r New H o u s i n g U n i t s " , P r o c e e d i n g s o f t h e B u s i n e s s and E c o n o m i c S t a t i s t i c s  S e c t i o n o f t h e A m e r i c a n S t a t i s t i c a l A s s o c i a t i o n , ( 1 9 6 9 ) , pp. 702-712. 3 Ray C. F a i r and Dwight M. J a f f e e , "Methods o f E s t i m a t i o n f o r M a r k e t s i n D i s e q u i l i b r i u m " , E c o n o m e t r i c a , V o l . 40, No. 3 (May, 1 9 7 2 ) , pp. 497-514. 4 L a w r e n c e B. S m i t h , "A B i - S e c t o r a l H o u s i n g M a r k e t M o d e l " , The C a n d i a n J o u r n a l o f E c o n o m i c s , No. 4 (November, 1 9 6 9 ) , pp. 537-569. 5 Anh T r i n h , "An A n n u a l E c o n o m e t r i c M o d e l o f C a n a d i a n H o u s i n g and M o r t g a g e M a r k e t s " , W o r k i n g P a p e r No. 76-3 (Ottawa: M a r k e t and I n d u s t r y A n a l y s i s D i v i s i o n , C e n t r a l M o r t g a g e and H o u s i n g C o r p o r a t i o n , 1 9 7 6 ) . ^Ray C. F a i r , " D i s e q u i l b r i u m i n H o u s i n g M o d e l s " , The J o u r n a l o f F i n a n c e , V o l . 27 (May, 1 9 7 2 ) , p.207. p. 702 -i Huang, "A S t u d y o f t h e M a r k e t f o r New H o u s i n g U n i t s " , I b i d . , p. 702. 9 I b i d . , p. 702. 1 0 S m i t h , "A B i - S e c t o r a l H o u s i n g M a r k e t M o d e l " , p. 558. 1 1 J o s e p h H. Chung, C y c l i c a l I n s t a b i l i t y i n R e s i d e n t i a l  C o n s t r u c t i o n i n Canada (Ottawa: E c o n o m i c C o u n c i l o f Canada, 1976), p. 7. CHAPTER IV METROPOLITAN AREA HOUSING MARKET MODEL O b j e c t i v e I n v i e w o f t h e d i s c u s s i o n on t h e h o u s i n g - m o r t g a g e m a r k e t and t h e r e v i e w o f p r e v i o u s s t u d e i s , an a t t e m p t has been made t o d e v e l o p a model o f t h e s u p p l y o f new g r o u n d - o r i e n t e d h o u s i n g ( i . e . s i n g l e - d e t a c h e d , d o u b l e s , and rowhouses) w i t h i n a l i m i t e d h o u s i n g m a r k e t a r e a ( e n c o m p a s s i n g a s i n g l e m e t r o p o l i t a n a r e a ) and t o i n -c o r p o r a t e t h e p r o f i t and n o n - p r o f i t m o t i v e s o f t h e i n i t i a t o r s o f h o u s i n g s t a r t s , I n a d d i t i o n , t h e b a s i c model has been d e s i g n e d t o p e r m i t t h e c o m p a r i s o n on an a p p r o a c h where c r e d i t a v a i l a b i l i t y (as w e l l as p r i c e ) may i n d u c e and c u r t a i l t h e demand f o r h o u s i n g , and an a p p r o a c h where c r e d i t a v a i l a b i l i t y has an a s y m m e t r i c e f f e c t . T h e r e f o r e , i t h a s been t h e o b j e c t i v e t o d e t e r m i n e t h e b e s t e x p r e s -s i o n and e s t i m a t e o f t h e r e l a t i o n s h i p between t h e number o f h o u s -i n g s t a r t s and t h e e x p l a n a t o r y v a r i a b l e s , a s w e l l as t o d e t e r m i n e t h e e f f e c t o f n o n - p r i c e c r e d i t t e r m s ( i . e . c r e d i t a v a i l a b i l i t y ) . B a s i c H o u s i n g S t a r t s M o d e l The h o u s i n g s t a r t s p a r a d i g m has a t t e m p t e d t o model t h e s u p -p l y s i d e o f t h e new h o u s i n g m a r k e t , and t h e r e f o r e , t h e b e h a v i o u r o f b u i l d e r s and d e v e l o p e r s b a s e d on t h e i r m o t i v a t i o n s and c o n -s t r a i n t s upon a c t i v i t y . H o u s i n g u n i t s t a r t s a r e m o t i v a t e d by s p e c u l a t i v e b u s i n e s s p r o f i t s , t h e r e q u i r e m e n t s f o r c u s t o m - b u i l t homes, and t h e p e r c e i v e d s o c i a l n eeds o f n o n - p r o f i t o r g a n i z a t i o n s . 2 9 30 I n t h i s m o d e l, custom-made h o u s e s have been c o n s i d e r e d a f u n c t i o n o f t h e same v a r i a b l e s t h a t g o v e r n t h e p r o f i t a b l e n e s s o f s p e c u l a t o r h o u s i n g ; however, h o u s i n g u n i t s i n i t i a t e d by n o n - p r o f i t o r g a n i z a -t i o n s f o r " p u b l i c h o u s i n g " have been c o n s i d e r e d d e t e r m i n e d e x o g e n o u s l y . I t h as been h y p o t h e s i z e d t h a t t h e number o f h o u s i n g s t a r t s may be a p p r o x i m a t e d by a p a r t i a l a d j u s t m e n t model where t h e d e s i r e d change i n t h e number o f g r o u n d - o r i e n t e d d w e l l i n g s u n d e r c o n s t r u c t i o n ( A l U C F * ) e q u a l s t h e d i f f e r e n c e between t h e d e s i r e d number o f u n i t s u n d e r c o n s t r u c t i o n (IUCF*) and t h e o p e n i n g l e v e l o f s u c h an i n v e n t o r y ( I U C F _ t ) a s shown i n e x p r e s s i o n 4.1:"'" IUCF* = IUCF* - I U C F _ t 4.1 Ba s e d on t h e i d e n t i t y t h a t t h e change i n t h e number o f u n i t s u n d e r c o n s t r u c t i o n ( A l U C F ) e q u a l s t h e d i f f e r e n c e between t h e number o f u n i t s t a r t s (PSTS) and c o m p l e t i o n s (COMP) as shown i n e x p r e s s i o n 4.2, t h e d e s i r e d change i n t h e number o f g r o u n d o r i e n t e d d w e l l i n g s u n d e r c o n s t r u c t i o n ( A l U C F * ) h as been hypo-t h e s i z e d t o e q u a l t h e d i f f e r e n c e between t h e d e s i r e d number o f s t a r t s (PSTS*) and t h e number o f c o m p l e t i o n s (COMP);as shown i n e x p r e s s i o n 4.3: IUCF = PSTS - COMP 4.2 IUCF* = PSTS* - COMP 4.3 A s s u m i n g t h a t t h e a c t u a l number o f d w e l l i n g s t a r t s r e s p o n d s p r o p o r t i o n a l l y t o t h e d e s i r e d number o f d w e l l i n g s t a r t s , t h e a c t u a l number o f g r o u n d - o r i e n t e d d w e l l i n g s t a r t s (PSTS) may be e x p r e s s e d a s a f u n c t i o n o f t h e d e s i r e d number o f u n i t s u n d e r c o n s t r u c t i o n ( I U C F * ) , t h e o p e n i n g l e v e l o f s u c h an i n v e n t o r y 31 ( I U C F _ t ) , and t h e number o f c o m p l e t i o n s (COMP) as shown i n e x p r e s s i o n 4.4: PSTS = B*(IUCF*) - B « ( I U C F _ t ) + B « ( C O M P ) 4.4 "B" i s t h e r e g r e s s i o n c o e f f i c i e n t The d e s i r e d number o f g r o u n d - o r i e n t e d d w e l l i n g s u n d e r c o n s t r u c t i o n (IUCF*) has b e en e s t i m a t e d b a s e d on t h e p r e m i s e t h a t g i v e n t h e l e v e l o f demand f o r new h o u s i n g u n i t s t h e r e p r o b a b l y w o u l d be a n o r m a l l e v e l o f h o u s i n g i n v e n t o r y u n d e r c o n s t r u c t i o n w h i c h b u i l d e r s w o u l d want t o c a r r y . T h i s n o r m a l l e v e l o f i n v e n t o r y may be a f f e c t e d by s u c h s h o r t - t e r m c o n s i d e r a t i o n s d e s i r e d l e v e l o f i n v e s t m e n t , t h e i n v e s t m e n t r e q u i r e d p e r u n i t , and c o n s t r a i n t s upon b e h a v i o u r . The d e s i r e d l e v e l ' o f i n v e s t m e n t w o u l d depend upon t h e e x p e c t e d p r o f i t a b i l i t y o f l a n d d e v e l o p m e n t w h i c h stems f r o m t h e p o t e n t i a l n e t c a s h f l o w s and t h e e x p e c t a t i o n s o f r e a l i z i n g p o t e n t i a l r a t e s o f r e t u r n . T h e r e f o r e , I t h a s b e en assumed t h a t t h e p o t e n t i a l d e s i r e d number o f g r o u n d - o r i e n t e d d w e l l i n g u n i t s u n d e r c o n s t r u c t i o n d e pended upon t h e p o t e n t i a l p r o f i t a b i l i t y o f d e v e l o p i n g l a n d i n h o u s e s r e l a t i v e t o t h e i n v e s t m e n t r e q u i r e d PF p e r u n i t (^jj) • I t has b e en n o t e d t h a t t h e p r o f i t s a s s o c i a t e d w i t h t h e d e v e l o p m e n t o f g r o u n d - o r i e n t e d d w e l l i n g s was d e r i v e d p r i m a r i l y 2 f r o m t h e r e t u r n s t o s c a r c i t y f o r d e v e l o p e d l a n d . T h e r e f o r e , t h e e x p e c t a t i o n s o f o b t a i n i n g p o t e n t i a l l e v e l s o f p r o f i t a b l e n e s s w o u l d depend upon t h e p r e d i c t e d v a l u e o f h o u s i n g r e l a t i v e t o e x p e n d i t u r e s and t h e t i m e r e q u i r e d t o d e v e l o p and m a r k e t a d w e l l -3 i n g u n i t . The e x p e c t a t i o n and c a p a c i t y o f c o n s t r u c t i n g a g r o u n d 32 o r i e n t e d d w e l l i n g u n i t , w i t h i n a g i v e n t i m e p e r i o d , has been assumed t o be i n v e r s e l y r e l a t e d t o t h e m a g n i t u d e o f p r e v a i l i n g s t r i k e s i n t h e c o n s t r u c t i o n i n d u s t r y (STRIKE) and s e a s o n a l v a r i a -t i o n s i n w e a t h e r s e v e r i t y and h o l i d a y s (SPRING, SUMMER, F A L L , WINTER = SSFW). F u r t h e r m o r e , t h e e x p e c t a t i o n and p r o b a b i l i t y o f o b t a i n i n g a s a l e ( o r r e n t e r ) o f a g r o u n d - o r i e n t e d d w e l l i n g u n i t , w i t h i n a g i v e n t i m e p e r i o d , h a s b e e n assumed t o be i n v e r s e l y r e l a t e d t o t h e c o m p e t i t i o n f r o m t h e s u r p l u s s t o c k o f new h o u s e s , w h i c h has been i n d i c a t e d by t h e number o f u n o c c u p i e d new g r o u n d -o r i e n t e d d w e l l i n g s ( V C ) , and t o t h e p r e v a i l i n g s e v e r i t y i n t h e p r i c e and a v a i l a b i l i t y o f mortgage c r e d i t (CRED), w h i c h i n d i c a t e s t h e c o s t s and d i f f i c u l t y t o home b u y e r s t o o b t a i n b o r r o w e d f u n d s and t o a f f o r d d e b t commitments. I n v i e w o f t h e above, t h e d e s i r e d number o f g r o u n d - o r i e n t e d d w e l l i n g s u n d e r c o n s t r u c t i o n (IUCF*) has be e n s p e c i f i e d b a s e d on e x p r e s s i o n 4 . 5 : PF IUCF* = f ( ^ j # VC, STRIKE, CRED, SSFW) 4 . 5 By c o m b i n i n g e x p r e s s i o n s 4 . 4 and 4 . 5 t h e number o f g r o u n d - o r i e n t e d h o u s i n g s t a r t s h as been s p e c i f i e d b a s e d on e x p r e s s i o n 4 . 6 : PSTS = B f (|±j, VC, STRIKE, CRED, SSFW) - B ( I U C F _ t ~ COMP) 4 . 6 A l t e r n a t i v e M o d e l As a r g u e d by F a i r and J a f f e e , t h e o b s e r v e d q u a n t i t y o f h o u s i n g s t a r t s may n o t s a t i s f y b o t h t h e demand f o r h o u s i n g s c h e d u l e and t h e s u p p l y o f h o u s i n g t h e mortgage m a r k e t w o u l d be 4 w i l l i n g t o f i n a n c e s c h e d u l e . P e r s u a n t t o t h e t h e o r y o f t h e a s y m m e t r i c e f f e c t o f t h e mortgage m a r k e t on t h e n a t i o n a l h o u s i n g m a r k e t , i t a l t e r n a t i v e l y has been h y p o t h e s i z e d t h a t g i v e n t h e 33 demand f o r h o u s i n g a t a p r e v a i l i n g i n t e r e s t r a t e , c h a n g e s i n n o n - p r i c e c r e d i t t e r m s may have a one d i m e n s i o n a l e f f e c t on t h e amount o f h o u s i n g d e v e l o p m e n t . I n v i e w o f t h e a b o v e , i t w o u l d be n e c e s s a r y t o i d e n t i f y t h o s e p e r i o d s when n o n - p r i c e c r e d i t t e r m s have been u s e d t o r a t i o n t h e n a t i o n a l s u p p l y o f a v a i l a b l e m o r t -gage f u n d s t o a l l l o c a l m a r k e t s . To t e s t t h e h y p o t h e s i s , t h e g e n e r a l a p p r o a c h t o t h e p r o b -l e m h a s b e e n t o t r y t o s e p a r a t e t h e t i m e s e r i e s sample i n t o demand and s u p p l y r e g i m e s s u c h t h a t e a c h s c h e d u l e may be a p p r o p r i a t e l y f i t t e d a g a i n s t t h e o b s e r v e d q u a n t i t y f o r t h e sample p o i n t s f a l l -i n g w i t h i n i t s r e g i m e . A n o t h e r a p p r o a c h has been t o t r y t o a d -j u s t t h e o b s e r v e d q u a n t i t y f o r t h e e f f e c t s o f r a t i o n i n g and t h e n f i t b o t h s c h e d u l e s o v e r t h e e n t i r e sample p e r i o d u s i n g t h e a d -5 j u s t e d q u a n t i t y . I n t h i s p a p e r , t h e c r e d i t c o n d i t i o n s v a r i a b l e has b e e n b a s e d on an i n d i c a t o r o f t h e p r i c e and a v a i l a b i l i t y o f c r e d i t p r o v i d e d by p r i v a t e i n s t i t u t i o n a l l e n d e r s and by t h e government f o r p r o f i t m o t i v a t e d h o u s i n g . F u r t h e r m o r e , t o t e s t t h e hypo-t h e s i s o f t h e a s y m m e t r i c e f f e c t o f c r e d i t a v a i l a b i l i t y , an a t t e m p t was made t o s u p p r e s s t h e v a l u e s o f c r e d i t a v a i l a b i l i t y , i n t h e a s y m m e t r i c c r e d i t c o n d i t i o n s v a r i a b l e (NCRED), when i t a p p e a r e d t h a t n o n - p r i c e c r e d i t c o n d i t i o n s were e a s i e r t h a n a v e r a g e . S u p p l e m e n t a r y M o d e l s  Endogenous V a r i a b l e s : I n o r d e r t o a t t e m p t t o d e t e r m i n e c o n s i s t e n t e s t i m a t e s o f c o e f f i c i e n t s i n t h e h o u s i n g s t a r t s m o d e l , i t was n e c e s s a r y t o i d e n t i f y t h e endogneous v a r i a b l e s i n t h e m o d e l . F u r t h e r m o r e , i t was n e c e s s a r y t o s p e c i f y e a c h endogenous v a r i a b l e as a s i m p l e l i n e a r f u n c t i o n i n r e d u c e d f o r m t o p r o v i d e e v i d e n c e 34 o f t h e e n d o g e n i t y o f t h e s e v a r i a b l e s i n t h e h o u s i n g s t a r t s model and t o i d e n t i f y a d d i t i o n a l v a r i a b l e s r e q u i r e d t o s u b s t i t u t e e xogenous v a r i a b l e s , f o r t h e endogenous v a r i a b l e s , when e s t i m a t -i n g t h e h o u s i n g s t a r t s m o d e l . The m o d i f i e d p o t e n t i a l p r o f i t v a r i a b l e ( i . e . , t h e p o t e n t i a l d e s i r e d l e v e l o f i n v e s t m e n t r e l a t i v e t o t h e i n v e s t m e n t r e q u i r e d PF p e r u n i t ^ y ) , t h e i n v e n t o r y o f u n o c c u p i e d new h o u s e s (VC), as w e l l as t h e d i f f e r e n c e between t h e numbers o f h o u s i n g u n i t s u n d e r c o n s t r u c t i o n i n t h e p r e v i o u s p e r i o d and t h e number o f c o m p l e t i o n s (IUCF_^_- COMP) have been c o n s i d e r e d endogenous b e c a u s e o f t h e common d e p e n d e n c e upon c r e d i t c o n d i t i o n s , o r t h e number o f house c o m p l e t i o n s . M o d i f i e d P o t e n t i a l P r o f i t V a r i a b l e : The m o d i f i e d p o t e n t i a l p r o f i t PF v a r i a b l e ( j g ) / w h i c h e x p r e s s e s t h e p o t e n t i a l d e s i r e d l e v e l o f i n v e s t m e n t r e l a t i v e t o t h e i n v e s t m e n t r e q u i r e d p e r u n i t , has been i n d i c a t e d by t h e r a t i o o f t h e p o t e n t i a l p r o f i t a b i l i t y o f d e v e l o p -i n g l a n d (PF) and t h e i n v e s t m e n t r e q u i r e d p e r u n i t ( I U ) . The p o t e n t i a l p r o f i t a b i l i t y o f d e v e l o p i n g l a n d w o u l d depend upon t h e p o t e n t i a l new h o u s e p r i c e s r e l a t i v e t o b e f o r e t a x d e v e l o p m e n t and m a r k e t i n g c o s t s , c o r p o r a t e income t a x e s , as w e l l a s t h e r e q u i r e d r a t e o f r e t u r n . S i n c e h o u s e p r i c e s , d e v e l o p m e n t c o s t s , and t h e r e q u i r e d r a t e o f r e t u r n w o u l d be a f f e c t e d by p r e v a i l i n g i n t e r e s t PF r a t e s , t h e m o d i f i e d p o t e n t i a l p r o f i t v a r i a b l e ( j y ) — d i s c u s s e d i n CHAPTER V — h a s been a p p r o x i m a t e d by a s i m p l e l i n e a r f u n c t i o n o f HP new house p r i c e s r e l a t i v e t o b e f o r e t a x c o s t s (^-) , t h e c o r p o r a t e income t a x r a t e ( T R ) — t o i n d i c a t e f l u c t u a t i o n s i n income t a x e s p e r d o l l a r o f n e t i n c o m e — , and t h e i n v e s t m e n t r e q u i r e d p e r u n i t ( I U ) , a s shown i n e x p r e s s i o n 4.7: 3 5 | | = f ( | § r TR, IU) 4.7 HP However, t h e v a r i a b l e house p r i c e s t o b e f o r e t a x c o s t s (^) w o u l d be endogenous t o t h e h o u s i n g s t a r t s m odel b e c a u s e o f t h e p r e s e n c e o f t h e c r e d i t c o n d i t o n s v a r i a b l e . T h e r e f o r e , t h e p r i m a r y v a r i -a b l e s t h a t d e t e r m i n e t h e p r i c e o f new h o u s e s r e l a t i v e t o b e f o r e HP t a x c o s t s (J^Q) have a l s o been i d e n t i f i e d , as d i s c u s s e d b e l o w . House P r i c e s R e l a t i v e t o B e f o r e Tax C o s t s : The s e l l i n g p r i c e o f new h o u s e s w o u l d d e p e n d upon t h e p r i c e t h a t b u y e r s w o u l d be w i l l -i n g t o s p e n d as w e l l as t h e p r i c e t h a t s u p p l i e r s o f new h o u s i n g w o u l d be w i l l i n g t o a c c e p t . A l t h o u g h d e v e l o p e r - b u i l d e r s w o u l d be r e l u c t a n t t o s e l l h o u s e s a t p r i c e s t h a t d i d n o t r e c o v e r t h e i r c o s t s ( i n c l u d i n g n o r m a l p r o f i t s ) , i t h a s been assumed t h a t t h e r a t i o o f s e l l i n g p r i c e s t o c o s t s f o r new h o u s e s has b e e n p r i m a r i l y demand d e t e r m i n e d . T h i s a s s u m p t i o n a p p e a r s t o be r e a s o n a b l e b e c a u s e any m a r k e t i n g d e l a y w o u l d i n c r e a s e t h e s u p p l i e r s ' h o l d i n g and o p p o r t u n i t y c o s t s , and b e c a u s e t h e a b i l i t y t o c o n t r o l t h e s u p p l y o f h o u s i n g w o u l d be v e r y l i m i t e d . I t w o u l d be e x p e c t e d t h a t s u s t a i n e d i n c r e a s e s i n t h e s i z e o f t h e p o p u l a t i o n , t h a t f r o m h o u s e h o l d s , r e l a t i v e t o a d d i t i o n s t o t h e s t o c k o f h o u s i n g w o u l d l i k e l y i n c r e a s e t h e demand f o r h o u s i n g r e l a t i v e t o t h e s u p p l y and t h e r e f o r e i n c r e a s e t h e s e l l i n g p r i c e o f h o u s e s . However, i n t h e s h o r t - t e r m , t h e p o p u l a t i o n r e l a t i v e t o t h e s t o c k o f h o u s e s w o u l d change v e r y l i t t l e ; t h e r e f o r e , t h e change i n t h e s e l l i n g p r i c e o f new h o u s e s r e l a t i v e t o d e v e l o p m e n t c o s t s w o u l d depend p r i m a r i l y upon t h e change i n t h e p u r c h a s i n g power o f t h e l o c a l p o p u l a t i o n , r e l a t i v e t o d e v e l o p m e n t c o s t s . I n v i e w o f t h e above, i t has been h y p o t h e s i z e d t h a t t h e 36 change i n t h e s e l l i n g p r i c e o f new h o u s e s r e l a t i v e t o b e f o r e t a x HP c o s t s d u r i n g d e v e l o p m e n t ( A ^ j ) w o u l d be a f u n c t i o n o f t h e change i n t h e p o p u l a t i o n , t h a t f o r m h o u s e h o l d s , r e l a t i v e t o t h e s t o c k o f h o u s e s (CHCW), t h e change i n t h e d i s p o s a b l e income o f t h e p o p u l a -)xo: AC t i o n r e l a t i v e t o d e v e l o p m e n t c o s t s ( A0 ^ * * ) > and p r e v a i l i n g c r e d i t NCRED c o n d i t i o n s ( C R E D ) t h a t d e t e r m i n e t h e c o s t and a v a i l a b i l i t y o f 7 m o r t g a g e f u n d s . T h e r e f o r e , u s i n g t h e g e n e r a l i d e n t i t y t h a t p r e v a i l i n g p r i c e s e q u a l t h e p r i c e i n t h e p r e c e d i n g p e r i o d p l u s any s u b s e q u e n t c h a n g e , t h e s e l l i n g p r i c e o f new h o u s e s r e l a t i v e t o d e v e l o p m e n t c o s t s h as been e s t i m a t e d b a s e d on t h e f u n c t i o n shown g i n e x p r e s s i o n 4.8: <i t^<CHCW, N S I n v e n t o r y o f U n o c c u p i e d New H o u s e s : I t has been h y p o t h e s i z e d t h a t g i v e n a l e v e l o f demand f o r new h o u s i n g u n i t s t h e r e p r o b a b l y w o u l d be a n o r m a l l e v e l o f u n s o l d , new h o u s e s . T h i s s u p p l y w o u l d l i k e l y r e p r e s e n t r e c e n t c o m p l e t i o n s s i n c e i n v e n t o r y s i z e s . w o u l d be a d j u s t e d as c h a n g e s i n demand ( a v e r a g e l e v e l s o f c o n s u m p t i o n ) a d j u s t e d s l o w l y . O ver t h e l o n g - t e r m , t h e r e f o r e , i t m i g h t be e x p e c t e d t h a t as t h e l e v e l o f demand f o r new h o u s i n g u n i t s i n -c r e a s e d s u p p l i e r s w o u l d i n c r e a s e t h e l e v e l o f p r o d u c t i o n and have l a r g e r i n v e n t o r i e s o f u n s o l d ( u n r e n t e d ) n e w l y c o m p l e t e d h o u s e s . However, i n t h e s h o r t - t e r m f l u c t u a t i o n s i n t h e demand f o r and s u p p l y o f new h o u s e s w o u l d l i k e l y r e s u l t i n f l u c t u a t i n g i n v e n -t o r i e s . I n v i e w o f t h e above i t has been assumed t h a t t h e change i n t h e i n v e n t o r y o f u n o c c u p i e d hew h o u s e s (AVC) depends upon t h e a d d i t i o n a l s u p p l y o f new h o u s e s ( c o m p l e t i o n s ) r e l a t i v e t o t h e 37 q u a n t i t y demanded. Whereas t h e d i f f e r e n c e between t h e s u p p l y and demand may r e f l e c t t h e s u s t a i n e d s i z e o f t h e change i n t h e number o f u n s o l d h o u s e s , t h e r a t i o may i n d i c a t e how f a s t c o m p l e -t i o n s w i t h i n a p e r i o d o f t i m e w o u l d be s u c c e s s f u l l y m a r k e t e d . A l t h o u g h t h e i n c r e a s e i n t h e s u p p l y o f new g r o u n d - o r i e n t e d h o u s e s w o u l d e q u a l t h e number o f c o m p l e t i o n s (COMP), t h e q u a n t i t y o f new h o u s e s demanded w o u l d depend upon t h e s i z e o f t h e p o p u l a -t i o n t h a t f o r m s h o u s e h o l d s r e l a t i v e t o t h e i n i t i a l s t o c k o f NCRED h o u s e s (CW), t h e c o s t and a v a i l a b i l i t y o f m o r t g a g e f u n d s ( C R E D ) and s e a s o n a l c o n s u m p t i o n p r e f e r e n c e s (SSFW). T h e r e f o r e , t h e i n v e n t o r y o f u n s o l d ( u n r e n t e d ) new g r o u n d -o r i e n t e d h o u s i n g u n i t s h a s b e e n e s t i m a t e d by a s i m p l e l i n e a r f u n c t i o n a s shown i n e x p r e s s i o n 4.9: _ COMP NCRED VC - V C _ t + f ( " c w - r CRED' S S F W ) 4 " 9 An O v e r v i e w o f t h e H o u s i n g M a r k e t M o d e l The e s s e n t i a l f e a t u r e s o f t h e l o c a l h o u s i n g m a r k e t model a r e i l l u s t r a t e d i n F i g u r e 1. The model c o n t a i n s 23 exogenous v a r i a b l e s , some o f w h i c h have been combined t o p r o v i d e a t o t a l o f 12 d i f f e r e n t d e t e r m i n i n g v a r i a b l e s . T h e s e 12 v a r i a b l e s c o n s i s t o f l o c a l h o u s i n g , p o p u l a t i o n , and p r i c e c h a r a c t e r i s t i c s h i s t o r i c -a l l y p r e d e t e r m i n e d ( i n c l u d i n g l a g g e d v a l u e s o f endogenous v a r i -a b l e s ) , n a t i o n a l e c o n o m i c c h a r a c t e r i s t i c s assumed d e t e r m i n e d i n -d e p e n d e n t o f a s i n g l e l o c a l economy, and t h e p r e v a i l i n g l o c a l l a b o u r and s e a s o n a l c o n d i t i o n s — a s s u m e d d e t e r m i n e d i n d e p e n d e n t l y . As n o t e d p r e v i o u s l y , t h e p r i n c i p a l endogenous v a r i a b l e s i n c l u d e t h e number o f p r o f i t m o t i v a t e d and c u s t o m made g r o u n d -o r i e n t e d h o u s i n g s t a r t s ( P S T S ) , t h e m o d i f i e d p o t e n t i a l p r o f i t F i g . 1. F l o w c h a r t o f t h e H o u s i n g M a r k e t Model *r A * * — * IUCF , STKOH , -*|COMP LABOH I A LABQH}-» STKOH LABOH LABOH * d LABOH STKOHQ eft STKOH A v e vc_ t VC SSFW STRIKE -VL/ CRED NCRED PSTS H P - t T AC_T (HE) v. t A — "AC I A AC DIOU [ A Dionr AC DIOH A DIOH AC I 1* |TR if. E x o g e n o u s V a r i a b l e s CO IUCF = P r o f i t Motivated Ground Oriented Housing Units Under Construction COMP = P r o f i t Motivated Ground Oriented Housing Unit Completions STKOH = Stock of Ground Oriented Houses VC = Inventory of Unoccupied New Houses PSTS = P r o f i t Motivated Ground Oriented Housing Unit Starts STRIKE = Number of Man-days of Work Lost DIOH Attributed to Strikes in the Local Construction Industry AC CRED = Credit Conditions Based on the (MCRED) Assumption of the Symmetric III (Asymmetric) Effect of Credit A v a i l a b i l i t y HP I.ABOII = Labour Force TR SSFW = Season Variables PF Average Disposable Income Pre-tax Costs During Development and Marketing Investment Required Per Unit S e l l i n g Price of New Houses Corporate Income Tax Rate Potential T r o f i t Variable 39 v a r i a b l e ( ^ j ) , and t h e i n v e n t o r y o f u n o c c u p i e d new h o u s e s ( V C). F u r t h e r m o r e , t h e d i f f e r e n c e between t h e number o f h o u s e s u n d e r c o n s t r u c t i o n a t t h e b e g i n n i n g o f t h e p e r i o d and t h e number o f c o m p l e t i o n s d u r i n g t h e p e r i o d (IUCF_^_- COMP) has been c o n s i d e r e d an endogenous v a r i a b l e , b e c a u s e t h i s v a r i a b l e and t h e change i n t h e number o f u n s o l d new h o u s e s ( A V C ) de p e n d upon t h e number o f new house c o m p l e t i o n s . The model i n i t i a l l y e s t i m a t e s t h e p r e v a i l i n g s e l l i n g p r i c e o f new h o u s e s r e l a t i v e t o p r e - t a x c o s t s d u r i n g d e v e l o p m e n t and t h e number o f u n o c c u p i e d new h o u s e s b a s e d on t h e p r e d e t e r m i n e d and e x o g n e o u s v a r i a b l e s . A l t h o u g h t h e s e e s t i m a t e s have been made i n d e p e n d e n t l y i n t h e m o d e l , i n t h e m a r k e t p l a c e t h e y w o u l d be d e t e r m i n e d a t t h e same t i m e . B a s e d on t h e s e l l i n g p r i c e o f new h o u s e s r e l a t i v e t o p r e - t a x c o s t s d u r i n g d e v e l o p m e n t , t h e p o t e n -t i a l p r o f i t v a r i a b l e has been e s t i m a t e d . S u b s e q u e n t l y , t h e p o t e n t i a l p r o f i t v a r i a b l e r e l a t i v e t o t h e i n v e s t m e n t r e q u i r e d p e r u n i t and t h e number o f u n o c c u p i e d new h o u s e s c o n s t i t u t e d e t e r m i n i n g v a r i a b l e s i n e s t i m a t i n g t h e number o f g r o u n d - o r i e n t e d h o u s i n g s t a r t s . The model u s e d h e r e d i s t i n g u i s h e s i t s e l f f r o m p r e v i o u s m o d e l s by l i m i t i n g t h e m a r k e t a r e a t o a s i n g l e u r b a n r e g i o n , r e c o g n i z i n g t h e s i m i l a r m a r k e t f o r a l l g r o u n d - o r i e n t e d h o u s i n g , i n c l u d i n g t h e v a r i o u s s t a g e s i n t h e s u p p l y o f h o u s i n g (under c o n s t r u c t i o n , c o m p l e t i o n s , and v a c a n c i e s ) as d e t e r m i n i n g v a r i -a b l e s , and p r o v i d i n g f o r m o n t h l y c h a n g e s i n t h e s e v a r i a b l e s . E v a l u a t i o n o f t h e M o d e l s M o d e l s may be e v a l u a t e d b o t h i n an e x - p o s t and an e x - a n t e c o n t e x t . An e x - p o s t s i m u l a t i o n may be d e f i n e d t o be i n t r a -40 sample, and e x - a n t e s i m u l a t i o n may be d e f i n e d t o be e x t r a -9 sample. E x - a n t e s i m u l a t i o n e v a l u a t i o n s t a t i s t i c s a t t e m p t t o measure t h e p r e c i s i o n w i t h w h i c h t h e f o r e c a s t e f f e c t i v e l y d e s c r i b e s t h e e v e n t s , w h i c h a f t e r t h e f a c t , d i d o c c u r . I t h a s been n o t e d t h a t t h i s l a t t e r a p p r o a c h i s t h e most a p p r o p r i a t e way o f t e s t i n g a m o d e l ' s p e r f o r m a n c e . 1 ^ The summary s t a t i s t i c s u s e d t o measure t h e p e r f o r m a n c e o f t h e m o d e l ' s e x - p o s t and ex-a n t e e s t i m a t e s i n c l u d e t h e i n d i c e s shown i n e x p r e s s i o n s 4.10, 4.11, and 4.12 b e l o w : n The R o o t - M e a n - S q a r e d - E r r o r as a P e r c e n t o f t h e Mean o f t h e D ependent V a r i a b l e 4.10 x 100 Y n The Mean A b s o l u t e E r r o r as a P e r c e n t o f t h e Mean o f t h e D ependent V a r i a b l e t=i 4.11 x 100 Y The P r o p o r t i o n o f t h e T u r n s i n t h e Dependent V a r i a b l e E s t i m a t e d ( P r e d i c t e d ) C o r r e c t l y 4.12 Notation: Y. A = Observed Value of the Dependent Variable = Estimated (Predicted) Value of the Dependent Y Variable = Mean of the Dependent Variable n = Number of Periods 41 F o o t n o t e s x T h e model d e v e l o p e d i n t h i s t h e s i s r e p r e s e n t s a s l i g h t m o d i f i c a t i o n t o t h e Huang m o d e l , a l t h o u g h t h e s p e c i f i c v a r i a b l e s may be s u b s t a n t i a l l y d i f f e r e n t . The Huang model was b a s e d on t h e i d e n t i t y t h a t t h e a c t u a l change i n t h e i n v e n t o r y u n d e r c o n -s t r u c t i o n ( A IUCF) e q u a l s t h e d i f f e r e n c e between t h e a c t u a l number o f h o u s i n g s t a r t s and t h e number o f c o m p l e t i o n s (PSTS -COMP); as w e l l a s , t h e h y p o t h e s i s t h a t t h e a c t u a l change i n t h e i n v e n t o r y u n d e r c o n s t r u c t i o n p a r t i a l l y a d j u s t s t o t h e d i f f e r e n c e between t h e d e s i r e d number o f u n i t s u n d e r c o n s t r u c t i o n and t h e o p e n i n g l e v e l o f s u c h an i n v e n t o r y (IUCF* - IUCF ) . However, t h e model d e v e l o p e d i n t h i s t h e s i s has b e en b a s e d on t h e h y p o t h e -s i s t h a t t h e d e s i r e d change i n t h e i n v e n t o r y u n d e r c o n s t r u c t i o n (£>IUCF*) e q u a l s t h e d i f f e r e n c e between t h e d e s i r e d number o f h o u s i n g s t a r t s and t h e a c t u a l number o f c o m p l e t i o n s (PSTS* -COMP), and t h a t t h e d e s i r e d change i n t h e i n v e n t o r y u n d e r c o n -s t r u c t i o n a l s o e q u a l s t h e d i f f e r e n c e between t h e d e s i r e d number o f u n i t s u n d e r c o n s t r u c t i o n and t h e o p e n i n g l e v e l o f s u c h an i n v e n t o r y (IUCF* - IUCF_ ) . I t has a l s o been h y p o t h e s i z e d t h a t t h e a c t u a l number o f h o u s i n g s t a r t s (PSTS) w o u l d be p r o p o r t i o n a l t o t h e d e s i r e d number o f h o u s i n g s t a r t s ( P S T S * ) . C o n s e q u e n t l y , t h e a c t u a l number o f h o u s i n g s t a r t s (PSTS) has b e en h y p o t h e s i z e d t o p a r t i a l l y a d j u s t t o t h e d i f f e r e n c e between t h e d e s i r e d number o f u n i t s u n d e r c o n s t r u c t i o n and t h e o p e n i n g l e v e l o f s u c h an i n -v e n t o r y (IUCF* - I U C F _ t ) p l u s c o m p l e t i o n s (COMP) d u r i n g t h e p e r i o d . D a v i d S. Huang, " S t u d y o f t h e M a r k e t f o r New H o u s i n g U n i t s " , P r o c e e d i n g s o f t h e B u s i n e s s and E c o n o m i c S t a t i s t i c s S e c t i o n o f  t h e A m e r i c a n S t a t i s t i c a l A s s o c i a t i o n ( 1 9 6 9 ) , p. 705. 2 P e t e r S p u r r , L a n d and U r b a n D e v e l o p m e n t ( T o r o n t o : James L o r i m e r and Company, 19 7 6 ) , pp. 58 and 241. 3 See s e c t i o n " P o t e n t i a l P r o f i t V a r i a b l e " i n A p p e n d i x I f o r a r e v i e w o f t h e r a t i o n a l e t h a t t h e r e l a t i o n s h i p between p r e v a i l i n g s e l l i n g p r i c e s and c o s t s d u r i n g d e v e l o p m e n t and m a r k e t i n g a new d w e l l i n g u n i t may be more i m p o r t a n t t h a n a c t u a l p r o f i t l e v e l s , t h a t i n c o r p o r a t e a l l i n v e s t m e n t c o s t s ( i n c l u d i n g "sunk c o s t s " ) , when m o d e l l i n g t h e s h o r t - r u n b e h a v i o u r o f t h e l a n d d e v e l o p m e n t i n d u s t r y . 4 . . Ray C. F a i r and Dwight M. J a f f e e , "Methods o f E s t i m a t i o n f o r M a r k e t s i n D i s e q u i l i b r i u m " , E c o n o m e t r i c a , V o l . 40, No. 3 (May, 1 9 7 2 ) , p. 497. 5 I b i d . , p. 497. Between 196 8 and 1977, new g r o u n d - o r i e n t e d d w e l l i n g u n i t c o m p l e t i o n s r e p r e s e n t e d an a v e r a g e a n n u a l i n c r e a s e o f 3.8 p e r c e n t i n t h e s t o c k o f s u c h h o u s e s . T h e r e f o r e , i t w o u l d a p p e a r t h a t t h e s t o c k o f new h o u s e s w o u l d r e p r e s e n t a v e r y s m a l l p r o p o r t i o n o f t h e t o t a l s t o c k o f h o u s e s and t h u s t h e s u p p l y i n t h e m a r k e t p l a c e . 42 ' P r e - t a x c o s t s d u r i n g d e v e l o p m e n t and m a r k e t i n g a new d w e l l i n g u n i t (AC) w o u l d be a f f e c t e d by p r e v a i l i n g c r e d i t c o n d i -t i o n s , b e c a u s e t h i s v a r i a b l e i n c l u d e s f i n a n c i n g e x p e n d i t u r e s b a s e d on t h e c o s t o f b o r r o w i n g . However, i t was assumed t h a t t h e c o r r e l a t i o n between t h e c r e d i t c o n d i t i o n s v a r i a b l e and t h e change i n t h e d i s p o s a b l e i n c o m e - d e v e l o p m e n t c o s t v a r i a b l e ( D j ^ H | ) w o u l d be m i n i m a l . I t w o u l d a p p e a r t h a t t h e r e w o u l d be a n u l l i f y i n g a f f e c t on any p o t e n t i a l m a t h e m a t i c a l r e l a t i o n s h i p b e -c a u s e o f t h e complex s p c i f i c a t i o n o f t h e two v a r i a b l e s ( i . e . t h e i n c o m e - c o s t v a r i a b l e was d i v i d e d by a v a r i a b l e t h a t i n d i c a t e d t h e i n c r e a s e i n t h e d e g r e e o f c r o w d i n g (CHCW), and t h e c r e d i t c o n -d i t i o n s v a r i a b l e i n c l u d e d an i n d i c a t o r o f c r e d i t a v a i l a b i l i t y ) . The s e l l i n g p r i c e o f new h o u s e s r e l a t i v e t o b e f o r e t a x c o s t s d u r i n g d e v e l o p m e n t (-^) has been e x p r e s s e d as t h e sum o f t h e l a g g e d v a l u e o f t h e d e p e n d e n t v a r i a b l e p l u s an e s t i m a t e o f t h e change i n t h e d e p e n d e n t v a r i a b l e e x p r e s s e d a s a f u n c t i o n o f t h e d e t e r m i n i n g v a r i a b l e s . A l t h o u g h p r e v a i l i n g s e l l i n g p r i c e s o f new h o u s e s r e l a t i v e t o d e v e l o p m e n t c o s t s w o u l d t e n d t o r e f l e c t v a l u e s i n t h e p r e v i o u s p e r i o d b e c a u s e o f s i m i l a r v a l u d e s f o r t h e d e t e r -m i n i n g v a r i a b l e s , e x p e c t a t i o n s b a s e d on p r e v i o u s m a r k e t p e r f o r m -ance w o u l d a l s o a f f e c t p r e v a i l i n g t r a n s a c t i o n s . However, t h e p r i m a r y o b j e c t i v e o f e x p r e s s i n g t h e model i n t h i s manner stems f r o m t h e a p p a r e n t t i g h t e r r e l a t i o n s h i p between t h e change i n t h e d e p e n d e n t v a r i a b l e and t h e change i n t h e c a p a c i t y t o p u r c h a s e , a s i n d i c a t e d by d i s p o s a b l e income, r e l a t i v e t o b e f o r e t a x c o s t s d u r -i n g d e v e l o p m e n t (D^pjH) . I n t h e s h o r t - r u n a change i n d i s p o s a b l e income p e r h o u s e -h o l d r e l a t i v e t o p r i c e s t o d e v e l o p a new house w o u l d l i k e l y r e s u l t i n a change i n t h e s e l l i n g p r i c e o f new h o u s e s r e l a t i v e t o d e v e l o p m e n t c o s t s b e c a u s e o f t h e p o t e n t i a l i n c r e a s e i n t h e demand r e l a t i v e t o t h e s u p p l y o f h o u s i n g s e r v i c e s a v a i l a b l e . However, i n t h e l o n g - r u n a p e r s i s t e n t change i n t h e c a p a c i t y t o p u r c h a s e r e l a t i v e t o (say) c o n s t r u c t i o n p r i c e s w o u l d l i k e l y r e s u l t i n a change i n t h e m a g n i t u d e o f t h e h o u s i n g s e r v i c e s p r o v i d e d i n new d e v e l o p m e n t . T h i s e f f e c t need n o t r e s u l t i n a change i n t h e s e l l i n g p r i c e o f new h o u s e s r e l a t i v e t o d e v e l o p m e n t c o s t s as c o m p e n s a t i o n b a l a n c e s r e s o u r c e s r e q u i r e d . T h e r e f o r e , t h e r e l a t i o n -s h i p between t h e s e l l i n g p r i c e o f new h o u s e s r e l a t i v e t o b e f o r e t a x c o s t s d u r i n g d e v e l o p m e n t ("§£-) and i t s d e t e r m i n i n g v a r i a b l e s h as been b a s e d on t h e change i n t h e d i s p o s a b l e income r e l a t i v e t o b e f o r e t a x c o s t s d u r i n g d e v e l o p m e n t (D?QH) i n o r d e r t o a v o i d t h e e f f e c t o f any l o n g - t e r m change i n trie d i s p o s a b l e income p e r h o u s e h o l d r e l a t i v e t o t h e q u a n t i t y h o u s i n g s e r v i c e s a v a i l a b l e . 9 Bank o f Canada, The E q u a t i o n s o f RDX2 and E s t i m a t - t e d t o 4Q72, T e c h n i c a l R e p o r t No. 5 (Ottawa: Bank o f Canada, 1976, p. 261. I b i d . , p. 264. CHAPTER V SPECIFICATION OF MARKET AREA, VARIABLES, AND MODELS M a r k e t A r e a and S t u d y P e r i o d I n o r d e r t o e s t i m a t e t h e model f o r g r o u n d - o r i e n t e d h o u s i n g i n a l i m i t e d h o u s i n g m a r k e t a r e a , an a t t e m p t has been made t o de-f i n e an a r e a e n c o m p a s s i n g t h e u r b a n d e v e l o p e d a r e a o f t h e O t t a w a -H u l l M e t r o p o l i t a n R e g i o n . 1 B e c a u s e o f t h e l i m i t e d d a t a a v a i l a b l e , t h e h o u s i n g m a r k e t a r e a has b een d e f i n e d as t h a t a r e a encompassed by b o t h t h e 1971 and 1976 Census M e t r o p o l i t a n A r e a b o u n d a r i e s . The above d e f i n i t i o n , as shown i n F i g u r e 2, i n c l u d e s a l l o f t h e c o n t i g u o u s c e n t r a l u r b a n a r e a as w e l l as most o f t h e new u r b a n 2 d e v e l o p m e n t b e y o n d t h e p e r i m e t e r o f t h e G r e e n b e l t . I n a d d i t i o n , t h e s t u d y p e r i o d has b een d e f i n e d t o i n c l u d e t h e y e a r s between 1968 t o 1979, b e c a u s e d a t a on n o n - p r o f i t h o u s i n g f o r i n d i v i d u a l m e t r o p o l i t a n a r e a s has b een made a v a i l a b l e o n l y s i n c e 1968. H i s t o r y o f L a n d A c q u i s i t i o n and D e v e l o p m e n t I n 1980 t h e p o p u l a t i o n s i z e i n t h e s t u d y a r e a was 725,443 w h i c h r e p r e s e n t e d an a v e r a g e a n n u a l i n c r e a s e o f 13,504 s i n c e 3 1968. The r e l a t i v e l y r e c e n t h i s t o r y o f l a n d d e v e l o p m e n t i n t h e O t t a w a - H u l l a r e a i n c l u d e s m a s s i v e p u b l i c i n t e r v e n t i o n i n l a n d m a r k e t s , and a g r o w i n g c o n c e n t r a t i o n i n t h e o w n e r s h i p o f d e v e l o p -a b l e l a n d . 4 P u b l i c p l a n n i n g a g e n c i e s have e f f e c t i v e l y c h a n n e l e d g r o w t h t o s e v e r a l l o c a l e s on t h e u r b a n f r i n g e and l a n d o w n e r s h i p 45 has become c o n c e n t r a t e d a t t h e s e l o c a t i o n s . Between 1958 and 1962, t h e F e d e r a l N a t i o n a l C a p i t a l R e g i o n a c q u i r e d , p a r t i a l l y by d i r e c t p u r c h a s e and p a r t i a l l y by ex-p r o p r i a t i o n , a p p r o x i m a t e l y 41,390 a c r e s t o f o r m a s i n g l e g r e e n -5 b e l t t o s u r r o u n d O t tawa, a t a t o t a l c o s t o f a b o u t $40 m i l l i o n . C o i n c i d e n t w i t h t h i s e v e n t , a r e g i o n a l p l a n n i n g s t u d y u n d e r t a k e n i n 1958 c o n c l u d e d t h a t new d e v e l o p m e n t s w o u l d o c c u r o u t s i d e t h e G r e e n b e l t a l o n g m a j o r a p p r o a c h r o a d s . The e a s t - w e s t e x p r e s s w a y had t e r m i n a t e d a t t h e G r e e n b e l t ' s i n t e r i o r edge b u t i t seemed c l e a r t h a t i t w o u l d be e x t e n d e d t o l e a v e t h e G r e e n b e l t n e a r t h e M a r c h - G o u l b o u r n b o u n d a r y t o - t h e w e s t , and a t t h e O r l e a n s a r e a t o t h e e a s t . ^ I n 1963 a n o t h e r p l a n n i n g s t u d y showed l a r g e s c a l e f u t u r e g r o w t h a t t h e e a s t e r n , s o u t h e r n , and p a r t i c u l a r l y t h e w e s t e r n G r e e n b e l t l i m i t s . F u r t h e r p l a n n i n g s t u d i e s a l l o c a t e d f o r e c a s t e d p o p u l a t i o n l e v e l s t o t h e v a r i o u s d e v e l o p m e n t nodes and made b u d g e t a r y p r i o r i t i e s w i t h r e s p e c t t o e x p r e s s w a y (Queensway) e x t e n s i o n s . 7 The d i r e c t e f f e c t o f t h e G r e e n b e l t was t o s t e r i l i z e f r o m b u i l d i n g e x t e n s i v e b l o c k s o f l a n d i n t h e l o c a t i o n s most l i k e l y t o have been s e l e c t e d f o r f u r t h e r s u b d i v i s i o n s . Many s u b d i v i d e r s f o u n d a l t e r n a t i v e s i t e s i n s i d e t h e G r e e n b e l t i n p o s i t i o n s o f c o n t i g u i t y w i t h t h e m a i n u r b a n f r o n t and w i t h p i p e d s e r v i c e s ; and, i n 1966 t h e Ottawa c i t y l i m i t s s t i l l c o n t a i n e d enough d e v e l o p a b l e g l a n d t o accommodate f i f t e e n y e a r s u r b a n g r o w t h . F u r t h e r m o r e , c o -i n c i d e n t w i t h p l a n n i n g a c t i v i t y , d e v e l o p e r s began a s s e m b l i n g l a r g e t r a c t s i n t h e e a s t and w e s t where t h e e x p r e s s w a y s w o u l d e x i t t h e G r e e n b e l t as w e l l as a l o n g t h e h i g h w a y s i m m e d i a t e l y s o u t h o f t h e G r e e n b e l t n e a r M a n o t i c k on t h e R i d e a u R i v e r . S u b s e q u e n t l y , b y 1965 t h e m a j o r f i r m s had a b o u t 20 y e a r s s u p p l y o f l a n d i n h a n d . 1 0 Development began i n t h e s a t e l l i t e n o d e s t h r o u g h t h e l a t t e r 1960's w i t h t h e p r o v i s i o n o f w a t e r and sewage t r e a t m e n t f a c i l i t i e s i n t h e w e s t e r n node ( M a r c h - G o u l b o r n a r e a ) ; t h e e x t e n s i o n o f new t r u n k f a c i l i t i e s a c r o s s t h e s o u t h w e s t e r n G r e e n -b e l t t o t h e p r o p o s e d B a r r h a v e n (Nepean) s u b d i v i s i o n ; and, t h e i n i t i a t i o n o f p r o j e c t s a t O r l e a n s t h e e a s t e r n node ( C u m b e r l a n d -11 G l o u c e s t e r a r e a ) . P r i v a t e l a n d a s s e m b l i e s p r o c e e d e d and b y 1971, t h e Canada M o r t g a g e and H o u s i n g C o r p o r a t i o n s u r v e y f o u n d e i g h t p r i v a t e t r a c t s e x c e e d i n g one s q u a r e m i l e among o v e r 17,000 12 a c r e s h e l d by t w e n t y - t w o f i r m s , p r i m a r i l y i n t h e g r o w t h n o d e s . C o u p l e d w i t h t h e c o n c e n t r a t i o n o f l a n d o w n e r s h i p , s m a l l e r l a n d d e v e l o p e r s f a c e d w i t h h i g h - p r i c e d raw l a n d , a d e v e l o p m e n t p r o c e s s r e q u i r i n g a t l e a s t e i g h t e e n months (and sometimes t h r e e y e a r s ) , and t h e t r e n d t o l a r g e - s c a l e p r o j e c t s , have p r o g r e s s i v e l y b e en 13 f o r c e d o u t o f t h i s m a r k e t . TABLE 1 summarizes t h e m a g n i t u d e o f c o n s t r u c t i o n a c t i v i t y t h r o u g h o u t t h e s t u d y p e r i o d . The l a r g e s t number o f h o u s i n g s t a r t s o c c u r r e d between 197 0 and 1973 w i t h 197 3 s h o w i n g t h e h i g h e s t l e v e l o f a c t i v i t y . The number o f g r o u n d - o r i e n t e d h o u s i n g s t a r t s ( s i n g l e -d e t a c h e d , s e m i - d e t a c h e d , d u p l e x , and row d w e l l i n g u n i t s ) was a l s o t h e l a r g e s t i n 1973; however, t h e y e a r s 1976, 1978 and 1970 showed r e l a t i v e l y h i g h l e v e l s o f a c t i v i t y . The p r o p o r t i o n o f g r o u n d -o r i e n t e d h o u s i n g . s t a r t s t h a t was composed o f row d w e l l i n g u n i t s has f l u c t u a t e d t h r o u g h o u t t h e s t u d y p e r i o d ; however, t h e p e r i o d 1976 t o 1978 showed a s u s t a i n e d i n c r e a s e i n t h i s p r o p o r t i o n . TABLE 2 summarizes t h e d i s t r i b u t i o n o f c o n s t r u c t i o n a c t i v i t y between t h e O n t a r i o and Quebec p o r t i o n s o f t h e O t t a w a -H u l l s t u d y a r e a , between t h e O n t a r i o p o r t i o n o f t h e u r b a n c o r e and s u b u r b a n a r e a s , as w e l l as between t h e e a s t and w e s t s u b u r b a n TABLE 1 MARKET AREA HOUSING S T A R T S 3 1968 196 9 1970 1971 1972 197 3 1974 1975 197 6 1977 197 8 1979 T o t a l 6502 7986 12380 11880 14844 15477 9664 7090 6977 7289 7417 4542 Ground O r i e n t e d 4598 4969 5263 5094 4484 6011 3923 4324 5811 5009 5301 3386 % T o t a l 70.7 62.2 42.5 42.9 30.2 38.8 40.6 61.0 83.3 68.7 71.5 74.5 % Row 21.8 27.0 31.7 24.2 29.9 37.3 33.4 37.6 52 .6 50.6 51.5 29.4 a F o r a r e v i e w o f t h e s o u r c e s , see s e c t i o n " H o u s i n g U n i t E s t i m a t e s " i n A p p e n d i x I . TABLE 2 DISTRIBUTION OF GROUND-ORIENTED HOUSING ST A R T S 3 196 8-1970 1971-1973 1974-1976 1977-1979 O n t a r i o P o r t i o n U r b a n C o r e C u m b e r l a n d G l o u c e s t e r Nepean O t h e r 11096 3530 519 3144 2605 1298 10492 2607 756 3863 2460 806 9660 2057 229 2809 2441 2124 12696 2769 1245 3767 3589 1326 Quebec P o r t i o n 3734 5097 4398 1000 a F o r a r e v i e w o f t h e s o u r c e s , see s e c t i o n " H o u s i n g U n i t E s t i m a t e s " i n A p p e n d i x I . 4 8 a r e a s . I t i s c l e a r t h a t t h e O n t a r i o p o r t i o n has m a i n t a i n e d a l a r g e r s h a r e o f new d e v e l o p m e n t by a s u b s t a n t i a l p r o p o r t i o n . W i t h i n t h e O n t a r i o p o r t i o n , t h e u r b a n c o r e ( c o m p r i s i n g t h r e e m u n i c i p a l i t i e s ) has m a i n t a i n e d a l a r g e s h a r e o f t h e g r o w t h a l t h o u g h most o f t h e s t a r t s o c c u r r e d i n t h e s u b u r b a n m u n i c i p a l -i t i e s w i t h a p p r o x i m a t e l y t h e same amount o f g r o w t h i n t h e e a s t -e r n and w e s t e r n m u n i c i p a l i t i e s . M o d i f i e d P o t e n t i a l P r o f i t V a r i a b l e  O b j e c t i v e : As an i n v e s t o r , a d e v e l o p e r w o u l d e s t i m a t e t h e p o t e n t i a l p r o f i t o f d e v e l o p i n g l a n d on t h e b a s i s o f t h e e x p e c t e d r e v e n u e s , e x p e n d i t u r e s , and t h e v a l u e a t t r i b u t e d t o t h e t i m i n g o f c a s h f l o w s . I t has b e en assumed t h a t a n a l y s e s o f t h i s t y p e w o u l d g o v e r n t h e l e v e l o f i n v e s t m e n t i n l a n d d e v e l o p m e n t . How-e v e r , t h e d e s i r e d number o f u n i t s u n d e r c o n s t r u c t i o n w o u l d n o t o n l y stem f r o m t h e l e v e l o f i n v e s t m e n t , b u t w o u l d a l s o depend upon t h e a v e r a g e i n v e s t m e n t r e q u i r e d p e r u n i t . I n t h i s s t u d y an a t t e m p t has been made t o i n d i c a t e t h e p o t e n t i a l d e s i r e d l e v e l o f i n v e s t m e n t i n g r o u n d - o r i e n t e d h o u s i n g u n i t s by an e s t i m a t e o f t h e p o t e n t i a l p r o f i t a b i l i t y o f d e v e l o p i n g l a n d ; and, t o i n d i c a t e t h e f l u c t u a t i o n s i n t h e a v e r a g e i n v e s t m e n t r e q u i r e d p e r u n i t w h i c h were n o t a t t r i b u t e d t o g e n e r a l r a t e s o f i n f l a t i o n , b u t r a t h e r t h e d e n s i t y o f d e v e l o p m e n t . P o t e n t i a l P r o f i t V a r i a b l e : The p o t e n t i a l p r o f i t a b i l i t y o f i n v e s t -i n g i n l a n d d e v e l o p m e n t depends upon t h e p o t e n t i a l r e v e n u e as w e l l as a l l t h e f i x e d and v a r i a b l e c o s t s i n c u r r e d t o a c q u i r e , a s s e m b l e and m a r k e t t h e good — h o u s i n g . However, i t has b e en assumed t h a t t h e r e l a t i o n s h i p between t h e s e l l i n g p r i c e o f h o u s e s and t h e c o s t s e x p e r i e n c e d d u r i n g p r o d u c t i o n w o u l d be i m p o r t a n t i n . m o d e l l i n g t h e s h o r t - r u n b e h a v i o u r o f t h e 'development i n d u s t r y , and t h a t "sunk c o s t s " o r c o s t s t h a t w o u l d o c c u r anyways n e e d n o t be 14 c o n s i d e r e d . The p o t e n t i a l p r o f i t a b i l i t y o f d e v e l o p i n g l a n d has b e e n e s t i m a t e d b a s e d on a r e p r e s e n t a t i v e s e t o f p r o p e r t i e s , b e c a u s e o f t h e d i f f i c u l t y t o o b t a i n t i m e s e r i e s measurements o f p r i c e s and q u a n t i t i e s c o n s i s t e n t w i t h t h e a v e r a g e d w e l l i n g u n i t i n t h e d e f i n e d m a r k e t a r e a . The s e t ( o r c l a s s ) o f r e s i d e n t i a l p r o p e r t i e s s e l e c t e d has b e en new s i n g l e - d e t a c h e d d w e l l i n g s , i n t h e O n t a r i o p o r t i o n o f t h e M e t r o p o l i t a n A r e a , b e c a u s e t h i s c a t e g o r y r e p r e s e n t -ed t h e most f r e q u e n t t y p e and l o c a t i o n o f g r o u n d - o r i e n t e d d w e l l i n g s o v e r t h e s t u d y p e r i o d . F u r t h e r m o r e , t h e p o t e n t i a l p r o f i t a b i l i t y o f d e v e l o p i n g l a n d i n s i n g l e - d e t a c h e d d w e l l i n g s has been measured by t h e d i s c o u n t e d b e n e f i t - c o s t r a t i o , where o n l y t h e s e l l i n g p r i c e and c o s t s d u r i n g d e v e l o p m e n t and m a r k e t i n g a new h o u s e have been c o n s i d e r e d . The d i s c o u n t e d b e n e f i t - c o s t r a t i o a c c o u n t s f o r a l l e a r n i n g s f l o w s , and f o r t h e i r t i m i n g , by g i v i n g r e l a t i v e w e i g h t s t o d a t e d f l o w s . The two v e r s i o n s o f t h e b e n e f i t - c o s t r a t i o a r e t h e g r o s s (PF) and n e t p r o f i t a b i l i t y (NPF) r a t i o as shown i n e x p r e s s i o n s 5.1 and 5.2: t z R (1 + r) n -n Gross P r o f i t a b i l i t y Index n=l 5.1 t Y_ C n (1 + r) -n n=l Net P r o f i t a b i l i t y Index G r o s s P r o f i t a b i l i t y Index 1.0 5.2 N o t a t i o n : = Cash i n f l o w d u r i n g p e r i o d "n" C = Cash o u t f l o w d u r i n g p e r i o d "n r = R e q u i r e d r a t e o f r e t u r n t = I n v e s t m e n t p e r i o d 5 0 A l t h o u g h t h e p r o f i t v a r i a b l e h as been f o r m u l a t e d on t h e b a s i s o f t h e o b j e c t i v e t o I n d i c a t e t h e a d v a n t a g e o f i n c u r r i n g a d d i t i o n a l c o s t s i n v i e w o f p r e v a i l i n g s e l l i n g p r i c e s , t h e ap-p r o p r i a t e l a g s t r u c t u r e between t h e d e c i s i o n t o d e v e l o p and t h e s u b s e q u e n t h o u s i n g s t a r t was u n c e r t a i n . O b s e r v e d h o u s i n g s t a r t s l i k e l y r e f l e c t e x p e c t a t i o n s h e l d , and d e c i s i o n s made, p r i o r t o i n i t i a t i n g s u b d i v i s i o n c o n s t r u c t i o n as w e l l as p r i o r t o t h e commencement o f a h o u s i n g s t a r t . I n t h i s s t u d y , an a t t e m p t has been made t o e m p h a s i z e t h e i m p o r t a n c e o f t h e r e l a t i o n s h i p between p r i c e s a t t h e t i m e o f a h o u s i n g s t a r t b y u s i n g p r e v a i l i n g p r i c e s , w i t h no a t t e m p t t o e s t i m a t e f o r e c a s t s o f p r i c e s and e x p e c t e d p r o f i t s a t v a r i o u s t i m e s d u r i n g t h e d e v e l o p m e n t p h a s e o f an i n -v e s t m e n t . However, t o i n c l u d e t h e i m p o r t a n c e o f d e v e l o p m e n t d e c i s i o n s made a t an e a r l i e r d a t e , a l l t h e c o n s t r u c t i o n and f i n a n c i n g c o s t s have been c o n s i d e r e d , a l t h o u g h m e a s u r e d u s i n g p r e v a i l i n g p r i c e s . The a p p r o p r i a t e n e s s o f t h i s a p p r o a c h i s a r g u e d on t h e b a s i s t h a t p r i c e s , i n g e n e r a l , a r e h i g h l y c o r r e l a t e d w i t h r e c e n t l y e x p e r i e n c e d p r i c e s ; t h a t t h e s u p p l y o f l o t s r e a d y f o r d e v e l o p m e n t w o u l d l i k e l y be s u f f i c i e n t , g i v e n t h e a b i l i t y t o o b s e r v e t h e a c t i v i t y o f c o m p e t i t o r s and t h e p e r s i s t e n t p e c u n i a r y r e w a r d s f o r c o n v e r t i n g s u b u r b a n l a n d f o r u r b a n d e v e l o p m e n t ; t h a t e x p e n d i t u r e s f o r s u b d i v i s i o n s may o c c u r d u r i n g and a f t e r (as w e l l as b e f o r e ) house c o n s t r u c t i o n ; and, t h a t h o u s i n g s t a r t s a p p e a r e d t o r i s e r a p i d l y when s e l l i n g p r i c e s r o s e r a p i d l y r e l a t i v e t o d e v e l o p m e n t 16 c o s t s . F u r t h e r m o r e , s i n c e t h e b a s i c h o u s i n g model e x p r e s s e s a r e l a t i o n s h i p where t h e r e w o u l d be o n l y a p a r t i a l a d j u s t m e n t i n t h e r e s p o n s e t o t h e d i s c r e p a n c y between t h e a c t u a l and t h e d e s i r e d 51 number o f h o u s i n g u n i t s u n d e r c o n s t r u c t i o n , i t w o u l d h o t a p p e a r c r i t i c a l ( t o be c o n s i s t e n t w i t h t h e s p e c i f i c a t i o n s o f t h e model) t o i d e n t i f y e s t i m a t e s o f p o t e n t i a l p r o f i t s b a s e d on d i f f e r e n t a s s u m p t i o n s p e r t a i n i n g t o t i m e l a g s . I n v i e w o f t h e o b j e c t i v e to. i n c l u d e t h o s e c a s h f l o w s i n c u r r e d b e c a u s e o f t h e d e c i s i o n t o d e v e l o p , o n l y t h e p r o c e e d s o f s a l e , e x p e n d i t u r e s f o r s u b d i v i s i o n , a d d i t i o n a l l a n d h o l d i n g c h a r g e s , b u i l d i n g and a n c i l l a r y l o t improvement c o s t s , f i n a n c i n g c h a r g e s , p r i n c i p a l r e p a y m e n t o f a m o r t g a g e t o a c q u i r e l a n d , income t a x e s , and t h e r e q u i r e d r a t e o f r e t u r n have been c o n s i d e r e d . F u r t h e r m o r e , a l l e s t i m a t e d v a l u e s have been d i s c o u n t e d t o t h e t i m e o f t h e h o u s i n g s t a r t b a s e d on t h e f o l l o w i n g p r e m i s e s : a) E s t i m a t e d r e v e n u e s and c o s t s have been b a s e d on p r i c e s p r e v a i l i n g a t t h e t i m e o f t h e h o u s i n g s t a r t . b) I t was assumed t h a t h o u s i n g c o n s t r u c t i o n may o c c u r i n s i x months a f t e r commencing s u b d i v i s i o n a c t i v i t y and t h a t i t t a k e s s i x months t o c o n s t r u c t and m a r k e t a 17 h o u s e . c) I t was assumed t h a t a l l e q u i t y f i n a n c e d e x p e n d i t u r e s were c o m m i t t e d a t t h e t i m e o f commencing t h e p a r t i c u l a r a c t i v i t y . d) The p o t e n t i a l p r o f i t v a r i a b l e may be b a s e d on t h e p r o f i t a b i l i t y i n d i c i e s s p e c i f i e d i n e x p r e s s i o n s 5.3 and 5 . 4 . 52 HP Tn (1 + r ) * PF = ; — — „ 5 . 3 (RSUB + RBLDG + RLAND + ITAX) + { £ s m ( 1 .+ r)m) + EBLDG +^y~ ( p c s T + A H C . ) / ( 1 + r ) 1 (1 + r > " fb m NPF = PF - 1.0 5.4 No t a t i o n : PF = Gross p r o f i t a b i l i t y i n d e x NPF = Net p r o f i t a b i l i t y i n d e x HP = S e l l i n g p r i c e o f a house RSUB = S u b d i v i s i o n c o s t s f i n a n c e d by borrowed funds RBLDG = B u i l d i n g and l o t improve-ment c o s t s f i n a n c e d by borrowed funds RLAND = Land c o s t s f i n a n c e d by borrowed funds ITAX = Income t a x ESUB = S u b d i v i s i o n c o s t s f i n a n c e d by e q u i t y .EBLDG = B u i l d i n g and l o t i m p r o v e -ment c o s t s f i n a n c e d by e q u i t y FCST^ = F i n a n c i n g c o s t s ( i n t e r e s t payments and f l o t a t i o n c o s t s ) i n month " i " AHC| = A d d i t i o n a l h o l d i n g c h a r g e s i n month " i " n = Remaining number o f months i n the i n v e s t m e n t m = Number of months l a p s e d s i n c e the commencement o f s u b d i v i s i o n c o n s t r u c t i o n r = R e q u i r e d r a t e o f r e t u r n I n v e s t m e n t R e q u i r e d P e r U n i t : The f l u c t u a t i o n s i n t h e a v e r a g e i n v e s t m e n t r e q u i r e d p e r u n i t , n o t a t t r i b u t e d t o i n f l a t i o n , h a s b e e n i n d i c a t e d by an e s t i m a t e o f t h e p r e v a i l i n g p r e - t a x c o s t s d u r i n g t h e d e v e l o p m e n t and m a r k e t i n g o f t h e a v e r a g e g r o u n d -o r i e n t e d h o u s i n g u n i t r e l a t i v e t o t h e c o s t s i n c u r r e d f o r new s i n g l e - d e t a c h e d d w e l l i n g s ( i . e . t h e s e l e c t e d c l a s s o f r e s i d e n t i a l p r o p e r t i e s t o e s t i m a t e t h e p o t e n t i a l p r o f i t v a r i a b l e ) . The c o s t s c o n s i d e r e d i n c l u d e d e x p e n d i t u r e s f o r s u b d i v i s i o n , a d d i t i o n a l l a n d h o l d i n g c h a r g e s , b u i l d i n g and a n c i l l a r y l o t improvement c o s t s , f i n a n c i n g c h a r g e s ; however, no a t t e m p t was made t o d i s c o u n t c a s h ,, 18 f l o w s . The a v e r a g e i n v e s t m e n t r e q u i r e d p e r g r o u n d - o r i e n t e d h o u s -i n g u n i t has b e en i n d i c a t e d by t h e w e i g h t e d - a v e r a g e c o s t s d u r i n g d e v e l o p m e n t and m a r k e t i n g s i n g l e - d e t a c h e d d w e l l i n g s and row h o u s e s 19 i n t h e O n t a r i o p o r t i o n o f t h e M e t r o p o l i t a n A r e a . O n l y s i n g l e -d e t a c h e d and row d w e l l i n g s o f s t a n d a r d i z e d c h a r a c t e r i s t i c s have 53 been considered because the primary objective of t h i s variable was to indicate the p r e v a i l i n g decision to b u i l d smaller units at lower development costs, other types of ground-oriented housing units were of lesser importance, and the estimation of p r e v a i l i n g actual average development costs per unit would be d i f f i c u l t . Credit Conditions Variable In general, c r e d i t conditions has been indicated by the product of the p r e v a i l i n g mortgage i n t e r e s t rate and an index of the severity of c r e d i t a v a i l a b i l i t y . Whereas the price of c r e d i t has been indicated by nominal mortgage in t e r e s t rates, the sever-i t y of c r e d i t a v a i l a b i l i t y (or the tightness i n non-price c r e d i t terms) has been indicated by the r a t i o of the mortgage in t e r e s t rate and the sum of mortgages (in constant dollars) approved for p r o f i t motivated new housing by i n s t i t u t i o n a l lenders i n Canada. The determining components of the c r e d i t a v a i l a b i l i t y index may be considered independent of a single l o c a l housing market, would measure the price w i l l i n g to be paid by borrowers per quantity of money made available to the nation, as well as the quantity lend-ers would be w i l l i n g to supply at p r e v a i l i n g prices. To the extent that borrowers are attracted, are able, to undertake more debts r e l a t i v e to price l e v e l s may indicate that non-price c r e d i t terms are easier, and/or that more potential borrowers are consid-ered e l i g i b l e . Conversely, i f less money i s loaned r e l a t i v e to price l e v e l s , t h i s may indicate more burdensome non-price terms to the borrower, severer discriminating c r i t e r i a , and perhaps more competition for available loanable funds. To test the hypothesis of the symmetric e f f e c t of c r e d i t a v a i l a b i l i t y two d i f f e r e n t s p e c i f i c a t i o n s have been made of the 54 i n d i c a t o r o f p r e v a i l i n g c r e d i t c o n d i t i o n s . I n a d d i t i o n , a t h i r d s p e c i f i c a t i o n o f t h e c r e d i t c o n d i t i o n s v a r i a b l e was made t o a s s e s s t h e p e r f o r m a n c e o f t h e h o u s i n g s t a r t s model b a s e d on t h e assump-t i o n o f t h e a s y m m e t r i c e f f e c t o f c r e d i t a v a i l a b i l i t y . The two s p e c i f i c a t i o n s o f t h e s y m m e t r i c c r e d i t v a r i a b l e (CRED) d i f f e r w i t h r e s p e c t t o t h e a t t e m p t t o d i s t i n g u i s h between t h e f i n a n c i n g p r o -v i d e d by p r i v a t e i n s t i t u t i o n a l l e n d e r s and by g overnment. S p e c i f -i c a l l y , O p t i o n (A) i n d i c a t e d m a r k e t c r e d i t c o n d i t i o n s (SMCRED), b a s e d on t h e p r o d u c t o f t h e a v e r a g e m o r t g a g e i n t e r e s t r a t e and 20 t h e s e v e r i t y o f c r e d i t a v a i l a b i l i t y i n d e x . F u r t h e r m o r e , t h e a v a i l a b i l i t y o f f a v o u r a b l e g o vernment l e n d i n g t e r m s and s u b s i d i e s G t o t h e p r o f i t m o t i v a t e d s e c t o r (^) has b e en i n d i c a t e d by t h e r a t i o o f g o v ernment l o a n s t o a l l m o r t g a g e l o a n s by i n s t i t u t i o n a l l e n d e r s t o t h e p r o f i t m o t i v a t e d s e c t o r f o r new h o u s i n g . I n a d d i t i o n , O p t i o n (B) p r o v i d e d an i n d i c a t o r o f c r e d i t c o n d i t i o n s o f p r i v a t e i n s t i t u t i o n a l l e n d e r s (SPCRED) and g overnment (SGCRED) s e p a r a t e l y , b a s e d on t h e p r o d u c t o f t h e m o r t g a g e i n t e r e s t r a t e and c r e d i t a v a i l a b i l i t y i n d e x f o r e a c h t y p e o f i n s t i t u t i o n . A l t e r n a t i v e l y , t o t e s t t h e h y p o t h e s i s o f t h e a s y m m e t r i c e f f e c t o f c r e d i t a v a i l -a b i l i t y , t h e a s y m m e t r i c c r e d i t v a r i a b l e (NCRED) p r o v i d e d an i n d i -c a t o r o f m a r k e t c r e d i t c o n d i t i o n s (AMCRED) b a s e d on a m o d i f i c a t i o n t o t h e O p t i o n (A) s y m m e t r i c c r e d i t c o n d i t i o n s v a r i a b l e . S p e c i f i -c a l l y , t h e m o d i f i c a t i o n was made by s u p p r e s s i n g t h e v a l u e s o f t h e s e v e r i t y o f c r e d i t a v a i l a b i l i t y i n d e x , when i t a p p e a r e d t h a t non-p r i c e c r e d i t t e r m s were e a s i e r t h a n a v e r a g e ( i . e . when t h e v a l u e s o f t h e i n d e x were l o w e r t h a n a v e r a g e ) . F u r t h e r m o r e , t h e a v a i l -a b i l i t y o f f a v o u r a b l e government l e n d i n g t e r m s and s u b s i d i e s t o G t h e p r o f i t m o t i v a t e d s e c t o r has b e en i n d i c a t e d i n t h e same G manner d i s c u s s e d a b o v e . No a t t e m p t was made t o m o d i f y t h e (^) 55 v a r i a b l e because I t would i n d i c a t e the. a v a i l a b i l i t y of su b s i d i e s (a p r i c e c h a r a c t e r i s t i c ) i n a d d i t i o n to the a v a i l a b i l i t y of non-p r i c e f a c t o r s that govern the p o t e n t i a l f o r more mortgage funds. Consequently, the asymmetric c r e d i t c o n d i t i o n s v a r i a b l e (NCRED = G AMCRED, ^) would continue to i n d i c a t e the s e v e r i t y of c r e d i t c o n d i t i o n s by p r e v a i l i n g mortgage i n t e r e s t r a t e s , but would only i n d i c a t e c r e d i t a v a i l a b i l i t y to the extent t h a t i t was more severe than average (except f o r the a v a i l a b i l i t y of favourable govern-ment le n d i n g terms). S p e c i f i c a t i o n of Models f o r Endogenous  and Housing S t a r t s V a r i a b l e s The models f o r the endogenous and housing s t a r t s v a r i a b l e s have already been expressed above as fu n c t i o n s of determining v a r i a b l e s , which i n some cases were expressed i n general terms (e.g. c r e d i t c o n d i t i o n s ) . In t h i s s e c t i o n , a l l the models are summarized and s p e c i f i e d i n Figures 3, 4, 5, and 6 f o r easy r e f -erence . P o t e n t i a l P r o f i t a b i l i t y I nves tment Per U n i t House P r i c e s C o s t s House P r i c e s .  C o s t s Income Tax I n v e s t m e n t ! Rate ' Per U n i t | House P r i c e s C o s t s i n the previous period Demography H o u s i n g ' S t o c k Income C o s t s ' C r e d i t C o n d i t i o n s See F i g u r e 3 See F i g u r e V a c a n c i e s Hous i ng S t a r t s V a c a n c i e s + f i n the previous Period New House C o m p l e t i o n s Demography R e l a t i v e t o H o u s i n g S tock C r e d i t S e a s o n a l ' C o n d i t i o n s ' C o n d i t i o n s P o t e n t i a l P r o f i t a b i l i t y I nves tment Per U n i t V a c a n c i e s , U n i t s Under C o n s t r u c t i o n C o n s t r u c t i o n C r e d i t S e a s o n a l S t r i k e s ' C o n d i t i o n s ' C o n d i t i o n s See F i g u r e 5 See F i g u r e 6 56 F i g - 3. M o d i f i e d P o t e n t i a l P r o f i t V a r i a b l e M o d e l E x p r e s s e d as a F u n c t i o n w = f<!§' TR' i u ) S p e c i f i c a t i o n o f t h e M o d e l W = b 0 + b l H + b 2 T R + b 3 I U Notation: PF = Po t e n t i a l P r o f i t Variable IU = Investment Required Per Unit HP = S e l l i n g Price of New Houses AC = Pre-tax Costs During Development and Marketing TR = Corporate Income Tax Rate LABOH = Labour Force STKOH = Stock of Ground Oriented Houses DIOH = Average Disposable Income CHCW = Change i n the Population, that Form Households, Relative to the Stock of Houses LABOH / (LABOHj STKOH 'STKOH' DIACHQW CRED (NCRED) SMCRED AMCRED G M SSFW SPRING SUMMER FALL A DIOH If negative x CHCW ^ AC If p o s i t i v e x CHCW Credit Conditions Based on the Assumption of the Symmetric (Asymmetric) E f f e c t of Credit A v a i l a b i l i t y Symmetric Market Credit Variable: Option A Asymmetric Market Credit Variable. A v a i l a b i l i t y of Favourable Government Mort-gages and Subsidies to the P r o f i t Motivated Sector Season Variables March, A p r i l May, June, July, August September, October, November F i g . 4 . S e l l i n g P r i c e R e l a t i v e t o Development C o s t s M o d e l E x p r e s s e d as a F u n c t i o n HP AC ,HP, . ,._ „ _ . ' • DIOH NCRED, ( A c l t + f ( C H C W ' "AC"' CRED S p e c i f i c a t i o n o f t h e M o d e l :  Symmetric C r e d i t V a r i a b l e HP AC (HP) b„ + b, DIACHCW + b„ SMCRED + b 0 £ 0 1 2 3 M S p e c i f i c a t i o n o f t h e A l t e r n a t e M o d e l :  A s y m m e t r i c C r e d i t V a r i a b l e HP AC (IE) bn + b, DIACHCW + b 0 AMCRED + b, =r 0 1 2 3 M 5 7 F i g . 5 . I n v e n t o r y o f U n o c c u p i e d New Houses Model E x p r e s s e d a s a F u n c t i o n VC . V C . t + * < < ™ * . " C ^ D . SSFW, S p e c i f i c a t i o n o f t h e M o d e l :  Symmetric C r e d i t V a r i a b l e (VC - VC_ t) - b Q + b x ^ + b 2 SMCRED + b 3 § + b. SPRING + b c SUMMER + b, FALL 4 5 6 S p e c i f i c a t i o n o f t h e A l t e r n a t e M o d e l :  Asymmetric C r e d i t V a r i a b l e COMP G (VC - VC_ t) = b Q + b 1 + b 2 AMCRED + b 3 g + b. SPRING + b c SUMMER + b , FALL 4 5 6 Notation: VC COMP STKOH LABOH CW = Inventory of Unoccupied New Houses = P r o f i t Motivated Ground Oriented Housing Unit Completions = Stock of Ground Oriented Housing Units Labour Force = Population, that Forms Households, Relative to the I n i t i a l Stock of Houses CW = LABOH STKOH SSFW = Season Variables CRED = Credit Conditions Based on the Assumption (NCRED) of the Symmetric (Asymmetric) Ef f e c t of Credit A v a i l a b i l i t y SMCRED = Symmetric Market Credit Variable: Option A AMCRED = Asymmetric Credit Variable j | = A v a i l a b i l i t y of Favourable Government Mort-gages and Subsidies to the P r o f i t Motivated Sector SPRING = March, A p r i l SUMMER = May, June, July, August FALL = September, October, November 58 F i g . 6, P r o f i t M o t i v a t e d G r o u n d - O r i e n t e d H o u s i n g S t a r t s M o d e l E x p r e s s e d as a F u n c t i o n PSTS = f ( ||, VC, (IUCF_ T- COMP), STRIKE, N ^ D ' S S F W ) S p e c i f i c a t i o n Of t h e Model: Symmetric C r e d i t V a r i a b l e s C r e d i t V a r i a b l e : O p t i o n A C r e d i t V a r i a b l e : O p t i o n B b o + b l H + b 2 V C PSTS = b 0 + b l § J + b 2 V C b 3 ( I U C F _ t - COMP) + b 3 ( I U C F _ t - COMP) b 4 STRIKE + b c - SMCRED 5 + b 4 STRIKE + b,. SPCRED V § + b^ SPRING M 7 + V •SGCRED + b 7 SPRING V SUMMER + b • F ALL 9 + b 8 SUMMER + b g - FALL S p e c i f i c a t i o n o f t h e A l t e r n a t e M o d e l A s y m m e t r i c C r e d i t V a r i a b l e PSTS = b Q + b r | | + b 2 - V C + b 3 ( I U C F _ t - COMP) + b 4 STRIKE + b 5 AMCRED + b g | + b 7 SPRING + b g SUMMER + b g FALL Notation: PSTS = P r o f i t Motivated Ground Oriented Housing Unit Starts PF = P o t e n t i a l P r o f i t Variable IU = Investment Required Per Unit VC = Inventory of Unoccupied New Houses IUCF = P r o f i t Motivated Ground Oriented Housing Units Under Construction COMP = P r o f i t Motivated Ground Oriented Housing Unit Completions SSFW = Season Variables SPRING = March, A p r i l SUMMER = May, June, July, August FALL = September, October, November STRIKE CRED (NCRED) SMCRED AMCRED SPCRED SGCRED G M Number of Man-days of Work Lost Attributed to Strikes in the Local Construction Industry Credit Conditions Based on the Assumption of the Symmetric (Asymmetric) E f f e c t of C r e d i t A v a i l a b i l i t y Symmetric Market Credit Variable: Option A Asymmetric C r e d i t Variable Symmetric Credit Variable: Option B Private I n s t i t u t i o n a l Lenders Symmetric Credit Variable: Option B Government Direct Lending A v a i l a b i l i t y of Favourable Government Mortgages and Subsidies to the P r o f i t Motivated Sector 59 F o o t n o t e s The O t t a w a - H u l l M e t r o p o l i t a n A r e a was s e l e c t e d f o r s t u d y b e c a u s e t h e a u t h o r was employed i n t h e Ottawa a r e a when t h e d a t a c o l l e c t i o n p h a s e o f t h e s t u d y was u n d e r t a k e n , and b e c a u s e a l m o s t a l l o f t h e u r b a n d e v e l o p m e n t i n t h e r e g i o n has b een w i t h i n t h e C e n s us M e t r o p o l i t a n A r e a b o u n d a r i e s . 2 A l t h o u g h t h e Community o f M a n o t i c k h a s n o t b een i n c l u d e d , i t i s v e r y s m a l l and t h e g r o w t h t h a t d i d o c c u r d u r i n g t h e s t u d y p e r i o d was i n s i g n i f i c a n t r e l a t i v e t o t h a t e x p e r i e n c e d i n t h e d e f i n e d m a r k e t a r e a . 3 The p o p u l a t i o n o f m u n i c i p a l i t i e s i n t h e O n t a r i o p o r t i o n o f t h e s t u d y a r e a has b een b a s e d on e s t i m a t e s p u b l i s h e d i n D e p a r t m e n t o f M u n i c i p a l A f f a i r s , M u n i c i p a l D i r e c t o r y ( T o r o n t o : Queen's P a r k , 1 9 6 8 ) , p. 6. and The p o p u l a t i o n i n t h e Quebec p o r t i o n o f t h e s t u d y a r e a was b a s e d on t h e sum o f t h e e s t i m a t e d p o p u l a t i o n f o r t h e C o u n t i e s o f H u l l and G a t i n e a u as p u b l i s h e d i n The F i n a n c i a l P o s t , S u r v e y o f M a r k e t s 1980/81: and B u s i n -e s s Y e a r Book ( T o r o n t o : M a c l e a n - H u n t e r L t d . , 1 9 8 0 ) ; and The F i n a n c i a l P o s t , S u r v e y o f M a r k e t s 1967/68: and B u s i n e s s Y e a r Book ( T o r o n t o : M a c l e a n - H u n t e r L t d . , 1 9 6 7 ) . 4 P e t e r S p u r r , L a n d and U r b a n D e v e l o p m e n t : A P r e l i m i n a r y  S t u d y ( T o r o n t o : James L o r i m e r and Company, 19 7 6 ) , p. 86. " ' A l i c e Coleman, The P l a n n i n g C h a l l e n g e o f t h e Ottawa A r e a , G e o g r a p h i c a l P a p e r No. 42 (Ottawa: D e p a r t m e n t o f E n e r g y M i n e s and R e s o u r c e s , 1 9 6 9 ) , p. 45. 6 S p u r r , p. 88. 7 I b i d . , p. 89. Coleman, pp. 11 and 49. 9 I b i d . , pp. 44 and 58. 1 0 I b i d . , p. 60. i : i " S p u r r , pp. 88 and 89. 1 2 I b i d . , p. 90. 13 I b i d . , pp. 93 and 95. 60 X H S e e t h e s e c t i o n . "The P o t e n t i a l P r o f i t V a r i a b l e " , i n Appen-d i x I " E s t i m a t i o n Of t h e Dependent and I n d e p e n d e n t V a r i a b l e s " , f o r a r e v i e w o f t h e r a t i o n a l e t h a t t h e r e l a t i o n s h i p between t h e s e l l i n g p r i c e o f new h o u s e s and t h e c o s t s d u r i n g d e v e l o p m e n t and m a r k e t i n g may be more I m p o r t a n t t h a n a c t u a l p r o f i t l e v e l s , t h a t i n c o r p o r a t e a l l i n v e s t m e n t c o s t s , when m o d e l l i n g t h e s h o r t - r u n b e h a v i o u r o f t h e l a n d d e v e l o p m e n t i n d u s t r y . 15 The p r o f i t a b i l i t y i n d e x ( g r o s s and n e t ) r e f l e c t s t h e r e l a -t i v e p r o f i t a b i l i t y o f v a r i o u s p r o j e c t s , and f o r t h i s r e a s o n i t w o u l d a p p e a r t o be a p p l i c a b l e t o r e f l e c t t h e r e l a t i v e r e t u r n s t o s c a r c i t y f o r l a n d d e v e l o p m e n t o v e r t h e s t u d y p e r i o d . George C. P h i l i p p a t o s , E s s e n t i a l s o f F i n a n c i a l Management:  T e x t and C a s e s ( T o r o n t o : H o l d e n - D a y I n c . , 1 9 7 4 ) , pp. 87 and 89. "^The c a p a b i l i t y o f t h e h o u s i n g m a r k e t t o r e s p o n d q u i c k l y t o r e l a t i v e p r i c e movements has b e en i n d i c a t e d by t h e r a p i d i n c r e a s e i n h o u s i n g s t a r t s i n 1973, when house p r i c e s r o s e f a s t e r t h a n de-v e l o p m e n t c o s t s . C o n s i s t e n t w i t h t h i s phenomena i s t h e o b s e r v a -t i o n t h a t d e v e l o p e r s m a i n t a i n a s u b s t a n t i a l s u p p l y o f l o t s , as n o t e d by S p u r r . S p u r r , p. 71. 17 The t i m i n g scheme u s e d i n t h i s t h e s i s was t h e same as t h a t u s e d by S p u r r . However, c o r r o b o r a t i o n o f t h e f e a s i b i l i t y o f t h e s e l e c t e d t i m e s e n a r i o was made w i t h a number o f Ottawa e n g i n e e r i n g f i r m s i n M a r c h o f 1979. S p u r r , p. 52. 18 O n l y p r e - t a x e x p e n d i t u r e s were c o n s i d e r e d s i n c e income t a x e s w o u l d be s u b j e c t t o t h e p r o c e e d s o f s a l e and n o t e x c l u s i v e l y a d d i t i o n a l i n v e s t m e n t i n c u r r e d t o d e v e l o p and m a r k e t a p r o p e r t y . A l t h o u g h b o r r o w e d f u n d s w o u l d n o t l i k e l y be r e p a i d u n t i l a p r o p e r -t y has b e en s o l d , o n l y t h e p r i n c i p a l r e p a y m e n t o f a m o r t g a g e t o a c q u i r e l a n d has b e en e x c l u d e d i n o r d e r t o i n c l u d e a l l t h e e x p e n -d i t u r e s i n c u r r e d d u r i n g d e v e l o p m e n t as w e l l as t o s i m p l i f y t h e e s t i m a t i o n o f t h e v a r i a b l e . 19 The e s t i m a t e d i n v e s t m e n t r e q u i r e d t o d e v e l o p and m a r k e t s i n g l e - d e t a c h e d d w e l l i n g s was w e i g h t e d by t h e p r e v a i l i n g p r o p o r -t i o n o f t h e t o t a l number o f g r o u n d - o r i e n t e d h o u s i n g s t a r t s t h a t were s i n g l e f a m i l y d w e l l i n g s ( i . e . s i n g l e - d e t a c h e d , s e m i -d e t a c h e d , and d u p l e x e s ) . S i m i l a r l y , t h e e s t i m a t e d i n v e s t m e n t r e -q u i r e d t o d e v e l o p and m a r k e t row d w e l l i n g s was w e i g h t e d by t h e p r e v a i l i n g p r o p o r t i o n o f g r o u n d - o r i e n t e d h o u s i n g s t a r t s t h a t were ro w h o u s e s . A l t h o u g h no a t t e m p t was made t o d e t e r m i n e t h e i n v e s t -ment t h a t w o u l d be r e q u i r e d f o r s e m i - d e t a c h e d o r d u p l e x h o u s e s , i t was assumed t h a t d e v e l o p m e n t o f t h i s t y p e was more l i k e t h a t o f s i n g l e - d e t a c h e d h o u s e s . 2 0 F o r a r e v i e w o f t h e s p e c i f i c v a r i a b l e s u s e d t o i n d i c a t e c r e d i t c o n d i t i o n s , see t h e s e c t i o n " C r e d i t C o n d i t i o n s " i n Appen-d i x I " E s t i m a t i o n o f t h e D ependent and I n d e p e n d e n t V a r i a b l e s " . CHAPTER V I ESTIMATING THE HOUSING MARKET MODEL Supp 1 ernentary Mode 1 s I n t r o d u c t i o n E s t i m a t e s were made o f t h e m o d i f i e d p o t e n t i a l p r o f i t v a r i -a b l e , t h e r a t i o o f new house p r i c e s t o b e f o r e t a x c o s t s d u r i n g d e v e l o p m e n t and m a r k e t i n g , and t h e i n v e n t o r y o f u n o c c u p i e d new h o u s e s as f u n c t i o n s o f t h e i r r e s p e c t i v e d e t e r m i n i n g v a r i a b l e s . T h e s e e s t i m a t e s were made t o p r o v i d e e v i d e n c e o f t h e e n d o g e n e i t y o f t h e s e v a r i a b l e s i n t h e h o u s i n g s t a r t s model and t o i d e n t i f y a d d i t i o n a l v a r i a b l e s r e q u i r e d t o e s t i m a t e t h e h o u s i n g s t a r t s model u s i n g t h e t w o - s t a g e l e a s t s q u a r e s t e c h n i q u e . M o d i f i e d P o t e n t i a l P r o f i t V a r i a b l e The p o t e n t i a l d e s i r e d number o f h o u s i n g u n i t s u n d e r c o n -s t r u c t i o n was i n d i c a t e d by t h e r a t i o o f t h e g r o s s p r o f i t a b i l i t y i n d e x (PF) t o t h e i n v e s t m e n t r e q u i r e d p e r u n i t i n d e x ( I U ) . The PF combined v a r i a b l e (jjj) r o r m o d i f i e d p o t e n t i a l p r o f i t v a r i a b l e h as been e s t i m a t e d as a s i n g l e l i n e a r f u n c t i o n o f t h e r a t i o o f house p r i c e s (HP) t o b e f o r e t a x c o s t s d u r i n g d e v e l o p m e n t and m a r k e t i n g (AC), t h e c o r p o r a t e income t a x r a t e f o r O n t a r i o ( T R ) , and t h e i n v e s t m e n t r e q u i r e d p e r u n i t i n d e x ( I U ) . The model was s p e c i f i e d a s shown i n e x p r e s s i o n 6.1: W = b 0 + b l + b 2 T R + b 3 1 0 6 ' 1 61 62 u s i n g t h r e e month a v e r a g e s o f t h e d e p e n d e n t and t h e d e t e r m i n i n g v a r i a b l e s . U s i n g t h e C o c h r a n e - O r e u t t t e c h n i q u e and m o n t h l y d a t a f r o m 1968 t o 1977, t h e c o e f f i c i e n t s o f t h e model were e s t i m a t e d as follows:"'' | ^ = 2.006358 + t s t a t i s t i c 59.943 F s t a t i s t i c .422639 (||) 29.534 872.697 190392 TR - 1.323962 IU -4.109 16.881 -115.127 132591972 O v e r a l l F s t a t i s t i c = 5063.604 S t a n d a r d e r r o r o f t h e e s t i m a t e = .00259 Time s e q u e n c e p l o t o f r e s i d u a l s F r e q u e n c y o f r e s i d u a l s : P l o t o f t h e r e s i d u a l s a g a i n s t t h e e s t i m a t e o f t h e d e p e n d e n t v a r i a b l e : D u r b i n - W a t s o n s t a t i s t i c = 2.02399 A l t h o u g h t h e r e a p p e a r e d t o be some t e n d e n c y f o r v a l u e s o f a s i m i l a r s i g n o r m a g n i t u d e t o f o l l o w s e q u e n t i a l l y , t h e r e was no l o n g - r u n c o n s i s t e n c y (as shown i n F i g u r e 7 . a ) . The f r e q u e n c y o f r e s i d u a l v a l u e s p r o v i d e d e v i d e n c e o f a n o r m a l d i s t r i b u t i o n (as shown i n F i g u r e 7.b) . T h e r e a p p e a r e d t o be no a p p a r e n t t e n d e n c y o f t h e e s t i m a t e o f t h e d e p e n d e n t v a r i a b l e t o r e s p o n d t o c h a n g e s i n t h e r e s i d u a l (as shown i n F i g u r e 7 . c ) . C o r r e l a t i o n c o e f f i c i e n t i n c o n s e c u t i v e r e s i d u a l s s q u a r e d 000248 PF C o m p a r i s o n o f a c t u a l and p r e d i c t e d t i m e s e r i e s o f (1968-1977) P l o t s o f t h e a c t u a l and p r e d i c t e d t i m e s e r i e s : P r o p o r t i o n o f t u r n s i n t h e d e p e n d e n t v a r i a b l e e s t i m a t e d c o r r e c t l y C o r r e l a t i o n c o e f f i c i e n t The p r e d i c t e d v a l u e s o f t h e d e p e n d e n t v a r i a b l e a p p e a r e d t o t r a c e t h e a c t u a l v a l u e s adequate-l y (as shown i n F i g u r e 7 . d ) . = 100 p e r c e n t 9981 R s q u a r e d = .9961 (,2 F i g . 7 . a . Time Sequence P l o t o f R e s i d u a l s F i g . 7 . c . R e s i d u a l A g a i n s t t h e E s t i m a t e P l o t 7.01 nor ;i50E-ci Jiilj. ,551t-« .190E-C -.Z7K-L ANALYSIS OF RESIDUALS I.IS!' >.itn (.1511 MODIFIED POTENTIAL PROFIT VARIABLE PF IU (Based on Transformed Variables) -HOI— lilt mi F i g . 7.b. F r e q u e n c y o f R e s i d u a l s _o,i!o;_ _7*B1 0.1»0)__ 730* o.lttt not O.UOJ noj o.in« fJO! 0.11B1 7*12 0.1*!! d.iut .L*JH-Cd • >.u*o - 3 2 1 0 1 2 3 + Number of Standard Deviations From the Mean I.1SJ7 l.ltli-g.DH !i "u-o 0~i 64 F i g . ,7-..d. P l o t o f t h e A c t u a l and P r e d i c t e d Time S e r i e s ( Modified P o t e n t i a l PF 1968-1977 P r o f i t Variable IU PLOT Of ACTUAL ! •> AND F I T T E D < « > V » L U E S p L C T CF R E S I O U A L S ( C ) .... I D ».C_T U » L f I ; I L O . 7712 1 . 256 1 .256 7711 1 . 2 2 2 • . 233 7710 1 . 2 : 6 1 .257 7709 i . 2 3 2 1 . 2 12 .-7-7-0 8-. . 1 .241 . _ .1 .240 7707 1 . 2 6 2 '. . 2 60 77C6 1 . i 3 6 1 .227 7705 1 .286 1 .283 7704 1.2 80 i . 2 7 ' 770 3 1 .201 1 .159 . .77,0 2 . 1 .266 1. 264 770 1 1 .257 1 . 2 9 3 7612 1 . 348 1 . 238 7611 1 .225 1 .217 7610 i . 2 9 4 1 .290 7609 1 .296 1. 2*1 76C6. . 1 .280 1 .276 760 7 1 .225 1 .223 7606 1 .191 1. 187 7605 1 .225 1 .235 7604 1 .347 1. 2 3 7 760 ! 1 .242 1 .237 7602 1 . 276 1 . 2 7 6 760 1 1 .217 1 .216 7512 1 .211 1 . 210 7511 1 .247 1 . 247 751C 1 .256 -..255 7509 1 . 2 7 9 1 .277 . 7 5 0 8 . 1 .285 1 . 2 3 4 750 7 1 . 2 7 * 1 .274 75C6 1 .287 1 .28? 7505 1 .225 1 .225 7504 1 .261 1 .270 7503 1 .286 1 . 255 7502. 1 .288 1. 295 75C1 1 .256 1. 264 7412 1 .240 1 .249 7411 1 .311 1 .215 • 741C 1 .284 1 .250 7409 1 .234 1 .242 7408 1 .202 1. 210 7407 1 .231 1. 240 7406 1-279 1 .266 7405 1 . 2 6 6 1 .272 7404 1 . 2 4 8 1 .252 740 3 1 .244 1. 2 4 ' 740 2 1.2 4 9 1 .252 740 1 1 .255 1 .257 7312 1 . 2 4 8 1 .250 7311 1 .241 1. 243 731C 1 .252 1. 25} 7309 1 .275 1 .274 7308 1 .224 1 .236 730 7 1.1 74 1 .175 7306 1 .12C 1 .117 7305 1 . 1 2 5 1 . 1 2 ° 730 4 1-14S 1. 152 730 3 1 . 1 3 2 1. 134 . 7302 1 . 1 1 4 1. 114 730 1 1 . 1 0 5 1. 104 7212 1 .112 1 .112 7211 1 .142 1. 146 7210 1 . 1 6 4 1 .169 7209 1 .172 1. 180 7208 1 . 1 3 8 - 1. 143 7207 1 . 1 2 7 1 .132 720 6 1 .125 1.121 7205 1 . 1 2 0 1 .127 7204 1 . 0 8 7 1 . 0 6 8 720 3 1 .111 1 .117 .7202 - 1 . 1 1 5 1. 123 720 1 1 . 1 4 4 1 . 156 7112 1 .102 1.111 7111 1 .121 1. 131 7110 1 . C 9 C 1 .094 7109 1 . 1 1 4 1 . 1 2 2 7108 1 .0 95 1. C99 7107 1 . 1 1 6 1 . 121 7106 1 . 1 0 8 1. 110 7105 1 . 1 0 5 1. 110 7104 1 . 0 8 8 1 .086 7103 1.0 85 1 .062 7102 1 . 0 8 2 1 . 0 7 8 7101 1 .092 1. 089 7012 1 . 1 0 5 1 .109 7011 1 . 1 2 6 1 .127 701C 1 .135 1. 137 7009 1 .115 1. 114 7 008 1 . 1 1 4 1 .112 7 0 0 7 1 .10C 1 . 0 5 6 7006 1 . 0 8 7 1 .080 7C05 1 . 0 7 6 1 . C 6 6 7004 1 .075 1 .070 7003 l.cei 1 .072 7.00 2. 1.0.S5... 1 . 0 8 9 7001 1 . 1 0 C 1 .094 6912 1 . 1 1 5 1 .116 6911 1 .110 1. 105 691C 1 . 1 3 5 1 .133 6 9 0 9 1 .152 1 . 151 ... 69.0 8 . 1 . 1 7 C 1.171 6907 1 .141 1 .141 69 0 6 1 .110 1. 106 6 9 0 5 1 . 0 9 5 1 .093 6 9 0 * 1 . 0 9 7 1 .091 6 9 0 3 1 .101 1 .096 . 6902 1 .101 1 .056 6901 1 . 1 0 5 1. 106 6812 1 . 1 0 4 1 .100 6811 1 .128 1. 128 6810 1 .151 1 .153 6809 1 . 1 4 6 1. 145 1 . 1 1 5 1,-11.0. 6907 1-097 1 .089 6 8 0 6 1 .111 1 .107 6805 1 . 1 2 4 ^ 1 .122 6804 1 . 1 1 5 1.111 6 3 0 3 1 . 1 2 5 1. 124 Modified P o t e n t i a l PF P r o f i t Variable IU . 8 .642-03 0 - . 1 5 4 E - 0 3 . 1 0 1 E - 0 3 0 . 6 0 I t - 0 4 .51 E E - 0 3 0 • 1 6 1 E - 0 2 0 . 9 5 4 2 - 0 2 . 22 2E-02 0 . . 2 4 f E - 0 2 0 . . 2 1 0 E - 0 2 0 . . 1 7 5 E - 0 2 0 . .2 97E-02 0 . . 1 0 1 E - 0 1 . 7 & 0 E - 0 2 . 4 5 1 E - 0 2 . 5 1 5 E - 0 2 . 0 . 3 9 S E - 0 2 a . . 2 2 7 E - 0 2 0 . 3 6 7 E - 0 2 0 . . 1 9 EE-02 0 . . 9 7 tE-02 . E B 3 E - 0 2 . 1 7 IE-02 . 0 • • 1 0 5 E - 0 2 c . 5 6 2 E - 0 2 c •595E-C3 0 . 5 1 2 E - 0 2 c •122E-02 0 . 1 0 5 E - 0 2 0 - . 6 36E-04 - . 2 3 7 E - 0 2 c - . 6 6 1 E - 0 2 0 . - . 9 1 6 E - 0 2 0 - . 7 2 6E-C2 • 0 - . 7 7 6 E - 0 2 0 . - . 6 6 a E - 0 2 0 - . & 7 C E - C 2 0 - . 3 4 7 E - 0 2 0 - . 6 3 6 E - C 2 0 . - . E 1 3 E - 0 2 0 - . 7 5 2E-02 3 . - . S 7 9 E - C 2 0 - . 6 2 2 E - 0 2 0 . - . 5 6 2 E - 0 2 0 . - . 4 1 S E "02 - . 3 5 8 E - 0 2 0 - . 2 6 J E - 0 Z 0 - . 2 1 6 E - 0 2 0 - . 2 6 8 E - C 2 0 - . 2 3 0 E - 0 2 c - . 1 4 8 E - 0 2 0 . 6 2 0 E -03 . 0 -. .19 1 _E_^ 0 _ -C - . 1 5 1E-02 0 . 3 7 IE-02 0 . • 4 0 5 E - 0 3 - . 2 6 4 E - 0 2 0 - . 2 2 6 E - C 2 0 . 65 6E-04 . 1 2 2 E - 0 2 . 0 •862E-03 . 0 - . 2 0 S E - 0 2 0 - . 5 4 5 E - 0 2 0 - . 7 2 7 E - 0 2 0 - . 5 S 6 E - C 2 0 - . 5 1 E E - C 2 0 - . 5 9 1 E - C 2 0 - . 6 6 4 E - 0 2 0 - . 1 4 1 E - 0 2 . 0 - . 5 6 0 E - C 2 0 - . 7 7 4 E - C 2 u - . 1 1 5 E - C 1 C - . E 0 1 E - C 2 0 - . 9 2 1 E - C 2 0 - . 4 2 2 E - C 2 - . 6 0 3 E - C 2 0 - . 2 8 8 E - C 2 . 0 - . 4 6 8E-02 - . 1 5 4 E - 0 2 . 0 - . 1 0 7E-02 0 . . 2 6 7 E - 0 2 . 0 . . 3 6 0E-02 0 . . 4 2 1 E - C 2 • 2 4 4 E - C 2 . 0 . - . 1 3 8E-03 - . 1 * I E - 0 2 . 0 - . 1 5 3 E - 0 2 . 0 .1 22E-02 . 0 . 1 7 0 E - 0 2 . 0 . .41 1E-02 0 . . 7 0 5 E - C 2 . 9 b 5 E - C 2 -951E-02 •922E-C2 . 6 8 4 E - 0 2 . 6 4 3E-02 . J 6 5 E - 0 2 0 . •540E-02 . 1 9 2 E - C 2 . 0. . . 1 9 2E-03 - . 1 4 2E-02 . 0 • 3 4 1 E - 0 3 . 3 7 1E-C2 0 . . 5 4 (E-C2 . 5 5 4E-C2 . 5 1 E E - 0 2 . 5 0 7 E - 0 2 •33EE-C2 0 . . 4 3 3E-C2 . 5 9 1E-03 . 0 - . 1 7 5 E - 0 2 . 0 • 1 0 6 E - 0 2 . 0 .465E-_C2. . . . p - 7 6 5 E - C 2 • 3 5 6 E - C 2 0 . . 1 9 5 E - C 2 . 0 . . 3 2 4 E - C 2 . N c . • 1 1 7 E - 0 2 . 0 65 R o o t - m e a n - s q u a r e d - e r r o r . 0 0 4 9 5 0 as a p e r c e n t o f t h e mean = i * 18192 = - ^ ° 4 2 v a l u e o f t h e d e p e n d e n t v a r i a b l e Mean a b s o l u t e e r r o r as a . Q04014 p e r c e n t o f t h e mean v a l u e = i i g . 1 9 2 = o f t h e d e p e n d e n t v a r i a b l e The C o c h r a n e - O r c u t t t e c h n i q u e was u s e d t o e l i m i n a t e a u t o -c o r r e l a t i o n i n t h e r e s i d u a l s w h i c h was e v i d e n t when t h e o r d i n a r y l e a s t • s q u a r e s t e c h n i q u e was u s e d . A l l t h e v a r i a b l e s and t h e i r c o e f f i c i e n t s had t h e c o r r e c t s i g n , were s i g n i f i c a n t l y d i f f e r e n t t h a n z e r o a t t h e .05 l e v e l o f c o n f i d e n c e , and c o n t r i b u t e d t o t h e e x p l a i n e d sum o f s q u a r e s (as i n d i c a t e d by t h e " t " and " F " s t a t i s -t i c s ) . I n a d d i t i o n , t h e model a p p e a r e d t o a d e q u a t e l y t r a c e t h e d e p e n d e n t v a r i a b l e and t h e R s q u a r e d v a l u e w o u l d a p p e a r t o be h i g h and c o n f i r m t h e a d e q u a t e n e s s o f t h e m o d e l . The r e v i e w o f t h e r e s i d u a l s i n d i c a t e d t h a t t h e p r e c o n d i t i o n s f o r r e g r e s s i o n a n a l y s i s had n o t been v i o l a t e d . F u r t h e r m o r e , t h e D u r b i n - W a t s o n s t a t i s t i c was c l o s e t o t h e v a l u e o f 2 and t h e c o r r e l a t i o n c o -e f f i c i e n t i n c o n s e c u t i v e r e s i d u a l s s q u a r e d was n o t s i g n i f i c a n t l y d i f f e r e n t t h a n z e r o a t t h e .05 l e v e l o f c o n f i d e n c e , i n d i c a t i n g t h a t t h e h y p o t h e s i s o f a u t o c o r r e l a t i o n i n t h e r e s i d u a l s may be r e j e c t e d . House P r i c e s R e l a t i v e t o C o s t s The s e l l i n g p r i c e o f new h o u s e s (HP) r e l a t i v e t o b e f o r e t a x c o s t s d u r i n g d e v e l o p m e n t and m a r k e t i n g (AC) has been e s t i m a t e d as a f u n c t i o n o f t h e s e l l i n g p r i c e r e l a t i v e t o c o s t s i n t h e p r e v i o u s HP p e r i o d (^7=;) , t h e change i n income r e l a t i v e t o p r e - t a x c o s t s - t OHDY ( A A n ), t h e change i n t h e h o u s e h o l d f o r m i n g p o p u l a t i o n r e l a t i v e LABOH t o t h e s t o c k o f h o u s e s (c,mt.^„) i n d i c a t e d by t h e p r e v a i l i n g v a l u e o IK.On o f t h e s t o c k r e l a t i v e t o v a l u e i n t h e p r e v i o u s p e r i o d (CHCW = 66 LABQK, ^ LABOH)• ^ a & ^ e l l a a c r e d i t c o n d i t i o n s b a s e d on t h e assump-STKOH' STKOE^ t i o n o f t h e s y m m e t r i c (CRED = SMCRED, |) o r a s y m m e t r i c (NCRED = AMCRED, -) e f f e c t o f c r e d i t a v a i l a b i l i t y . The m o d e l was s p e c i f i e d ' M as shown i n e x p r e s s i o n 6.2: 1 - ' © T + B 0 + b l D I A C H C W + B 2 < NC^D> 6.2 N T , P ™ _ A DIOH I f n e g a t i v e x CHCW 1 DIACHCW - -jg- I f p o s i f c i v e x Cf,cw u s i n g t h r e e month a v e r a g e s o f t h e d e p e n d e n t and d e t e r m i n i n g v a r i -a b l e s , e x c e p t f o r v a l u e s i n t h e p r e v i o u s p e r i o d when e s t i m a t e s f o r t h e month p r e c e d i n g t h e p e r i o d were u s e d . F u r t h e r m o r e , s i x month a v e r a g e s o f t h e c r e d i t v a r i a b l e s were u s e d i n t e s t i n g an a d d i t i o n -a l v e r s i o n o f t h e m o d e l . U s i n g t h e C o c h r a n e - O r c u t t t e c h n i q u e and m o n t h l y d a t a f r o m 1968 t o 1977 t h e c o e f f i c i e n t s o f t h e s p e c i f i e d 2 model were e s t i m a t e d as f o l l o w s : 1. Symmetric C r e d i t V a r i a b l e HE. _ (55.) = .019027 + .035215 DIACHCW - .000360 SMCRED AC A C _ t t s t a t i s t i c F s t a t i s t i c 1.836 5.451 29.673 -1.895 3.532 O v e r a l l F s t a t i s t i c = 14.90505 S t a n d a r d e r r o r o f t h e e s t i m a t e = .01477 Time s e q u e n c e p l o t o f r e s i d u a l s : F r e q u e n c y o f r e s i d u a l s : A l t h o u g h t h e r e a p p e a r e d t o be some t e n d e n c y f o r v a l u e s o f a s i m i l a r s i g n o r m a g n i t u d e t o f o l l o w s e q u e n t i a l l y , t h e r e was no l o n g - r u n c o n s i s t e n c y (as shown i n F i g u r e 8 . a ) . The f r e q u e n c y o f r e s i d u a l v a l u e s p r o v i d e d e v i d e n c e o f a n o r m a l d i s t r i b u t i o n (as shown i n F i g u r e 8 . b ) . F i g . 8 . a . Time Sequence P l o t F i g . 8 . c . R e s i d u a l A g a i n s t o f R e s i d u a l s t h e E s t i m a t e P l o t F r o m t h e Mean 68 F i g . 8..d. P l o t o f t h e A c t u a L a n d P r e d i c t e d Time S e r i e s ( H o u s e ^ " t f 1 " ^ 8 ! ) 1 9 6 8 - 1 9 7 7 PLOT OF A C T U A L f . * ) AND F 1 T T E 0 ( » > V A L U E S C L O T OF R E S I D U A L S ( O ) A C T U A L _F_[T_TE0 R E S I O U A L 69 P l o t o f t h e r e s i d u a l s a g a i n s t t h e e s t i m a t e o f t h e d e p e n d e n t v a r i a b l e : D u r b i n - W a t s o n s t a t i s t i c = 1.92169 T h e r e a p p e a r e d t o be no a p p a r e n t t e n d e n c y o f t h e e s t i m a t e o f t h e d e p e n d e n t v a r i a b l e t o r e s p o n d t o c h a n g e s i n t h e r e s i d u a l (as shown i n F i g u r e 8 . c ) . C o r r e l a t i o n c o e f f i c i e n t i n c o n s e c u t i v e r e s i d u a l s s q u a r e d = .0017 HP C o m p a r i s o n o f a c t u a l and p r e d i c t e d t i m e s e r i e s o f ^ (1968-1977) P l o t s o f t h e a c t u a l and p r e d i c t e d t i m e s e r i e s : P r o p o r t i o n o f t u r n s i n t h e d e p e n d e n t v a r i a b l e e s t i m a t e d c o r r e c t l y The p r e d i c t e d v a l u e s o f t h e d e p e n d e n t v a r i a b l e a p p e a r e d t o t r a c e t h e a c t u a l v a l u e a d e q u a t e -l y (as shown i n F i g u r e 8 . d ) . = 64.4 p e r c e n t C o r r e l a t i o n c o e f f i c i e n t = R o o t - m e a n - s q u a r e d - e r r o r as a p e r c e n t o f t h e = mean v a l u e o f t h e d e p e n d e n t v a r i a b l e 9812 R s q u a r e d = .9628 .01984 = .0162 1.224 Mean a b s o l u t e e r r o r as a p e r c e n t o f t h e mean v a l u e o f t h e d e p e n d e n t v a r i a b l e = .01579 = .0129 1.224 2. A s y m m e t r i c C r e d i t V a r i a b l e - = .025144 + .035229 t t s t a t i s t i c 1.800 5.428 F s t a t i s t i c - 29.485 O v e r a l l F s t a t i s t i c = 14.779 S t a n d a r d e r r o r o f t h e e s t i m a t e = Time s e q u e n c e p l o t o f r e s i d u a l s : DIACHCW - .000424 AMCRED -1.844 3.365 .01479 A l t h o u g h t h e r e a p p e a r e d t o be some t e n d e n c y f o r v a l u e s o f a s i m i l a r s i g n o r m a g n i t u d e t o f o l l o w s e q u e n t i a l l y , t h e r e was no l o n g - r u n c o n s i s t e n c y (as shown i n F i g u r e 9 . a ) . 70 Frequency^ o f r e s i d u a l s : P l o t o f r e s i d u a l s a g a i n s t t h e e s t i m a t e o f t h e d e p e n d e n t v a r i a b l e : The f r e q u e n c y o f r e s i d u a l v a l u e s p r o v i d e d e v i d e n c e o f a n o r m a l d i s t r i b u t i o n (as shown i n F i g u r e 9..b). T h e r e a p p e a r e d t o be no a p p a r e n t t e n d e n c y o f t h e e s t i m a t e o f t h e d e p e n d e n t v a r i a b l e t o r e s p o n d t o c h a n g e s i n t h e r e s i d u a l (as shown i n F i g u r e 9 . c ) . D u r b i n - W a t s o n s t a t i s t i c = 1.91373 C o r r e l a t i o n c o e f f i c i e n t i n c o n s e c u t i v e r e s i d u a l s s q u a r e d = .0023 C o m p a r i s o n o f a c t u a l and p r e d i c t e d t i m e s e r i e s o f HP AC (1968-1977) P l o t s o f t h e a c t u a l and p r e d i c t e d t i m e s e r i e s : P r o p o r t i o n o f t u r n s i n t h e d e p e n d e n t v a r i a b l e e s t i m a t e d c o r r e c t l y The p r e d i c t e d v a l u e o f t h e d e p e n d e n t v a r i a b l e a p p e a r e d t o t r a c e t h e a c t u a l v a l u e s adequate-l y (as shown i n F i g u r e 9.d). = 6 0.7 p e r c e n t C o r r e l a t i o n c o e f f i c i e n t = R o o t - m e a n - s q u a r e d - e r r o r as a p e r c e n t o f t h e = mean v a l u e o f t h e d e p e n d e n t v a r i a b l e Mean a b s o l u t e e r r o r a s a p e r c e n t o f t h e mean = v a l u e o f t h e d e p e n d e n t v a r i a b l e 9811 R s q u a r e d = .9626 .01977 1.224 = .0162 01570 1.224 = .0128 The C o c h r a n e - O r c u t t t e c h n i q u e was u s e d t o e l i m i n a t e a u t o -c o r r e l a t i o n i n t h e r e s i d u a l s w h i c h was e v i d e n t when o r d i n a r y l e a s t s q u a r e s was u s e d . S i n c e t h e u s e o f s i x month a v e r a g e s o f t h e s y m m e t r i c and a s y m m e t r i c c r e d i t v a r i a b l e s a p p e a r e d t o p r o v i d e t h e b e s t r e s u l t s i n t h e h o u s i n g s t a r t s m o d e l , o n l y t h e s e r e s u l t s have been r e p o r t e d . F u r t h e r m o r e , t h e a v a i l a b i l i t y o f f a v o u r a b l e government m o r t g a g e s and s u b s i d i e s v a r i a b l e (—), was d e l e t e d i n ,HP, t h e h o u s e p r i c e - d e v e l o p m e n t c o s t s (^) m o d e l , s i n c e i t d i d n o t p r o v e s i g n i f i c a n t l y d i f f e r e n t t h a n z e r o a t t h e .05 l e v e l o f c o n -f i d e n c e . F i g . 9 . a . Time Sequence P l o t o f R e s i d u a l s F i g . 9.c. R e s i d u a l A g a i n s t t h e E s t i m a t e P l o t no a mo no* MM noi t*oi 1*02 tlot no? no* -tmE-os .ll»7E-05 -ltm-05 .2752E-02 -.2*t2£-tl 7)11 7510 7Wt 7507 750! 7507 .52»OE-0! -U»2E-05 • um-os 7*10 7*0* 7*0* 7*04 7*0! 7*07 .11*71 TJ5-.lllIC-05 .iim-o5 .ll»2E -05 .ll»7E-05 .um-05 •.io*5E-c; •.1771E-D1 -imE-oi -.**05E-0 . n»6E-<3 I7WE-C J77»E-02 .J27EE-C. '.*01tE~<2 -.10MC-0 •*5l5*E-0 • US2E-05 .ll»2T-05 .U92E-03 .lim-03 .ll*2E-05 • U»2E *0* -iu?t-95 • US2E-05 -ll»2E-0J -IH2E-05 .S»*£-02 -.l'lt-01 ~?*«-0l •-122E-01 •.177E-01 ;7rr7E-«i— -.*7iT-o' -327E-01 -ill'E-Ol-" -.*»!£-« ANALYSIS OF RESIDUALS HOUSE PRICES RELATIVE TO COSTS—ESTIMATE 2 (Based on Transformed Variables) |r F i g . 9. b. 4...L. F r e q u e n c y o f R e s i d u a l s Number of Standard Deviations From the Mean '£95r-C!— 72 F i g . 9.d. Plot of the Actual and Predicted Time Series (House Prices Relative HP ) 1968-1977 _ ^ To Costs AC PL3T CF A C r U A L C ) AND F ITTED(»> VALUES PLOT OF RESIOUAtS(O) ACTUAL F ITTEO RESIOUAL 6 60 7 6606 6805 680 4 680 3 1.154 1.166 1.177 1.177 1.166 7 3 I n g e n e r a l , e s t i m a t e s o f t h e house p r i c e - d e v e l o p m e n t c o s t s HP ^AC^ m o d e l , u s i n g t h e s y m m e t r i c and a s y m m e t r i c c r e d i t v a r i a b l e G ( w i t h o u t t h e ^ v a r i a b l e ) , p r o v i d e d c o e f f i c i e n t s t h a t h a d t h e c o r r e c t s i g n , were s i g n i f i c a n t l y d i f f e r e n t t h a n z e r o a t t h e .05 l e v e l o f c o n f i d e n c e , and i n d i c a t e d t h e s e l e c t e d d e t e r m i n i n g v a r i -a b l e s c o n t r i b u t e d t o t h e e x p l a i n e d sum o f s q u a r e s (as i n d i c a t e d by t h e " t " and "F" s t a t i s t i c s ) . F u r t h e r m o r e , t h e e s t i m a t e s a p p e a r e d t o a d e q u a t e l y t r a c e t h e d e p e n d e n t v a r i a b l e and t h e R s q u a r e d v a l u e s w o u l d a p p e a r t o be l a r g e and c o n f i r m t h e a d e q u a t e -n e s s o f t h e model u s i n g e i t h e r t h e s y m m e t r i c o r a s y m m e t r i c c r e d i t v a r i a b l e . The r e v i e w o f t h e r e s i d u a l s i n d i c a t e d t h a t t h e p r e c o n d i -t i o n s f o r r e g r e s s i o n a n a l y s i s had n o t b een v i o l a t e d . F u r t h e r -more, t h e D u r b i n - W a t s o n s t a t i s t i c was c l o s e t o t h e v a l u e o f 2 and t h e c o r r e l a t i o n c o e f f i c i e n t i n c o n s e c u t i v e r e s i d u a l s s q u a r e d was n o t s i g n i f i c a n t l y d i f f e r e n t t h a n z e r o a t t h e .05 l e v e l o f c o n f i -d e n c e , i n d i c a t i n g t h a t t h e h y p o t h e s i s o f a u t o c o r r e l a t i o n i n t h e r e s i d u a l s may be r e j e c t e d . A c o m p a r i s o n o f t h e p e r f o r m a n c e o f t h e h o u s e p r i c e -d e v e l o p m e n t c o s t s model u s i n g t h e s y m m e t r i c and a s y m m e t r i c c r e d i t c o n d i t o n s v a r i a b l e s , p r o v i d e d l i t t l e e v i d e n c e t o s u p p o r t t h e h y p o t h e s i s o f t h e s y m m e t r i c e f f e c t o f c r e d i t a v a i l a b i l i t y i n f a v o u r o f s u p p o r t o f t h e h y p o t h e s i s o f t h e a s y m m e t r i c e f f e c t . However, t h e u s e o f t h e s y m m e t r i c c r e d i t c o n d i t i o n s v a r i a b l e p r o -v i d e d e s t i m a t e s o f t h e d e p e n d e n t v a r i a b l e w h i c h c o r r e c t l y p r e -d i c t e d a h i g h e r p r o p o r t i o n o f t h e t u r n s . F u r t h e r m o r e , when t h r e e month a v e r a g e s o f t h e c r e d i t c o n d i t i o n s v a r i a b l e s were u s e d , o n l y t h e c o e f f i c i e n t o f t h e c r e d i t c o n d i t i o n s v a r i a b l e b a s e d on t h e a s s u m p t i o n o f t h e s y m m e t r i c e f f e c t o f c r e d i t a v a i l a b i l i t y was 74 c o n s i s t e n t l y s i g n i f i c a n t t h a n z e r o a t t h e .05 l e v e l o f c o n f i d e n c e . I n v e n t o r y o f U n o c c u p i e d New Houses The i n v e n t o r y o f u n o c c u p i e d new g r o u n d o r i e n t e d h o u s e s (VC) has b e en e s t i m a t e d a s a f u n c t i o n o f t h e i n v e n t o r y o f u n o c c u p i e d h o u s e s a t t h e end o f t h e p r e v i o u s p e r i o d (VC) , t h e number o f - t c o m p l e t i o n s o f p r o f i t m o t i v a t e d g r o u n d o r i e n t e d h o u s e s i n t h e c u r r e n t p e r i o d (COMP), t h e s i z e o f t h e p o p u l a t i o n t h a t f o r m h o u s e -h o l d s r e l a t i v e t o t h e s t o c k o f h o u s e s a t t h e b e g i n n i n g o f t h e LABOH c u r r e n t p e r i o d (CW = c,rT,vr,„ ) , c r e d i t c o n d i t i o n s b a s e d on t h e ° G a s s u m p t i o n o f t h e s y m m e t r i c (CRED = SMCRED, ^) as a s y m m e t r i c (NCRED = AMCRED, ^) e f f e c t o f c r e d i t a v a i l a b i l i t y , a s w e l l a s s e a s o n v a r i a b l e s (SPRING, SUMMER, FALL, WINTER - SSFW). The model was s p e c i f i e d as shown i n e x p r e s s i o n 6.3: VC = V C _ t + b Q + b x ( C ™ P ) + b 2 (Ngjjj£) + b 3 (SSFW) 6.3 u s i n g t h r e e month a v e r a g e s o f t h e d e p e n d e n t v a r i a b l e , and t h e p o p u l a t i o n t h a t f o r m s h o u s e h o l d s , as w e l l a s t h r e e and s i x month a v e r a g e s o f t h e c r e d i t c o n d i t i o n s v a r i a b l e ; t h e sum o f m o n t h l y v a l u e s f o r t h e number o f c o m p l e t i o n s and s e a s o n v a r i a b l e s ; and t h e v a l u e a t t h e end o f t h e p r e c e d i n g month f o r t h e v a l u e s i n t h e p r e v i o u s p e r i o d . U s i n g t h e C o c h r a n e - O r c u t t t e c h n i q u e and m o n t h l y d a t a f r o m 1968 t o 1977 t h e c o e f f i c i e n t s o f t h e s p e c i f i e d m odel 3 were e s t i m a t e d a s f o l l o w s : 1. Symmetric C r e d i t V a r i a b l e C O M P VC - VC . = - 313.758172 + .478538 ( ^ f 1 ) + 1.856112 SMCRED — t CW t s t a t i s t i c -4.000 4.488 2.118 F s t a t i s t i c - 20.142 4.485 75 - 36.5553 SPRING - 65.19245 F A L L t s t a t i s t i c -1.698 -3.631 F s t a t i s t i c 2.833 13.181 O v e r a l l F s t a t i s t i c = 8.550 S t a n d a r d e r r o r o f t h e e s t i m a t e = 135.969 Time s e q u e n c e p l o t o f r e s i d u a l s : F r e q u e n c y o f r e s i d u a l s : P l o t o f r e s i d u a l s a g a i n s t t h e e s t i m a t e o f t h e d e p e n d e n t v a r i a b l e : A l t h o u g h t h e r e a p p e a r e d t o be some t e n d e n c y f o r v a l u e s o f a s i m i l a r s i g n o r m a g n i t u d e t o f o l l o w s e q u e n t i a l l y , t h e r e was no l o n g - r u n c o n s i s t e n c y (as shown i n F i g u r e 1 0 . a ) . The f r e q u e n c y o f r e s i d u a l v a l u e s p r o v i d e d e v i d e n c e o f a n o r m a l d i s t r i b u t i o n (as shown i n F i g u r e 1 0 . b ) . T h e r e a p p e a r e d t o be no a p p a r e n t t e n d e n c y o f t h e e s t i m a t e o f t h e d e p e n d e n t v a r i a b l e t o r e s p o n d t o c h a n g e s i n t h e r e s i d u a l (as shown i n F i g u r e 1 0 . c ) . D u r b i n - W a t s o n s t a t i s t i c = 1.85872 C o r r e l a t i o n c o e f f i c i e n t i n c o n s e c u t i v e r e s i d u a l s s q u a r e d = .00275 C o m p a r i s o n o f a c t u a l and p r e d i c t e d t i m e s e r i e s o f VC (1968-1977) P l o t o f t h e a c t u a l and p r e d i c t e d t i m e s e r i e s : P r o p o r t i o n o f t u r n s i n t h e d e p e n d e n t v a r i a b l e e s t i m a t e d c o r r e c t l y The p r e d i c t e d v a l u e s o f t h e d e p e n d e n t v a r i a b l e a p p e a r e d t o t r a c e t h e a c t u a l v a l u e s a d e q u a t e -l y (as shown i n F i g u r e 1 0 . d ) . = 49.6 p e r c e n t C o r r e l a t i o n c o e f f i c i e n t = R o o t - m e a n - s q u a r e d - e r r o r as a p e r c e n t o f t h e = mean v a l u e o f t h e d e p e n d e n t v a r i a b l e Mean a b s o l u t e e r r o r as a p e r c e n t o f t h e mean = v a l u e o f t h e d e p e n d e n t v a r i a b l e . 8 6 1 1 1 4 2 . 6 4 9 1 . 8 1 0 7 . 6 4 9 1 . 8 R s q u a r e d = .7416 2900 = . 2 1 8 8 F i g . 1 0 . a . Time Sequence P l o t of Residuals F i g . 1 0 . c . Residual Against the Estimate P l o t rati -m.i 7001 .JWSE-C !J*/*E-C ANALYSIS OF RESIDUALS INVENTORY OF UNOCCUPIED NEW HOUSES—ESTIMATE 1 (Based on Transformed Variables) F i g . 10.b. Frequency of Residuals -3 2 1 0 1 2 3 + Number of Standard Deviations From the Mean n i l JE.« mi -u.si mi -.iW£-0 ii*1SE-CS .J6HE-C5 77 F i g . 10. d. P l o t o f the A c t u a l and P r e d i c t e d Time S e r i e s (-'inventory of.Unoccupied v c) 1968-1977 New Houses — ' ' PLOT OF ACTUAL!*) AND F I T T E D ! • ) VALUES PLOT OF RESIDUALS!0) I_D_ ACTUAL FITTE0 11*8. 750.1 7711 732.0 74 0.3 7710 783.7 868.9 7709 807.0 • 1006. i 7708 917.7 825.3 P 7 7 0 7 856.0 672.* j 7706 776.3 621.3 I 7705 667.7 716.6 | 7704 679.3 512.9 77 0 3 670.7 551.9 7702 650.7 503.9 | 7701 527.7 336.1 7612 4*8.0 5*7.0 7611 4*2.3 200.6 7610 42*. 7 762.3 7609 566.3 621.0 _ .76.0.8 __57V.O . 410.7 7607 569.0 657.1 7606 522.0 629.1 7605 5*2.0 629.9 7604 679.7 661.1 7603 699.0 5*1.* -7.602. . 67_*.7 724.5 ' 7601 659.3 55*.3 ; 7512 574.0 *33.3 7511 522.C 524.0 1 7510 48*.0 444 .2 7509 5*0.3 604.3 7508 637.3 687.6 7507 680.7 580.1 7506 683.3 69 3.1 7505 711 .0 871.5 750* 798.3 1020. 7503 9*9.3 939.7 7502 1006. 561.* 7501 785.3 731.1 - 7*12 591 .3 662.9 ; 7411 377 .7 265.8 ' 7*10 315.7 526.8 7*09 269.3 370 .1 I 7408 266.7 227.9 ' Tit 0 7 256.0 353.5 . 7*06 222.7 249.7 7405 185 .7 215.8 ' 7*0* 214.0 199.3 7*03 170.3 170.3 7*02 120.0 153.3 7*01 73.33 1*5.5 7312 6 0 . 0 0 11*.0 , 7311 7 * . 0 0 2*.56 7310 85.33 68 .73 7309 89.33 42 .06 7308 94. 33 65.3* 730 7 107.0 43 .76 7306 113.3 6.770 j 7305 112.3 23.68 1 730* 102.0 85 .35 1 7303 103.0 116.* j 730.2_ 9.1.00 231.3 7 30,1 117.0 25 2.3 1 7212 / 1 2 2 . 3 171.0 i 7211/ -y 135.0 122.0 , 7210 114.7 68.61 ,7209 114.7 97 .58 7208 128.0 103.1 720 7 155.0 70.82 7206 161.7 -6.*55 7205 161.7 70.01 720* 159.7 198.3 7203 160.3 268.* 1 720 2 16* .3 315.* 7201 169.7 208.4 t 7112 197.3 504 .9 7111 330 .3 37 3.1 7110 431.7 396.0 7109 *90.3 50 9.* 7108 469.0 613.2 7107 484.7 531.3 ; 7106 535. 3 487.5 7105 560.3 470.1 7104 5*2.7 427.4 7103 *91.7 627.1 7102 . 500.7 531.4 i 7101 519.0 36 3.9 7012 511.0 581.4 ! 7011 53*.C 8*6.2 7010 667.0 656.5 7009 763 .7 524.8 7008 698.7 696.2 7007 591.0 875.7 7006 655.0 813.1 7605 792.0 831.1 700* 661.3 732.7 7003 769. 7 701.8 7002 666.7 679.9 7001 562.3 545.8 6912 528.0 610.3 6911 530 .3 566.9 6910 538.0 586.9 6909 567.3 556.0 6908 568.0 671.4 6907 587 .0 6*9.8 6906 597.7 76*.0 6905 639.3 848 .5 690* 7 80 .3 890.3 6903 985.0 1262. 690 2 1023. 112*. 6901 1079. 80 9.5 6312 1032. 601.9 6811 822.3 517.7 6810 655.3 596.1 6309 591.0 408.4 , 6808 502.3 400.5 6807 4 37 .7 526.8 6806 416.7 296.0 6605 4 33.3 27 7.6 680* 428.0 313.9 6903 377.3 366.6 Inventory of Unoccupied v c New Houses — ^Estimate's Based on the .Asymmetric C r e d i t - V a r i a b l e ' RESIDUAL 398 . -8 .77 -85 .1 -199 . 92 . * 184 . 155. -48 . 9 166. 119. 147 . 192. -99 .0 242 . -337 . -54 .7 163. -89.1 -107 . -87 .9 18.6 158. -49 . 6 105. 141 . -1 .97 39. 8 -64.0 -50 .3 101 . 0.254 -160 . -222 . -40.4 444 . 54. 3 -71 . 6 112. -211 . -101 . 38.7 -97 .5 -27 .0 -30 . 1 14.7 .480E-01 -33 .3 . 2 .0 . 4 . 6 . 3 -72 . -54  49. 16. 47 29.0 63.2 107 . 88.7 16.7 -13.4 -140 . -135 . -48 .7 13.C 45 . 9 17.1 24.9 84.2 166. 91.7 -3e .6 -108 . -151 . -36 .8 -306 . -42 . 8 35. 7 -19 . 1 -144 . -46.6 47.9 9C . 2 115. -135 . -30 . 7 155. -70 . 4 -312. 10.5 23 9 . 2.47 -265 . -158. -99 . 1 129. 67. 5 -13 . 16. -82 . -36 . -48,. 11 . -103. -62 . e -166 . - 1 5 9 . -110 . -377 . . -101 . 269 . 42 0. 30 5. 59. 3 163 . 102. -69 . 1 121 . 156 . 114. 10. 8 78 2. A s y m m e t r i c C r e d i t V a r i a b l e VC - VC - t P O M P - 357.0299 + .477890 + 2.391271 AMCRED t s t a t i s t i c F s t a t i s t i c -4.049 4.501 20.256 2.257 5.095 t s t a t i s t i c F s t a t i s t i c - 36.6619 SPRING - 65.06893 FALL •1.696 2.875 -3.639 13.245 O v e r a l l F s t a t i s t i c = 8.760 S t a n d a r d e r r o r o f t h e e s t i m a t e = 135.644 Time s e q u e n c e p l o t o f r e s i d u a l s : F r e q u e n c y o f r e s i d u a l s : P l o t o f r e s i d u a l s a g a i n s t t h e e s t i m a t e o f t h e d e p e n d e n t v a r i a b l e : A l t h o u g h t h e r e a p p e a r e d t o be some t e n d e n c y f o r v a l u e s o f a s i m i l a r s i g n o r m a g n i t u d e t o f o l l o w s e q u e n t i a l l y , t h e r e was no l o n g - r u n c o n s i s t e n c y (as shown i n F i g u r e 1 1 . a ) . The f r e q u e n c y o f r e s i d u a l v a l u e s p r o v i d e d e v i d e n c e o f a n o r m a l d i s t r i b u t i o n (as shown i n F i g u r e 1 1 . b ) . T h e r e a p p e a r e d t o be no a p p a r e n t t e n d e n c y o f t h e e s t i m a t e o f t h e d e p e n d e n t v a r i a b l e t o r e s p o n d t o c h a n g e s i n t h e r e s i d u a l (as shown i n F i g u r e 1 1 . c ) . D u r b i n - W a t s o n s t a t i s t i c = 1.85514 C o r r e l a t i o n c o e f f i c i e n t i n c o n s e c u t i v e r e s i d u a l s s q u a r e d = .0028 C o m p a r i s o n o f a c t u a l and p r e d i c t e d t i m e s e r i e s o f VC (1968-1977) P l o t s o f t h e a c t u a l and p r e d i c t e d t i m e s e r i e s : P r o p o r t i o n o f t u r n s i n t h e d e p e n d e n t v a r i a b l e e s t i m a t e d c o r r e c t l y The p r e d i c t e d v a l u e s o f t h e d e p e n d e n t v a r i a b l e a p p e a r e d t o t r a c e t h e a c t u a l v a l u e s adequate-l y (as shown i n F i g u r e 1 1 . d ) . = 50.4 p e r c e n t C o r r e l a t i o n c o e f f i c i e n t = .8630 R s q u a r e d .7447 F i g . 11.a. Time Sequence P l o t F i g . 11.c. R e s i d u a l A g a i n s t o f R e s i d u a l s t h e E s t i m a t e P l o t .150JE-C .150JE-0 no* rto* -.1503E-01 • -!l50SE-Cl .^-L50i£z<)l__ -.150!E-«1 150IE-C 1 -.150SE-C --15O3E-0 •7»*.7 -.150JE-01 -.1JO1E-01 -.150SE-01 --HO3E-01 710* 71-37 -.150JE-01 7105 iO.i* -.150JE-01 rio* io*.i -.isoic-ci 7101 -155.1 -.150JE-01 7011 --1501E-C1 70OB -s"*l --150SE-01 IDOJ -zaa.z -.|5nif-oi • 700* 61.10 -15OJE-017005 -H.20 -.1SOJE-01 700* 153.0 -.1505E-01 700! l*-»5 -.150)6-01 7001 77-55 -".IS01E-01 **I7 -01.40 *l50JE01 WVt -»*-&• -.I50JE-01 *90J -1*1.1 --150IE-01 *»0Z 1.755 -.150IE-C1 Mil lit.a -.150JE-QI _ _ . -Kill 1*7.1 -.I 503E-01 kB10 -I5.i!\ -.150JE-C1 M01 171.7 \ --150SE-01 t80S 59.20 -.15031-01 •.DOT -111.* ' -.150JF-«1 -b i l l io'ij --150JE-01 b(US -I4.&S -.150JE-C1 ANALYSIS OF RESIDUALS INVENTORY OF UNOCCUPIED NEW HOUSES—ESTIMATE 2 (Based on Transformed Variables) _7fcu7 | 7605 -103.7 F i g . 11.b. F r e q u e n c y o f R e s i d u a l s >ZU 0.515S .Z8**E-01 • 705lt-ai '00 3 _'00l_ - 3 2 1 0 1 2 3 + Number of Standard Deviations From the Mean 80 F i g . 11.d.. P l o t o f t h e A c t u a l and P r e d i c t e d Time S e r i e s ( ' I n v e n t ° ^ £ o u s e s C C u p i e d v c ) 1968-1977 PLOT OF ACTUAL! * ) ANO F I T T E 0 < » ) VALUES PLOT OF RESIDUALS(O) ACTUAL FITTED RESIDUAL 81 R o o t - m e a n - s q u a r e d - e r r o r as a p e r c e n t o f t h e mean v a l u e o f t h e d e p e n d e n t v a r i a b l e . Mean a b s o l u t e e r r o r as a p e r c e n t o f t h e mean = ^91* 8 = '2176 v a l u e o f t h e d e p e n d e n t v a r i a b l e The C o c h r a n e - O r c u t t t e c h n i q u e was u s e d t o e l i m i n a t e a u t o -c o r r e l a t i o n i n t h e r e s i d u a l s w h i c h was e v i d e n t when o r d i n a r y l e a s t s q u a r e s was u s e d . S i n c e t h e use o f s i x month a v e r a g e s o f t h e s y m m e t r i c and a s y m m e t r i c c r e d i t v a r i a b l e s a p p e a r e d t o p r o v i d e t h e b e s t r e s u l t s i n t h e h o u s i n g s t a r t s m o d e l , o n l y t h e s e r e s u l t s have been r e p o r t e d . F u r t h e r m o r e , t h e a v a i l a b i l i t y o f f a v o u r a b l e Q government m o r t g a g e s and s u b s i d i e s v a r i a b l e (^) was d e l e t e d i n t h e i n v e n t o r y o f u n o c c u p i e d new h o u s e s (VC) m o d e l , s i n c e i t d i d n o t p r o v e s i g n i f i c a n t l y d i f f e r e n t t h a n z e r o a t t h e .05 l e v e l o f c o n f i d e n c e . S i m i l a r l y , t h e b e s t r e s u l t s o c c u r r e d when (SPRING) and (FALL) were t h e o n l y s e a s o n v a r i a b l e s u s e d and, f o r t h i s r e a s o n , o n l y t h e s e e s t i m a t e s have been p r o v i d e d . I n g e n e r a l , e s t i m a t e s o f t h e i n v e n t o r y o f u n o c c u p i e d new h o u s e s (VC) m o d e l , u s i n g t h e s y m m e t r i c and a s y m m e t r i c c r e d i t Q v a r i a b l e s ( w i t h o u t t h e — v a r i a b l e ) , p r o v i d e d c o e f f i c i e n t s t h a t had t h e c o r r e c t s i g n , were s i g n i f i c a n t l y d i f f e r e n t t h a n z e r o a t t h e .05 l e v e l o f c o n f i d e n c e , and i n d i c a t e d t h e s e l e c t e d d e t e r m i n -i n g v a r i a b l e s c o n t r i b u t e d t o t h e e x p l a i n e d sum o f s q u a r e s (as i n -d i c a t e d by t h e " t " and "F" s t a t i s t i c s ) . The e s t i m a t e s a p p e a r e d t o a d e q u a t e l y t r a c e t h e d e p e n d e n t v a r i a b l e and t h e R s q u a r e d v a l -u e s w o u l d a p p e a r t o be l a r g e and c o n f i r m t h e a d e q u a t e n e s s o f t h e model u s i n g e i t h e r t h e s y m m e t r i c o r a s y m m e t r i c c r e d i t v a r i a b l e . However, t h e p r o p o r t i o n o f t u r n s i n t h e d e p e n d e n t v a r i a b l e e s t i -141. 7 491.8 = .2882 82 mated c o r r e c t l y was somewhat p o o r . The r e v i e w o f t h e r e s i d u a l s i n d i c a t e d t h a t t h e p r e c o n d i -t i o n s f o r r e g r e s s i o n a n a l y s i s had n o t been v i o l a t e d . F u r t h e r -more, t h e D u r b i n - W a t s o n s t a t i s t i c was l a r g e and t h e c o r r e l a t i o n c o e f f i c i e n t i n c o n s e c u t i v e r e s i d u a l s s q u a r e d was n o t s i g n i f i c a n t -l y d i f f e r e n t t h a n z e r o a t t h e .05 l e v e l o f c o n f i d e n c e , i n d i c a t i n g t h a t t h e h y p o t h e s i s o f a u t o c o r r e l a t i o n i n t h e r e s i d u a l s may be r e j e c t e d . A c o m p a r i s o n o f t h e p e r f o r m a n c e o f t h e i n v e n t o r y o f un-o c c u p i e d new h o u s e s model u s i n g t h e s y m m e t r i c and a s y m m e t r i c c r e d i t c o n d i t i o n s v a r i a b l e s p r o v i d e d l i t t l e e v i d e n c e t o s u p p o r t t h e h y p o t h e s i s o f t h e s y m m e t r i c e f f e c t o f c r e d i t a v a i l a b i l i t y i n f a v o u r o f s u p p o r t o f t h e h y p o t h e s i s o f t h e a s y m m e t r i c e f f e c t . However, t h e u s e o f t h e a s y m m e t r i c c r e d i t v a r i a b l e p r o v i d e d e s t i m a t e s o f t h e d e p e n d e n t v a r i a b l e t h a t p r e d i c t e d a h i g h e r p r o -p o r t i o n o f t u r n s ( i n t h e d e p e n d e n t v a r i a b l e ) c o r r e c t l y , and w i t h a h i g h e r R s q u a r e d as w e l l as a l o w e r r o o t - m e a n - s q u a r e d - e r r o r and mean a b s o l u t e e r r o r . H o u s i n g S t a r t s M o d e l I n t r o d u c t i o n The number o f p r o f i t m o t i v a t e d g r o u n d - o r i e n t e d h o u s i n g s t a r t s (PSTS) has been e s t i m a t e d as a f u n c t i o n o f t h e f o l l o w i n g d e t e r m i n i n g v a r i a b l e s : 1. The p o t e n t i a l r e t u r n s f r o m d e v e l o p i n g l a n d ( P F ) . 2. The r e l a t i v e d e v e l o p m e n t c o s t s p e r u n i t i n d e x ( I U ) . 3. The i n v e n t o r y o f u n s o l d new g r o u n d - o r i e n t e d u n i t s ( V C ) . 4. The number o f g r o u n d o r i e n t e d u n i t s u n d e r c o n s t r u c t i o n a t t h e end o f t h e p r e v i o u s p e r i o d (IUCF_ 1_) . 83 5. The number of ground o r i e n t e d housing completions (COMP). 6. The number of man-days l o s t i n c o n s t r u c t i o n labour s t r i k e s (STRIKE). 7. C r e d i t Conditions Symmetric C r e d i t V a r i a b l e (CRED) Option A . Market C r e d i t Conditons (SMCRED) . A v a i l a b i l i t y of favourable government mortgages and su b s i d i e s to the p r o f i t motivated s e c t o r (G/M) Option B . P r i v a t e i n s t i t u t i o n a l lenders c r e d i t c o n d i t i o n s (SPCRED) . Government d i r e c t lending c r e d i t c o n d i t i o n s (SGCRED) Asymmetric C r e d i t V a r i a b l e (NCRED) . Market C r e d i t Conditions (AMCRED) . A v a i l a b i l i t y of favourable government mortgages and su b s i d i e s to the p r o f i t motivated s e c t o r (G/M) 8. Season v a r i a b l e s (SPRING, SUMMER, FALL, WINTER) The model has been s p e c i f i e d as shown i n expression 6.4: PSTS = *>0 + b i ( f i r + b 2 ( v c ) + b.. (IUCF . - COMP) + b. (STRIKE) + B5 <N5iD> + B6 ( C M H C ) ( + b_ Q (SPRING, SUMMER, FALL) using the sum of monthly values over three months f o r the depend-end v a r i a b l e , the number of completions and season v a r i a b l e s , the value of the number of u n i t s under c o n s t r u c t i o n (IUCF) immediately preceding the three month p e r i o d , a s i x month average f o r the market c r e d i t v a r i a b l e and three month averages f o r the remaining determining v a r i a b l e s . Using the Cochrane-Orcutt technique f o r 84 l e a s t s q u a r e s and two s t a g e l e a s t s q u a r e s and m o n t h l y d a t a f r o m 1968 t o 1977, t h e c o e f f i c i e n t o f t h e most s u c c e s s f u l s p e c i f i c a -4 t i o n s o f t h e model were e s t i m a t e d as f o l l o w s : C o c h r a n e - O r c u t t L e a s t S q u a r e s 1. Symmetric C r e d i t V a r i a b l e : O p t i o n A PSTS = - 1750.032222 + 3222.926 (|^) - .4043182 VC t s t a t i s t i c -3.030 6.999\ -2.053 F s t a t i s t i c - 48.982 4.214 - .4606215 ( I U C F _ t - COMP) - .00924752 STRIKE t s t a t i s t i c -6.908 -3.222 F s t a t i s t i c 47.725 10.388 - 11.26664 SMCRED + 1557.619 (§) M t s t a t i s t i c -4.325 4.498 F s t a t i s t i c 18.705 20.232 + 111.5276 SPRING + 196.9673 SUMMER + 130.2386 FALL t s t a t i s t i c 3.516 6.977 4.652 F s t a t i s t i c 12.361 48.680 21.644 O v e r a l l F s t a t i s t i c = 28.086 S t a n d a r d e r r o r o f t h e e s t i m a t e = Time s e q u e n c e p l o t o f r e s i d u a l s : F r e q u e n c y o f r e s i d u a l s : 151.778 A l t h o u g h t h e r e a p p e a r e d t o be some t e n d e n c y f o r v a l u e s o f a s i m i l a r s i g n o r m a g n i t u d e t o f o l l o w s e q u e n t i a l l y , t h e r e was no l o n g - r u n c o n s i s t e n c y (as shown i n F i g u r e 1 2 . a ) . The f r e q u e n c y o f r e s i d u a l v a l u e s p r o v i d e d e v i d e n c e o f a n o r m a l d i s t r i b u t i o n (as shown i n F i g u r e 1 2 . b ) . 85 P l o t o f r e s i d u a l s a g a i n s t t h e e s t i m a t e o f t h e d e p e n d e n t v a r i a b l e : T h e r e a p p e a r e d t o be no a p p a r e n t t e n d e n c y o f t h e e s t i m a t e o f t h e d e p e n d e n t v a r i a b l e t o r e s p o n d t o c h a n g e s i n t h e r e s i d u a l (as shown i n F i g u r e 1 2 . c ) . D u r b i n - W a t s o n s t a t i s t i c = 1.94468 C o r r e l a t i o n c o e f f i c i e n t i n c o n s e c u t i v e r e s i d u a l s s q u a r e d = .0004 C o m p a r i s o n o f a c t u a l and p r e d i c t e d t i m e s e r i e s o f PSTS (1968-1977) P l o t s o f t h e a c t u a l and p r e d i c t e d t i m e s e r i e s : P r o p o r t i o n o f t u r n s i n t h e d e p e n d e n t v a r i a b l e e s t i m a t e d c o r r e c t l y The p r e d i c t e d v a l u e s o f t h e de-p e n d e n t v a r i a b l e a p p e a r e d t o t r a c e t h e a c t u a l v a i u e s a d e q u a t e -l y (as shown i n F i g u r e 1 2 . d ) . 85.5 p e r c e n t C o r r e l a t i o n c o e f f i c i e n t = .8115 244.0 R o o t - m e a n - s q u a r e d - e r r o r as a p e r c e n t o f t h e mean v a l u e o f t h e d e p e n d e n t v a r i a b l e Mean a b s o l u t e e r r o r a s a p e r c e n t o f t h e mean v a l u e o f t h e d e p e n d e n t v a r i a b l e 1177.8 194.1 1177.8 R s q u a r e d = .6585 . 2072 = .1648 C o m p a r i s o n o f a c t u a l and p r e d i c t e d t i m e s e r i e s o f PSTS (1978-1979) P l o t s o f t h e a c t u a l and p r e d i c t e d t i m e s e r i e s : P r o p o r t i o n o f t u r n s i n t h e d e p e n d e n t v a r i a b l e e s t i m a t e d c o r r e c t l y The p r e d i c t e d v a l u e s o f t h e de-p e n d e n t v a r i a b l e a p p e a r e d t o t r a c e t h e a c t u a l v a l u e s adequate-l y (as shown i n F i g u r e 1 2 . e ) . = 81.0 p e r c e n t C o r r e l a t i o n c o e f f i c i e n t = .8441 R o o t - m e a n - s q u a r e d - e r r o r as a p e r c e n t o f t h e mean v a l u e o f t h e d e p e n d e n t v a r i a b l e Mean a b s o l u t e e r r o r as a p e r c e n t o f t h e mean v a l u e o f t h e d e p e n d e n t v a r i a b l e = 3 7 0 . 2 1 0 7 3 293.0 1073 R s q u a r e d = .7125 3 4 5 0 = .2731 F i g . 12.a. o f Time Sequence P l o t R e s i d u a l s F i g . 12.c. R e s i d u a l A g a i n s t t h e E s t i m a t e P l o t ANALYSTS OF RESIDUALS PROFIT"MOTIVATED HOUSING STARTS—ESTIMATE 1 (Based on Transformed Variables) F i g . 12.b. F r e q u e n c y o f R e s i d u a l s _/»ci mi Mil 7210 mc rct/i 7OOJ r-Si -T1S«.I_ iTHf.-.-&/»*-( .5725t-< .S72JE-1 -S720E-C -5J20E-C - 3 2 1 0 1 2 ,3 + Number of Standard Deviations From the Mean Mil Hl-l —lit J. if.ft tint ii«.E rut 121. i 720* nr. 7i0§ 89.0 7202 _7107_ _70o*_ 70S* 7001 7002 -.S!20E-( .2742E-I 87 F i g . 12.d. P l o t . o f t h e A c t u a l and P r e d i c t e d Time S e r i e s ( .< ^ I N F L ^ • " a >•' 1968-1977 PLOT OF ACTUAL! * ) AND FITTED! • ) VALUES PLOT OF RESIOUALS(O) ACTUAL FITTED 88 F i g . 12.e. P l o t _ o f _ t h e A c t u a l and P r e d i c t e d Time S e r i e s ( P r o f i t Motivated \ 1978-1979 v . Housing Starts & i a ' J-- ,'-° J-z> i y PLOT OF A C T U A L ! * ) A KD F ITTEOCO VALUES PLOT OF RESIOUALS(O) 89 2. Symmetric C r e d i t V a r i a b l e : Option B PSTS t s t a t i s t i c F s t a t i s t i c P F - 1846.948 + 3204.943 (|^ ) -3.304 7.132 50.864 - .386508 VC -2.006 4.025 t s t a t i s t i c F s t a t i s t i c - .430940 (IUCF_ t - COMP) -6.562 43.064 - .009263 STRIKE -3.250 10.584 t s t a t i s t i c F s t a t i s t i c - 7.926464 SPCRED -3.760 14.138 62352.5 SGCRED 5.098 25.985 t s t a t i s t i c F s t a t i s t i c + 90.58587 SPRING + 195.8652 SUMMER + 120.6602 FALL 2.964 8.786 7.036 49.502 4.289 18.397 O v e r a l l F s t a t i s t i c = 28.789 Standard e r r o r of the estimate 150.315 Time sequence p l o t of r e s i d u a l s : Although there appeared to be some tendency f o r values of a s i m i l a r s i g n or magnitude to f o l l o w s e q u e n t i a l l y , there was no long-run consistency (as shown i n Figure 13.a). Frequency of r e s i d u a l s P l o t of r e s i d u a l against the estimate of the dependent v a r i a b l e : The frequency of r e s i d u a l values provided evidence of a normal d i s t r i b u t i o n (as shown i n Figure 13.b). There appeared to be no apparent tendency of the estimate of the dependent v a r i a b l e to respond to changes i n the r e s i d u a l (as shown i n Figure 13.c). Durbin-Watson s t a t i s t i c = 1.93301 C o r r e l a t i o n c o e f f i c i e n t i n consecutive r e s i d u a l s squared = .0006 F i g . 13.a. Time Sequence P l o t of Residuals F i g . 13.c. Residual Against the Estimate P l o t .2520E-.2S20E-.2S23E-.2S23L-.2520E-.25m ANALYSTS OF RESIDUALS PROFIT MOTIVATED HOUSING STARTS—ESTIMATE 2 (Based on Transformed Variables) rsof as-' F i g . 13,b. Frequency o f R e s i d u a l s -3 2 1 0 1 2 3 + Number of Standard Deviations From the Mean -.l**7E-0 -.892'E-O .1SME-S ll2Ut-C -.JSS9E-.' •1428E-! O 91 F i g . 13. d. P l o t of the A c t u a l and P r e d i c t e d Time Ser i e s ( j ^ L ^ t s * ESS . >" 1968-1977 PLOT OF ACTUAL! * ) A NO F I T T E D ! * ) VALUES PLOT OF RESIDUALSIO) 10 ACTUAL FITTED 7712 1 5 1 6 . 1 1 5 9 . 7711 1 3 6 1 . 9 6 8 . 3 7710 1 * 9 1 . 1 1 7 9 . 7709 1 3 5 0 . 1 1 0 5 . 7708 1 7 6 1 . 1 3 6 2 . 770 7 1691 . 1 1 8 3 . 7706 169 3 . 1 3 8 0 . 7705 82d .« 91 1.8 7704 7 2 6 . 0 644 .0 7703 440 .C 27 4 .7 77 02 1 350 . e o i .4 7701 1 5 6 1 . 1 1 6 3 . 7612 1 8 1 1 . 1 3 8 5 . 7611 11-8 2 . 8 6 2 . 5 7610 1 * 4 7 . 1 1 5 9 . 7609 1652 . 1 3 2 0 . 7606 1 9 0 1 . 1 6 9 4 . 7607 1 1 9 * . 1 3 4 8 . 7606 1 2 0 0 . 1 1 * 0 . 7b05 1 0 7 6 . 1113 . 760* 1 3 0 * . 1 4 1 2 . 7603 9 5 * . 0 1 1 5 7 . 7602 7 7 0 . 0 1 0 2 8 . 7601 7 1 * . 0 9 9 2 . 9 7512 902 . 0 1 1 4 5 . 7511 1 2 2 9 . 1 5 4 0 . 7510 1 5 9 0 . 1 6 8 7 . 7509 1 74 9 . 1 9 6 5 . 7508 1 7 3 2 . 2 0 6 9 . 75 0 7 1 6 4 9 . 20 3 5 . 7506 1293 . 1 3 2 0 . 7505 858 . 0 1 1 5 7 . 7 5 0 * 388 .0 8 5 5 . 1 7503 3 8 0 . 0 5 4 0 . 4 7502 340 .0 4 7 4 .1 7501 308 . 0 4 9 9 . 5 7*12 4 0 3 . 0 6 9 0 . 1 7411 6 1 0 . 0 10 7 6 . 7410 1 3 0 0 . 1 3 2 8 . 7409 1*90 . 1 1 2 1 . 7 *08 1 505 . 1 1 7 7 . 7407 1 * 3 3 . 1 3 1 5 . 7406 1*61 . 1 * 4 4 . 7405 1 1 6 1 . 1 1 6 7 . 7404 7 6 6 . 0 9 9 3 . 5 7*03 5 6 9 . 0 6 b 4 . 2 7402 979 . 0 9 3 1 . 8 7 * 0 1 1 * 2 * . 1 0 8 * . 7312 2 C 8 1 . 1 4 0 0 . 7311 1 9 7 6 . 14 8 5 . 7310 1 8 * 7 . 1 5 7 7 . 7309 1 8 5 8 . 1 8 1 7 . 7308 1735 . 17 2 * . 7307 1511 . 1 4 1 3 . 7306 867 . 0 1 1 4 2 . 7305 9 4 1 . 0 1 0 2 4 . 7 3 0 * 8 1 2 . 0 9 0 6 . 5 7 303 1 0 4 0 . 8 6 1 . 3 7302 9 0 3 . 0 83 8 .1 7 3 0 1 1 1 7 9 . 9 9 7 . 3 7212 1 0 5 9 . 11 5 0 . 7 2 1 1 1 1 8 3 . 1 3 * 2 . 7210 1 3 7 3 . 1 4 7 6 . 7209 1*11 . 1 5 2 3 . 7208 1 3 * 5 . 14 1 3 . 7207 1 3 1 3 . 14 7 3 . 7206 1 30 3 . 1 3 1 8 . 7205 1 1 3 9 . 1 1 2 4 . 7 2 0 * 6 * 9 . 0 7 5 1 . 9 7203 6 7 5 . 0 8 4 7 . 6 72C2 1035 . 1 1 8 3 . 720 1 160 8 . 1 * 3 2 . 7112 1 7 1 1 . 1 4 * 5 . 7 1 1 1 1 7 5 7 . 1 * 8 0 . 7110 1 * 3 * . 1 3 9 7 . 7109 1 4 0 2 . 1 * 6 4 . 7108 1 365 . 1 * 9 7 . 7107 127 4 . 12 7 1 . 7106 1 2 6 8 . 1 0 6 7 . 7105 9 8 2 . 0 8 0 6 . 9 710"* 8 0 3 . 0 5 8 * . 9 7103 5 5 2 . 0 436.4 7102 474 . 0 40 2 .9 7101 7 3 1 . 0 6 0 2 . * 7012 1057 . 1 0 * 2 . 7 0 1 1 1573 . 1 6 2 1 . 7C1C 1 8 0 5 . 1 8 0 9 . 7009 1756 . 1 6 6 9 . 70C8 1 4 5 9 . 1 3 7 9 . 7007 1 2 2 8 . 1 0 9 3 . 7006 959 . 0 7 * 2 . 2 7005 7 32.C 4 2 7 . 4 7 0 0 * 5 2 5 . 0 3 1 1 . 3 7003 5 1 4 . 0 2 5 8 . 3 7002 6 3 9 . 0 4C4.7 7001 8 2 1 . 0 5 8 9 . 3 6912 905 . 0 3 5 4 . 0 6911 1 0 6 5 . 1 0 4 1 . b910 1 1 9 2 . 1 2 7 1 . 6909 1 5 9 6 . 1 4 0 2 . 690 8 157 7 . 1 6 2 0 . 690 7 1*71 . 1 4 2 5 . 6906 1 2 0 * . 1 1 9 9 . 6905 1 0 * 1 . 984 .9 6 9 0 * 9 3 2 . 0 7 9 8 . 5 6903 676 . 0 695 .6 6902 385 .0 993 .7 6901 1 1 4 1 . 1 1 9 3 . 6812 1 2 6 1 . 1 3 6 0 . 6811 1392 . 1 5 1 3 . 6? 10 1 3 2 9 . 15 34 . bJ09 1267 . 14 2 5 . 6908 1 0 0 0 . 1 3 5 7 . 6907 1 1 9 * . 1 3 7 8 . 68 06 1 1 6 9 . 1 3 1 0 . 6305 1 1 7 3 . 1 2 8 2 . 6 8 0 * 787 . 0 11 3 4 . 6903 5 7 7 . C 989.4 92 o F i g . 13.e. P l o t o f t h e A c t u a l S e r i e s ( ' P r o f i t Motivated Housing Starts PSTS and P r e d i c t e d ) 1978-1979 PLOT OF ACTUAL!*) AND FITTE0(») VALUES Time PLOT OF RESIDUALSCC) 10 ACTUAL FITTED 7912 1 2 8 5 . 964 .7 7911 946.0 994.4 7910 834 .0 90 9.5 7909 823.0 90 7.1 7908 349 .0 997.6 790 7 995.0 822.5 7906 979.0 745.2 79C5 868. C 556 .9 7904 567.0 504.7 790 3 305.0 374 .2 7902 615.0 649.1 790 1 1015. 948.0 7812 1706. 1212. 7611 1875. 1322. 7810 2072. 1400. 7609 1704. 1247. 7808 1572. 1336. 7807 m i . 1229. 7H06 941 .0 976.6 7805 696.0 612.2 7804 973.0 625.8 7803 823.0 237.6 Estimate Based on the Symmetric C r e d i t Variable: B» 93 C o m p a r i s o n o f a c t u a l and p r e d i c t e d t i m e s e r i e s o f PSTS (1968-1977) P l o t s o f t h e a c t u a l and p r e d i c t e d t i m e s e r i e s : P r o p o r t i o n o f t u r n s i n t h e d e p e n d e n t v a r i a b l e e s t i m a t e d c o r r e c t l y The p r e d i c t e d v a l u e s o f t h e d e -p e n d e n t v a r i a b l e a p p e a r e d t o t r a c e t h e a c t u a l v a l u e s a d e q u a t e -l y (as shown i n F i g u r e 13.d) . 8 6.3 p e r c e n t C o r r e l a t i o n c o e f f i c i e n t = .8352 229.7 1177.8 R o o t - m e a n - s q u a r e d - e r r o r as a p e r c e n t o f t h e mean v a l u e o f t h e d e p e n d e n t v a r i a b l e R s q u a r e d = .6976 = .1950 Mean a b s o l u t e e r r o r as a p e r c e n t o f t h e mean v a l u e o f t h e d e p e n d e n t v a r i a b l e 184.1 1177.8 = .1563 C o m p a r i s o n o f a c t u a l and p r e d i c t e d t i m e s e r i e s o f PSTS (1978-1979) P l o t s o f t h e a c t u a l and p r e d i c t e d t i m e s e r i e s : P r o p o r t i o n o f t u r n s i n t h e d e p e n d e n t v a r i a b l e e s t i m a t e d c o r r e c t l y The p r e d i c t e d v a l u e s o f t h e de-p e n d e n t v a r i a b l e a p p e a r e d t o t r a c e t h e a c t u a l v a l u e s a d e q u a t e -l y (as shown i n F i g u r e 1 3 . e ) . = 85.7 p e r c e n t C o r r e l a t i o n c o e f f i c i e n t = .8345 307.3 R o o t - m e a n - s q u a r e d - e r r o r as a p e r c e n t o f t h e mean v a l u e o f t h e d e p e n d e n t v a r i a b l e Mean a b s o l u t e e r r o r as a p e r c e n t o f t h e mean v a l u e o f t h e d e p e n d e n t v a r i a b l e 1073 234.7 1073 R s q u a r e d = .6963 = .2864 = .2187 3. A s y m m e t r i c C r e d i t V a r i a b l e PSTS = - 1636.8358 + 3267.298 (|^) - .391589 VC t s t a t i s t i c -2.799 7.075 -1.971 F s t a t i s t i c - 50.050 3.884 - .443850 ( I U C F _ t - COMP) - .009569 STRIKE 94 t s t a t i s t i c F s t a t i s t i c •6.663 44.403 -3.334 11.110 t s t a t i s t i c F s t a t i s t i c - 13.32315 AMCRED -4.279 18.311 + 1544.876 (g) 4.455 19.851 t s t a t i s t i c F s t a t i s t i c + 112.7474 SPRING + 197.716 SUMMER + 129.4303 FALL 3.554 12.633 6 . 999 48 .987 4.620 21.342 O v e r a l l F s t a t i s t i c = 28.061 S t a n d a r d e r r o r o f t h e e s t i m a t e = 151.859 Time s e q u e n c e p l o t o f r e s i d u a l s : A l t h o u g h t h e r e a p p e a r e d t o be some t e n d e n c y f o r v a l u e s o f a s i m i l a r s i g n o r m a g n i t u d e t o f o l l o w s e q u e n t i a l l y , t h e r e was no l o n g - r u n c o n s i s t e n c y (as shown i n F i g u r e 1 4 . a ) . The f r e q u e n c y o f r e s i d u a l v a l u e s p r o v i d e d e v i d e n c e o f a n o r m a l d i s t r i b u t i o n (as shown i n F i g u r e 1 4 . b ) . T h e r e a p p e a r e d t o be no a p p a r e n t t e n d e n c y o f t h e e s t i m a t e o f t h e d e p e n d e n t v a r i a b l e t o r e s p o n d t o c h a n g e s i n t h e r e s i d u a l (as shown i n F i g u r e 1 4 . c ) . F r e q u e n c y o f r e s i d u a l s P l o t o f r e s i d u a l a g a i n s t t h e e s t i m a t e o f t h e d e p e n d e n t v a r i a b l e : D u r b i n - W a t s o n s t a t i s t i c = 1.96802 C o r r e l a t i o n c o e f f i c i e n t i n c o n s e c u t i v e r e s i d u a l s s q u a r e d = .0001 C o m p a r i s o n o f a c t u a l and p r e d i c t e d t i m e s e r i e s o f PSTS (1968-1977) P l o t s o f t h e a c t u a l and p r e d i c t e d t i m e s e r i e s : P r o p o r t i o n o f t u r n s i n t h e d e p e n d e n t v a r i a b l e e s t i m a t e d c o r r e c t l y The p r e d i c t e d v a l u e s o f t h e de-p e n d e n t v a r i a b l e a p p e a r e d t o t r a c e t h e a c t u a l v a l u e s a d e q u a t e -l y (as shown i n F i g u r e 1 4 . d ) . = 84.6 p e r c e n t C o r r e l a t i o n c o e f f i c i e n t = .8021 R s q u a r e d = .6434 F i g . 14.a. Time Sequence P l o t o f R e s i d u a l s F i g . 14.c. R e s i d u a l A g a i n s t t h e E s t i m a t e P l o t ANALYSIS OF RESIDUALS I22B9E-0 PROFIT MOTIVATED HOUSING TTDl STARTS—ESTIMATE 3 .22S9E-D1 .2249E-01 (Based on Transformed Variables) tali r*.« 7MS 171.S .J!«9E-0 .Z289E-0 .2JS9E-0 -2289E-0 .22S9E-0 .ZJ89E-0 .22a»E-C .i?89E-0 .2JS9E-01 -22m-0 ,226'E-O .22B9E-0 -i!a*E-o F i g . 14 F r e q u e n c y o f R e s i d u a l s -3 2 1 0 1 2 3 + Number of Standard Deviations From the Mean U i 96 F i g . 14.d. P l o t o f t h e A c t u a l S e r i e s ( P r o f i t M o t i v a t e d H o u s i n g S t a r t s PSTS and P r e d i c t e d ) 1968-1977 Time P L O T C F A C T U A L ! * ) A N D F I T T E D ! * ) V A L U E S P L O T C F R E S I O U A L S ( O ) F I T T E D 97 F i g . 14.e. P l o t o f t h e A c t u a l and P r e d i c t e d Time S e r i e s ( P r o f i t M o t i v a t e d ) 1978-1979 H o u s i n g S t a r t s .10 ACTUAL FITTED * RESIOUAL 791? 1285. 657.4 • " 628 . . '. C 791 1 946 .0 436. 1 " » f— 110. . . 0 7910 8 84 .0 798. 0 * J, 86.0 . . 0 7909 823.0 e01.9 f 21.1 . .0 7908 849.0 915.5 -66.5 . 0. _7907 9 95.0 75 8T7 • 2"J"6~ 0 t 7905 979 .0 692.9 • jf , cfii. . . 0. 7905 868.0 488.0 • P r o f r t M o t i v a t e d p s T £ . 3 8 ( )_ _ _ _ 0 7904 567.0 41 1 .6 H o u s i n g S t a r t s lt;5_ _ . 0 . 7903 305.0 272. 8 * 12.Z . .0 7902 615.0 554. 5 ^ 60.5 . .0 -7-901 rtrrT: 86Tm • n g ~ ; ; <j : 7812 1 708. 1 1 28. • ~ 560 . . . . 0 ,781 1 1 875. 1273 . . ^>>^^ 602. . . . 0 I 781 0 2072. 1361 . E s t i m a t e s Based on t h e • 711. o 7809 1704. 1208. Asymmetric C r e d i t V a r i a b l e • " 496. . . . 0 7803 1572. 1304. 268. . . 0 . -78tT7 1111. TZV5-. * : C i • 7e06 941 .0 1023. ^^^i -82.3 . 0 . 7e05 696.0 6 13. 2 • <i^^" 82.8 . . 0 7804 973.0 576 .9 f ^ ^ ^ » 396. .0 7803 323.0 13 7. 7 « < ^ 685. . . . 0 98 R o o t - m e a n - s q u a r e d - e r r o r 0 as a p e r c e n t o f t h e = Yl77~8 = '2123 mean v a l u e o f t h e d e p e n d e n t v a r i a b l e Mean a b s o l u t e e r r o r as. ^ a p e r c e n t o f t h e mean = ^ l y y - 3 = «1670 v a l u e o f t h e d e p e n d e n t v a r i a b l e C o m p a r i s o n o f a c t u a l and p r e d i c t e d t i m e s e r i e s o f PSTS (1978-1979) P l o t s o f t h e a c t u a l and The p r e d i c t e d v a l u e s o f t h e de-p r e d i c t e d t i m e s e r i e s : p e n d e n t v a r i a b l e a p p e a r e d t o t r a c e t h e a c t u a l v a l u e s a d e q u a t e -l y (as shown i n F i g u r e 1 4 . e ) . P r o p o r t i o n o f t u r n s i n = 7 6 . 2 p e r c e n t t h e d e p e n d e n t v a r i a b l e e s t i m a t e d c o r r e c t l y C o r r e l a t i o n c o e f f i c i e n t = .8127 R s q u a r e d = .6605 Ro o t - m e a n - s q u a r e d e r r o r as a p e r c e n t o f t h e = 364.9 = .3401 mean v a l u e o f t h e 107 3 d e p e n d e n t v a r i a b l e Mean a b s o l u t e e r r o r as 233 8 a p e r c e n t o f t h e mean = -^Q^^ = .26 45 v a l u e o f t h e d e p e n d e n t v a r i a b l e 4. Summary The C o c h r a n e - O r c u t t t e c h n i q u e was u s e d t o e l i m i n a t e a u t o -c o r r e l a t i o n i n t h e r e s i d u a l s w h i c h was e v i d e n t when o r d i n a r y l e a s t s q u a r e s was u s e d . When t h e s y m m e t r i c ( O p t i o n A and B) and a s y m m e t r i c c r e d i t v a r i a b l e s were u s e d t h e b e s t r e s u l t s were p r o v i d e d u s i n g s i x month a v e r a g e s o f t h e c r e d i t v a r i a b l e t h a t p r i m a r i l y i n d i c a t e d t h e mortgage l e n d i n g o f p r i v a t e i n s t i t u t i o n s (SMCRED, SPCRED, AMCRED), and u s i n g t h r e e month a v e r a g e s o f t h e c r e d i t c o n d i t i o n s a v a i l a b l e t h a t i n d i c a t e d t h e m o r t g a g e l e n d i n g G o f government (^, SGCRED). I n g e n e r a l , e s t i m a t e s o f t h e number o f p r o f i t m o t i v a t e d 99 g r o u n d o r i e n t e d h o u s i n g s t a r t s (PSTS) m o d e l , u s i n g t h e s y m m e t r i c o r a s y m m e t r i c c r e d i t v a r i a b l e s , p r o v i d e d c o e f f i c i e n t s t h a t had t h e c o r r e c t s i g n , were s i g n i f i c a n t l y d i f f e r e n t t h a n z e r o a t t h e .05 l e v e l o f c o n f i d e n c e , and i n d i c a t e d t h a t t h e s e l e c t e d d e t e r m i n i n g v a r i a b l e s c o n t r i b u t e d t o t h e e x p l a i n e d sum o f s q u a r e s . F u r t h e r -more, t h e e s t i m a t e s a p p e a r e d t o a d e q u a t e l y t r a c e t h e d e p e n d e n t v a r i a b l e ( a l t h o u g h e s t i m a t e s f o r 1977 and 1978 were c o n s i s t e n t l y p o o r ) and t h e R s q u a r e d v a l u e s w o u l d a p p e a r t o be l a r g e and c o n -f i r m t h e a d e q u a t e n e s s o f t h e model u s i n g e i t h e r t h e s y m m e t r i c o r a s y m m e t r i c c r e d i t v a r i a b l e . The r e v i e w o f t h e r e s i d u a l s i n d i c a t e d t h a t t h e p r e c o n d i t -i o n s f o r r e g r e s s i o n a n a l y s i s had n o t been v i o l a t e d . F u r t h e r m o r e , t h e D u r b i n - W a t s o n s t a t i s t i c was c l o s e t o t h e v a l u e o f 2 and t h e c o r r e l a t i o n c o e f f i c i e n t i n c o n s e c u t i v e r e s i d u a l s s q u a r e d was n o t s i g n i f i c a n t l y d i f f e r e n t z e r o a t t h e .05 l e v e l o f c o n f i d e n c e , i n d i c a t i n g t h a t t h e h y p o t h e s i s o f a u t o c o r r e l a t i o n i n t h e r e s i d u a l s may be r e j e c t e d . A c o m p a r i s o n o f t h e p e r f o r m a n c e o f t h e h o u s i n g s t a r t s model u s i n g t h e s y m m e t r i c and a s y m m e t r i c c r e d i t c o n d i t i o n s v a r i a b l e s , p r o v i d e d some e v i d e n c e t o s u p p o r t t h e h y p o t h e s i s o f t h e s y m m e t r i c e f f e c t o f c r e d i t a v a i l a b i l i t y i n f a v o u r o f s u p p o r t o f t h e hypo-t h e s i s o f t h e a s y m m e t r i c e f f e c t . When e x - p o s t e s t i m a t e s o f t h e d e p e n d e n t v a r i a b l e were c o n s i d e r e d f o r t h e 1968-1977 p e r i o d , t h e use o f t h e s y m m e t r i c c r e d i t v a r i a b l e p r o v i d e d e s t i m a t e s o f t h e de-p e n d e n t v a r i a b l e t h a t p r e d i c t e d a h i g h e r p r o p o r t i o n o f t u r n s ( i n t h e d e p e n d e n t v a r i a b l e ) c o r r e c t l y , and w i t h a h i g h e r R s q u a r e d as w e l l a s a l o w e r r o o t - m e a n - s q u a r e d - e r r o r and mean a b s o l u t e e r r o r as a p e r c e n t o f t h e mean v a l u e o f t h e d e p e n d e n t v a r i a b l e . S i m i l a r l y , when e x - a n t e e s t i m a t e s o f t h e d e p e n d e n t v a r i a b l e were c o n s i d e r e d 100 f o r 1978 and 1979, t h e u s e o f t h e s y m m e t r i c c r e d i t v a r i a b l e p r o -v i d e d e s t i m a t e s o f t h e d e p e n d e n t v a r i a b l e t h a t p r e d i c t e d a h i g h e r p r o p o r t i o n o f t u r n s ( i n t h e d e p e n d e n t v a r i a b l e ) c o r r e c t l y and w i t h a h i g h e r R s q u a r e d . However, o n l y O p t i o n B s y m m e t r i c c r e d i t c o n -d i t i o n s v a r i a b l e (SPCRED, SGCRED) p r o v i d e d p r e d i c t e d v a l u e s o f t h e d e p e n d e n t v a r i a b l e w i t h s m a l l e r e r r o r measurements. A c o m p a r i s o n o f t h e two s p e c i f i c a t i o n s o f t h e s y m m e t r i c c r e d i t c o n d i t i o n s v a r i a b l e i n d i c a t e d t h e s u p e r i o r i t y o f O p t i o n B w h i c h s e p a r a t e d t h e v a r i a b l e t h a t m easured t h e c r e d i t c o n d i t i o n s p r o v i d e d by p r i v a t e i n s t i t u t i o n a l l e n d e r s (SPCRED) and t h e v a r i -a b l e t h a t m e a s u r e d t h e c r e d i t c o n d i t i o n s p r o v i d e d by g o vernment (SGCRED). I n g e n e r a l t h e O p t i o n B s p e c i f i c a t i o n s p r o v i d e d e x - p o s t and e x - a n t e e s t i m a t e s o f t h e d e p e n d e n t v a r i a b l e w i t h h i g h e r R s q u a r e d v a l u e s ( e x c e p t f o r t h e e x - a n t e e s t i m a t e ) , l o w e r e r r o r measurements, and a l a r g e r p r o p o r t i o n o f t h e t u r n s i n t h e d e p e n d -e n t v a r i a b l e p r e d i c t e d c o r r e c t l y . F u r t h e r m o r e , t h e O p t i o n B s p e c i f i c a t i o n s a p p e a r e d t o p r o v i d e a more c o n s i s t e n t p e r f o r m a n c e i n b o t h e s t i m a t i o n p e r i o d s (1968-1977, 1978-1979). C o c h r a n e - O r c u t t Two-Stage L e a s t S q u a r e s The h o u s i n g s t a r t s model has b e e n e s t i m a t e d u s i n g t h e two-s t a g e l e a s t s q u a r e s a p p r o a c h where t h e exogenous and p r e d e t e r m i n e d v a r i a b l e s o f t h e h o u s i n g s t a r t s model and t h e d e t e r m i n i n g v a r i a b l e s o f any i n c l u d e d endogenous v a r i a b l e s have been e n t e r e d as i n s t r u -5 PF ment v a r i a b l e s . The m o d i f i e d p o t e n t i a l p r o f i t v a r i a b l e (J^J) a n d t h e number o f u n o c c u p i e d new h o u s e s (VC) have b e e n c o n s i d e r e d endogenous v a r i a b l e s . F u r t h e r m o r e , t h e v a r i a b l e e x p r e s s i n g t h e d i f f e r e n c e between t h e number o f g r o u n d - o r i e n t e d u n i t s u n d e r c o n -s t r u c t i o n a t t h e end o f t h e p r e v i o u s p e r i o d (IUCF_ 1.) and t h e 101 number o f c o m p l e t i o n s (COMP) was a l s o c o n s i d e r e d endogenous when t h e u n o c c u p i e d new h o u s e s v a r i a b l e (VC) was i n c l u d e d , b e c a u s e o f t h e i m p o r t a n c e o f t h e c o m p l e t i o n s v a r i a b l e . 1. Symmetric C r e d i t V a r i a b l e : O p t i o n A a) Endogenous V a r i a b l e ( M o d i f i e d P o t e n t i a l P r o f i t V a r i a b l e ) PSTS = - 1385.03 + 2450.2 - .184973 (IUCF - COMP) t s t a t i s t i c -2.47065 4.89281 -2.4098 - 12.0616 SMCRED + 1642.46 § M t s t a t i s t i c -5.26176 3.92042 111.128 SPRING + 218.018 SUMMER + 136.358 FALL t s t a t i s t i c 2.7551 7.3756 4.32954 O v e r a l l F s t a t i s t i c = 21.318 S t a n d a r d e r r o r o f t h e e s t i m a t e = 168.668 Time s e q u e n c e p l o t o f r e s i d u a l s : A l t h o u g h t h e r e a p p e a r e d t o be some t e n d e n c y f o r v a l u e s o f a s i m i l a r s i g n o r m a g n i t u d e t o f o l l o w s e q u e n t i a l l y , t h e r e was no l o n g - r u n c o n s i s t e n c y (as shown i n F i g u r e 1 5 . a ) . F r e q u e n c y o f r e s i d u a l s : The f r e q u e n c y o f r e s i d u a l v a l u e s p r o v i d e d e v i d e n c e o f a n o r m a l d i s t r i b u t i o n (as shown i n F i g u r e 1 5 . b ) . P l o t o f r e s i d u a l s a g a i n s t t h e T h e r e a p p e a r e d t o be no a p p a r e n t e s t i m a t e o f t h e d e p e n d e n t t e n d e n c y o f t h e e s t i m a t e o f t h e v a r i a b l e : d e p e n d e n t v a r i a b l e t o r e s p o n d t o c h a n g e s i n t h e r e s i d u a l (as shown i n F i g u r e 1 5 . c ) . D u r b i n - W a t s o n s t a t i s t i c = 1.8751 ( C o r r e l a t i o n c o e f f i c i e n t i n c o n s e c u t i v e r e s i d u a l s s q u a r e d = .0098 F i g . 15.a. Time Sequence P l o t o f R e s i d u a l s F i g . 15.c. R e s i d u a l A g a i n s t t h e E s t i m a t e P l o t ANALYSIS OF RESIDUALS PROFIT MOTIVATED HOUSING STARTS—ESTIMATE 4 (Based on Transformed Variables) F i g . 15.b. F r e q u e n c y o f R e s i d u a l s E • • i • • • . . . . • ! 30 j Number of Standard Deviations From the Mean 103 F i g . 15.d. P l o t o f t h e A c t u a l and P r e d i c t e d Time S e r i e s ( P r o f i t M o t i v a t e d P S T S ) 1968-1977 H o u s i n g S t a r t s PLOT OF ACTUAL!*) AND F IT TE 0< • ) VALUES PLOT OF RESIOUALS(O) ID AT THAI. FITTED R F S T ft IIAI 77 12 7711 7710 7709 7706 1516 1361 1491 1350 1 7b) 1 0 4 F i g . 1 5 . e . Plot of the .Actual and Predicted Time Series ( ' P r o f i t Motivated ) 1 9 7 8 - 1 9 7 9 Housing Starts PLOT OF ACTUAL!*) AND FITTEOf*) VALUES PLOT OF RESIOUALS(O) c 105 C o m p a r i s o n o f a c t u a l and p r e d i c t e d t i m e s e r i e s o f PSTS (1968-1977) P l o t o f t h e a c t u a l and The p r e d i c t e d v a l u e s o f t h e de-p r e d i c t e d t i m e s e r i e s : p e n d e n t v a r i a b l e a p p e a r e d t o t r a c e t h e a c t u a l v a l u e s a d e q u a t e -l y (as shown i n F i g u r e 1 5 . d ) . P r o p o r t i o n o f t u r n s i n = 8 2 . 2 p e r c e n t t h e d e p e n d e n t v a r i a b l e e s t i m a t e d c o r r e c t l y C o r r e l a t i o n c o e f f i c i e n t = .8593 R s q u a r e d = .7385 R o o t - m e a n - s q u a r e d - e r r o r 209 0 as a p e r c e n t o f t h e mean= YTJ1~8 ~ m^^^ v a l u e o f t h e d e p e n d e n t v a r i a b l e Mean a b s o l u t e e r r o r as a 153 4 p e r c e n t o f t h e mean = ^177 g = '1387 v a l u e o f t h e d e p e n d e n t v a r i a b l e C o m p a r i s o n o f a c t u a l and p r e d i c t e d t i m e s e r i e s o f PSTS (1978-1979) P l o t s o f t h e a c t u a l and The p r e d i c t e d v a l u e s o f t h e de-p r e d i c t e d t i m e s e r i e s : p e n d e n t v a r i a b l e a p p e a r e d t o t r a c e t h e a c t u a l v a l u e s a d e q u a t e -l y (as shown i n F i g u r e 1 5 . e ) . P r o p o r t i o n o f t u r n s i n = 6 6 . 7 p e r c e n t t h e d e p e n d e n t v a r i a b l e e s t i m a t e d c o r r e c t l y C o r r e l a t i o n c o e f f i c i e n t = .7833 R s q u a r e d = .6136 R o o t - m e a n - s q u a r e d - e r r o r , 3 ^ 5 as a p e r c e n t o f t h e = -^073 = -3089 mean v a l u e o f t h e d e p e n d e n t v a r i a b l e Mean a b s o l u t e e r r o r as 252 6 a p e r c e n t o f t h e mean = = -2354 v a l u e o f t h e d e p e n d e n t v a r i a b l e b) Endogenous V a r i a b l e s ( M o d i f i e d P o t e n t i a l P r o f i t V a r i a b l e , I n v e n t o r y o f U n o c c u p i e d New Houses) S i n c e t h e i n v e n t o r y o f u n o c c u p i e d new h o u s e s v a r i a b l e (VC) d i d n o t p r o v e s i g n i f i c a n t l y d i f f e r e n t t h a n z e r o , a t t h e .05 l e v e l o f c o n f i d e n c e , t h e d e t a i l e d r e s u l t s have n o t been r e p o r t e d . 106 2. S y m m e t r i c a l C r e d i t V a r i a b l e : O p t i o n B a) Endogenous V a r i a b l e ( M o d i f i e d P o t e n t i a l P r o f i t V a r i a b l e ) PSTS = - 1238.08 + 2158.08 | ^ - .136822 ( I U C F _ t - COMP) t s t a t i s t i c -2.41619 4174623 -1.90578 - 7.634 SPCRED + 67861.6 SGCRED t s t a t i s t i c -4.83966 4.77527 87.9467 SPRING + 219.565 SUMMER + 129.296 FALL t s t a t i s t i c 2.38917 7.78308 4.23412 O v e r a l l F s t a t i s t i c = 21.280 S t a n d a r d e r r o r o f t h e e s t i m a t e = 168.762 Time s e q u e n c e p l o t o f r e s i d u a l s : A l t h o u g h t h e r e a p p e a r e d t o be some t e n d e n c y f o r v a l u e s o f a s i m i l a r s i g n o r m a g n i t u d e t o f o l l o w s e q u e n t i a l l y , t h e r e was no l o n g - r u n c o n s i s t e n c y (as shown i n F i g u r e 1 6 . a ) . F r e q u e n c y o f r e s i d u a l s : The f r e q u e n c y o f r e s i d u a l v a l u e s p r o v i d e d e v i d e n c e o f a n o r m a l d i s t r i b u t i o n (as shown i n F i g u r e 1 6 . b ) . P l o t o f r e s i d u a l s a g a i n s t t h e T h e r e a p p e a r e d t o be no a p p a r e n t e s t i m a t e o f t h e d e p e n d e n t t e n d e n c y o f t h e e s t i m a t e o f t h e v a r i a b l e : d e p e n d e n t v a r i a b l e t o r e s p o n d t o c h a n g e s i n t h e r e s i d u a l (as shown i n F i g u r e 1 6 . c ) . D u r b i n - W a t s o n s t a t i s t i c = 1.8819 C o r r e l a t i o n c o e f f i c i e n t i n c o n s e c u t i v e r e s i d u a l s s q u a r e d = .0030 C o m p a r i s o n o f a c t u a l and p r e d i c t e d t i m e s e r i e s o f PSTS (1968-1977) P l o t s o f t h e a c t u a l and The p r e d i c t e d v a l u e s o f t h e de-p r e d i c t e d t i m e s e r i e s : p e n d e n t v a r i a b l e a p p e a r e d t o t r a c e t h e a c t u a l v a l u e s a d e q u a t e -l y (as shown i n F i g u r e 1 6 . d ) . F i g . 16.a. Time Sequence P l o t o f R e s i d u a l s F i g . 16.c. R e s i d u a l A g a i n s t t h e E s t i m a t e P l o t ANALYSTS OF RESIDUALS PROFIT MOTIVATED HOUSING STARTS—ESTIMATE 5 (Based on Transformed Variables) "10 !DI. ( •70! «*.C nil -tri.'. F i g . 16.b. F r e q u e n c y o f R e s i d u a l s 0 1 2 3 + Number of Standard Deviations From the Mean '109 na7 o -J 108 F i g . 16.d. P l o t o f A c t u a l and P r e d i c t e d "Time S e r i e s (_ P r o f i t Motivated P S T S ) 1 9 6 8 - 1 9 7 7 Housing Starts PLOT OF A C T U A L ! . ) AND F I T T E D ! • ) VALUES PLOT OF RESIOUALS(O) -LD- ACTUAL FIT TEO RESIDUAL 77 12 7 7 1 1 7710 7709 7708 109 F i g . 16.e. P l o t o f t h e A c t u a l and P r e d i c t e d Time ) 1978-1979 S e r i e s ( . P r o f i t Motivated p S T S Housing Starts PLOT Of ACTUAL! * ) AND F I T T E D ! O VALUES PLOT CF ftES [DUALS 10 ) 10 ACTUAL FI ITEO 79 12 1 2 8 5 . 72 5.9 791 1 9 4 6 . 0 87 6.4 79 1 0 884 .0 928 .0 7909 522 . 0 9 6 6 . 3 7908 849.C 1 0 5 3 . 7907 9 9 5 .0 39 6.9 7906 97 9 .0 7 3 9 . 3 7905 368 .0 598 .6 7904 5 6 7 . 0 52 6.4 7903 3 0 5 . C 5 5 6 . 1 7902 6 1 5 . 0 73 4 .0 790 1 1 0 1 5 . 9 6 2 . 9 7312 1703 . 1 1 96 . 7311 137 5 . 1 3 4 0 . 7 a i 0 207 2 . 1 4 5 5 . 7809 1 70 4 . 1 4 82 . 7309 1 5 / 2 . 1 5 4 6 . 7307 1 1 1 1 . 13 8 1 . 7806 9 4 1.0 1 1 35 . 7905 b 9 6 . 0 86 3.6 7»&4 973 . 0 3 5 5 . 3 7803 823 .0 726 .2 Estimate Based on the Symmetric Credit V a r i a b l e : B 110 P r o p o r t i o n o f t u r n s i n = 8 3 . 8 p e r c e n t t h e d e p e n d e n t v a r i a b l e e s t i m a t e d c o r r e c t l y C o r r e l a t i o n c o e f f i c i e n t = .8746 R s q u a r e d = .7649 R o o t - m e a n - s q u a r e d - e r r o r rgs 1 as a p e r c e n t o f t h e = YT7T~8 ~ -1682 mean v a l u e o f t h e d e p e n d e n t v a r i a b l e Mean a b s o l u t e e r r o r as ^ a p e r c e n t o f t h e mean = Y2/Tj~8 = *1353 v a l u e o f t h e d e p e n d e n t v a r i a b l e C o m p a r i s o n o f a c t u a l and p r e d i c t e d t i m e s e r i e s o f PSTS (1978-1977) P l o t s o f t h e a c t u a l and The p r e d i c t e d v a l u e s o f t h e d e -p r e d i c t e d t i m e s e r i e s : p e n d e n t v a r i a b l e a p p e a r e d t o t r a c e t h e a c t u a l v a l u e s a d e q u a t e -l y (as shown i n F i g u r e 1 6 . e ) . P r o p o r t i o n o f t u r n s i n = 6 6 . 7 p e r c e n t t h e d e p e n d e n t v a r i a b l e e s t i m a t e d c o r r e c t l y C o r r e l a t i o n c o e f f i c i e n t = .8086 R s q u a r e d = .6538 R o o t - m e a n - s q u a r e d - e r r o r g as a p e r c e n t o f t h e = 1Q73 ~ -2608 mean v a l u e o f t h e d e p e n d e n t v a r i a b l e Mean a b s o l u t e e r r o r as 2^7 4 a p e r c e n t o f t h e mean = -^ Q-y^  ~ «2026 v a l u e o f t h e d e p e n d e n t v a r i a b l e b) Endogenous V a r i a b l e s ( M o d i f i e d P o t e n t i a l P r o f i t V a r i a b l e , I n v e n t o r y o f U n o c c u p i e d New Houses) PSTS = - 1321.52 + 2626.46 | ^ - .396318 VC t s t a t i s t i c -2.28363 5.12058 -1.69758 - .282427 ( I U C F _ t - COMP) t s t a t i s t i c -3.37041 - 7.24641 SPCRED + 66253.6 SGCRED I l l t s t a t i s t i c -3.65939 4.23095 t s t a t i s t i c 177.085 SUMMER + 80.9242 FALL 6.3916 2.5077 O v e r a l l F s t a t i s t i c = 17.732 S t a n d a r d e r r o r o f t h e e s t i m a t e 167.694 Time s e q u e n c e p l o t o f r e s i d u a l s : A l t h o u g h t h e r e a p p e a r e d t o be some t e n d e n c y f o r v a l u e s o f a s i m i l a r s i g n o r m a g n i t u d e t o f o l l o w s e q u e n t i a l l y , t h e r e was no l o n g - r u n c o n s i s t e n c y (as shown i n F i g u r e 1 7 . a ) . F r e q u e n c y o f r e s i d u a l s P l o t o f r e s i d u a l s a g a i n s t t h e e s t i m a t e o f t h e d e p e n d e n t v a r i a b l e : The f r e q u e n c y o f r e s i d u a l v a l u e s p r o v i d e d e v i d e n c e o f a n o r m a l d i s t r i b u t i o n (as shown i n F i g u r e 1 7 . b ) . T h e r e a p p e a r e d t o be no a p p a r e n t t e n d e n c y o f t h e e s t i m a t e o f t h e d e p e n d e n t v a r i a b l e t o r e s p o n d t o c h a n g e s i n t h e r e s i d u a l (as shown i n F i g u r e 1 7 . c ) . D u r b i n - W a t s o n s t a t i s t i c = 1.8071 C o r r e l a t i o n c o e f f i c i e n t i n c o n s e c u t i v e r e s i d u a l s s q u a r e d = .0078 C o m p a r i s o n o f a c t u a l and p r e d i c t e d t i m e s e r i e s o f PSTS (1968-1977) P l o t s o f t h e a c t u a l and p r e d i c t e d t i m e s e r i e s : P r o p o r t i o n o f t u r n s i n t h e d e p e n d e n t v a r i a b l e e s t i m a t e d c o r r e c t l y The p r e d i c t e d v a l u e s o f t h e de-p e n d e n t v a r i a b l e a p p e a r e d t o t r a c e t h e a c t u a l v a l u e s a d e q u a t e -l y (as shown i n F i g u r e 1 7 . d ) . = 83.8 p e r c e n t C o r r e l a t i o n c o e f f i c i e n t = .8510 R o o t - m e a n - s q u a r e d - e r r o r ~, c c as a p e r c e n t o f t h e = -^\77 8 mean v a l u e o f t h e d e p e n d e n t v a r i a b l e R s q u a r e d = .1830 7241 Mean a b s o l u t e e r r o r as a p e r c e n t o f t h e mean v a l u e o f t h e d e p e n d e n t v a r i a b l e 172.2 1177.8 = .1462 i g . 17.a. Time Sequence P l o t o f R e s i d u a l s F i g . 17.c. R e s i d u a l A g a i n s t t h e E s t i m a t e P l o t Eli ••iiiii:: !H1 ":t!iu-i -'A;'.', :::!m-; 1 PPiE "'iiilr! lis! 1 i :•:!!:;:: ANALYSTS OF RESIDUALS PROFIT MOTIVATED HOUSING STARTS—ESTIMATE 6 (Based on Transformed Variables) F i g . 17.b. F r e q u e n c y o f R e s i d u a l s - 3 2 1 0 1 2 3 + Number of Standard Deviations From the Mean IP;: : !!'•; HP f f ' • :;i:li . : '. ill: m . '• • . 1 : • ' '• 1 113 F i g . : 17.d. P l o t o f .the A c t u a l - a n d P r e d i c t e d Time Series ( P r o f i t Motivated ) 1968-1977 v . Housing S tar ts ££±2... '- J - - ' « « - J - - / / / PLOT OF A C T U A L ! ' ) AND FTTTEOf• ) VALUES PLOT OF RESIDUALS(O) ID ACTUAL FITTED 77 12 1516. 1103. 7711 1361. 1018. 7710 1491. 12 05. 77 0 9 1350. 1181. 7708 1761 . 1386. 7707 169 1 . 1177. 7706 169 3. 12 39. 7705 828.0 867 .3 7704 726 .0 74 3.3 7703 440.0 519.3 7702 1 350. 9 02.9 7701 1581. 1185. 7612 1811. 1473. 761 1 1102. 13 19. 7610 1447 . 1545. 7609 1652. 1573. 7608 1901 . 1648. FtESIOUAL 7607 7606 7605 7604 7603 7602 6807 6806 6805 6804 6803 114 F i g . 17.e. P l o t . o f t h e A c t u a l and P r e d i c t e d Time S e r i e s ( , P r o f i t Motivated ) 1978-1979 Housing S ta r ts PLOT OF ACTUAL! * ) AND F I T T E D ! + ) VALUES PLOT OF RESIOUALS<0) ID ACTUAL RESIDUAL 7912 7911 7910 7909 7908 1 2 8 5 . 9 4 6 . 0 884 . 0 8 2 3 . 0 8 4 9 . 0 115 C o m p a r i s o n o f a c t u a l and p r e d i c t e d t i m e s e r i e s o f PSTS (1978-1979) P l o t s o f t h e a c t u a l and p r e d i c t e d t i m e s e r i e s : P r o p o r t i o n o f t u r n s i n t h e d e p e n d e n t v a r i a b l e e s t i m a t e d c o r r e c t l y The p r e d i c t e d v a l u e s o f t h e de-p e n d e n t v a r i a b l e a p p e a r e d t o t r a c e t h e a c t u a l v a l u e s a d e q u a t e -l y (as shown i n F i g u r e 1 7 . e ) . = 71.4 p e r c e n t C o r r e l a t i o n c o e f f i c i e n t = .8127 344.1 R o o t - m e a n - s q u a r e d - e r r o r as a p e r c e n t o f t h e mean v a l u e o f t h e d e p e n d e n t v a r i a b l e Mean a b s o l u t e e r r o r as a p e r c e n t o f t h e mean v a l u e o f t h e d e p e n d e n t v a r i a b l e 1073 270.2 1073 R s q u a r e d .3207 .6604 = .2518 3. A s y m m e t r i c C r e d i t V a r i a b l e a) Endogenous V a r i a b l e ( M o d i f i e d P o t e n t i a l P r o f i t V a r i a b l e ) PSTS = - 1415.7 + 2653.33 t s t a t i s t i c -2.53788 5.23245 PF IU 162555 (IUCF - COMP) -2.17651 t s t a t i s t i c - 14.7113 AMCRED + 1629.82 ^ M -5.43288 3.91513 + 112.028 SPRING + 217.296 SUMMER + 132.841 FALL t s t a t i s t i c 2.78374 7.36644 4.21773 O v e r a l l F s t a t i s t i c = 21.270 S t a n d a r d e r r o r o f t h e e s t i m a t e = 16 8.799 Time s e q u e n c e p l o t o f r e s i d u a l s : A l t h o u g h t h e r e a p p e a r e d t o be some t e n d e n c y f o r v a l u e s o f a s i m i l a r s i g n o r m a g n i t u d e t o f o l l o w s e q u e n t i a l l y , t h e r e was no l o n g - r u n c o n s i s t e n c y (as shown i n F i g u r e 1 8 . a ) . 116 F r e q u e n c y o f r e s i d u a l s P l o t o f r e s i d u a l s a g a i n s t t h e e s t i m a t e o f t h e d e p e n d e n t v a r i a b l e : The f r e q u e n c y o f r e s i d u a l v a l u e s p r o v i d e d e v i d e n c e o f a n o r m a l d i s t r i b u t i o n (as shown i n F i g u r e 1 8 . b ) . T h e r e a p p e a r e d t o be no a p p a r e n t t e n d e n c y o f t h e e s t i m a t e o f t h e d e p e n d e n t v a r i a b l e t o r e s p o n d t o c h a n g e s i n t h e r e s i d u a l (as shown i n F i g u r e 1 8 . c ) . D u r b i n - W a t s o n s t a t i s t i c = 1.8868 C o r r e l a t i o n c o e f f i c i e n t i n c o n s e c u t i v e r e s i d u a l s s q u a r e d = .0131 C o m p a r i s o n o f a c t u a l and p r e d i c t e d t i m e s e r i e s o f PSTS (1968-1977) P l o t s o f t h e a c t u a l and p r e d i c t e d t i m e s e r i e s : P r o p o r t i o n o f t u r n s i n t h e d e p e n d e n t v a r i a b l e e s t i m a t e d c o r r e c t l y The p r e d i c t e d v a l u e s o f t h e de-p e n d e n t v a r i a b l e a p p e a r e d t o t r a c e t h e a c t u a l v a l u e s a d e q u a t e -l y (as shown i n F i g u r e 1 8 . d ) . = 8 3.8 p e r c e n t C o r r e l a t i o n c o e f f i c i e n t = .8581 209 .9 R o o t - m e a n - s q u a r e d - e r r o r as a p e r c e n t o f t h e mean v a l u e o f t h e d e p e n d e n t v a r i a b l e Mean a b s o l u t e e r r o r as a p e r c e n t o f t h e mean v a l u e o f t h e d e p e n d e n t v a r i a b l e 1177.8 164.7 1177.8 R s q u a r e d = .7364 .1782 = .1398 C o m p a r i s o n o f a c t u a l and p r e d i c t e d t i m e s e r i e s o f PSTS (1978-1979) P l o t s o f t h e a c t u a l and p r e d i c t e d t i m e s e r i e s : P r o p o r t i o n o f t u r n s i n t h e d e p e n d e n t v a r i a b l e e s t i m a t e d c o r r e c t l y The p r e d i c t e d v a l u e s o f t h e d e -p e n d e n t v a r i a b l e a p p e a r e d t o t r a c e t h e a c t u a l v a l u e s a d e q u a t e -l y (as shown i n F i g u r e 1 8 . e ) . 6 6.7 p e r c e n t C o r r e l a t i o n c o e f f i c i e n t = .7376 344.6 R o o t - m e a n - s q u a r e d - e r r o r as a p e r c e n t o f t h e mean v a l u e o f t h e d e p e n d e n t v a r i a b l e 1073 R s q u a r e d = .5441 = .3212 F i g . 18.a. o f Time Sequence P l o t R e s i d u a l s F i g . 18.c. R e s i d u a l A g a i n s t t h e E s t i m a t e P l o t ANALYSIS OF RESIDUALS PROFIT MOTIVATED HOUSING STARTS—ESTIMATE 7 (Based on Transformed Variables) r v i t »50» MO! rw F i g . 18.b. F r e q u e n c y o f R e s i d u a l s 7*05 157.» 7*07 *72.J 7202 7201 till 512.2 - 3 2 1 0 1 2 Number of Standard Deviations From the Mean F i g . 18.d. P l o t o f t h e A c t u a l and P r e d i c t e d Time S e r i e s ( p £ o E i t M o ^ v a t e d P S T S ) 1968-1977 118 Housing S t a r t s PLOT CF ACTUAL!* ) A N D F IT TE Ot • ) VALUES PLOT OF RESIOUALS(O) 10 ACTUAL FITTED 7712 771 1 7710 7 70 9 7708 1516. 1361. 1491. 1350. 1761. 6807 6806 6805 6804 6803 1194. 1169. 1173. 7 87.0 577.0 119 F i g . 18.e. P l o t o f t h e A c t u a l and P r e d i c t e d Time S e r i e s ( p r o f i t Motivated p s T S ) 1978-1979 Housing S ta r ts PLOT OF A C T U A L * * ) AND F I T T c O t O VALUES PLOT OF fiESIDUALS(O) ACTUAL F I T TED RES IOUAL 120 Mean a b s o l u t e e r r o r as 263 2 a p e r c e n t o f t h e mean = -^gyg ~ -2453 v a l u e o f t h e d e p e n d e n t v a r i a b l e b) Endogenous V a r i a b l e s ( M o d i f i e d P o t e n t i a l P r o f i t V a r i a b l e , I n v e n t o r y o f U n o c c u p i e d New Houses) S i n c e t h e i n v e n t o r y o f u n o c c u p i e d new h o u s e s v a r i a b l e (VC) d i d n o t p r o v e s i g n i f i c a n t l y d i f f e r e n t t h a n z e r o a t t h e .05 l e v e l o f c o n f i d e n c e , t h e d e t a i l e d r e s u l t s have n o t been r e p o r t e d . 4. Summary The C o c h r a n e - O r c u t t t e c h n i q u e was u s e d t o e l i m i n a t e a u t o -c o r r e l a t i o n i n t h e r e s i d u a l s w h i c h was e v i d e n t when o r d i n a r y two-s t a g e l e a s t s q u a r e s was u s e d . When t h e s y m m e t r i c ( O p t i o n s A and B) and t h e a s y m m e t r i c c r e d i t v a r i a b l e s were u s e d t h e b e s t r e s u l t s were p r o v i d e d u s i n g s i x month a v e r a g e s o f t h e c r e d i t v a r i a b l e t h a t p r i m a r i l y i n d i c a t e d t h e m o r t g a g e l e n d i n g o f p r i v a t e i n s t i t u t i o n s (SMCRED, SPCRED, AMCRED), and u s i n g t h r e e month a v e r a g e s o f t h e c r e d i t v a r i a b l e t h a t i n d i c a t e d t h e mortgage l e n d i n g o f government (^, SGCRED); F u r t h e r m o r e , a l t h o u g h t h e t w o - s t a g e l e a s t s q u a r e s e s t i m a t e s o f t h e h o u s i n g s t a r t s model c o n s i s t e n t l y f a i l e d t o i d e n -t i f y t h e i n d e p e n d e n t e f f e c t o f t h e m a g n i t u d e o f s t r i k e s i n t h e c o n s t r u c t i o n i n d u s t r y ( S T R I K E ) , t h e e s t i m a t e o f t h e i n d e p e n d e n t e f f e c t o f t h e number o f u n o c c u p i e d new h o u s e s (VC) d epended upon t h e s e l e c t e d c r e d i t v a r i a b l e and t h e d e l e t i o n o f t h e s e a s o n v a r -i a b l e (SPRING). T h e r e f o r e , t h e (STRIKE) v a r i a b l e was d e l e t e d , and t h e d e t a i l e d r e s u l t s o f u s i n g t h e (VC) v a r i a b l e were o n l y r e -p o r t e d when t h e c o e f f i c i e n t was s i g n i f i c a n t l y d i f f e r e n t t h a n z e r o . When t h e number o f u n o c c u p i e d new h o u s e s (VC) was n o t i n -c l u d e d as an e x p l a n a t o r y v a r i a b l e , e s t i m a t e s o f t h e number o f 121 p r o f i t m o t i v a t e d g r o u n d - o r i e n t e d h o u s i n g s t a r t s (PSTS) m o d e l , u s i n g t h e s y m m e t r i c o r a s y m m e t r i c c r e d i t v a r i a b l e s , p r o v i d e d c o -e f f i c i e n t s t h a t had t h e c o r r e c t s i g n , were s i g n i f i c a n t l y d i f f e r -e n t t h a n z e r o a t t h e .05 l e v e l o f s i g n i f i c a n c e , and i n d i c a t e d t h a t t h e s e l e c t e d d e t e r m i n i n g v a r i a b l e s c o n t r i b u t e d t o t h e ex-p l a i n e d sum o f s q u a r e s ( b a s e d on t h e " t " and "F" s t a t i s t i c s ) . F u r t h e r m o r e , t h e e s t i m a t e s a p p e a r e d t o a d e q u a t e l y t r a c e t h e d e -p e n d e n t v a r i a b l e and t h e R s q u a r e d v a l u e s , i n g e n e r a l , w o u l d a p p e a r t o be l a r g e and c o n f i r m t h e a d e q u a t e n e s s o f t h e model u s -i n g e i t h e r t h e s y m m e t r i c o r a s y m m e t r i c c r e d i t v a r i a b l e . The r e v i e w o f t h e r e s i d u a l s i n d i c a t e d t h a t t h e p r e c o n d i -t i o n s f o r r e g r e s s i o n a n a l y s i s had n o t l i k e l y b e e n v i o l a t e d . The D u r b i n - W a t s o n s t a t i s t i c was l a r g e and t h e c o r r e l a t i o n c o e f f i c i e n t i n c o n s e c u t i v e r e s i d u a l s s q u a r e d was n o t s i g n i f i c a n t l y d i f f e r e n t t h a n z e r o a t t h e .05 l e v e l o f c o n f i d e n c e , i n d i c a t i n g t h a t t h e h y p o t h e s i s o f a u t o c o r r e l a t i o n i n t h e r e s i d u a l s may be r e j e c t e d . A c o m p a r i s o n o f t h e p e r f o r m a n c e o f t h e h o u s i n g s t a r t s mod-e l u s i n g t h e s y m m e t r i c and a s y m m e t r i c c r e d i t v a r i a b l e s p r o v i d e d some e v i d e n c e t o s u p p o r t t h e h y p o t h e s i s o f t h e s y m m e t r i c e f f e c t o f c r e d i t a v a i l a b i l i t y i n f a v o u r o f s u p p o r t t o t h e h y p o t h e s i s o f t h e a s y m m e t r i c e f f e c t . E x - p o s t (1968-1977) and e x - a n t e (1978-1979) e s t i m a t e s o f t h e d e p e n d e n t v a r i a b l e u s i n g t h e s y m m e t r i c c r e d i t v a r i a b l e p r o v i d e d e s t i m a t e s w i t h a h i g h e r R s q u a r e d , as w e l l as a l o w e r r o o t - m e a n - s q u a r e d - e r r o r and mean a b s o l u t e e r r o r . However, o n l y t h e O p t i o n B s y m m e t r i c c r e d i t c o n d i t i o n s v a r i a b l e c o n s i s t e n t l y m a t ched t h e p r o p o r t i o n o f t u r n s i n t h e d e p e n d e n t v a r i a b l e p r e d i c t e d c o r r e c t l y by t h e a s y m m e t r i c c r e d i t v a r i a b l e . When t h e number o f u n o c c u p i e d new h o u s e s (VC) was i n c l u d e d as an e x p l a n a t o r y v a r i a b l e (but t h e s e a s o n v a r i a b l e SPRING was 122 d e l e t e d ) , ex-post estimates of the dependent v a r i a b l e i d e n t i f i e d the independent e f f e c t of the number of unoccupied new houses only when the Option B symmetric c r e d i t c o n d i t i o n s v a r i a b l e was used. Although estimates of the dependent v a r i a b l e were b e t t e r using other s p e c i f i c a t i o n s of the housing s t a r t s model, the estimate provided c o e f f i c i e n t s t h a t had the c o r r e c t s i g n , were s i g n i f i c a n t l y d i f f e r e n t than zero at the .05 l e v e l of s i g n i f i -cance, and i n d i c a t e d t h a t the s e l e c t e d determining v a r i a b l e s con-t r i b u t e d to the explained sum of squares (based on the " t " and "F" s t a t i s t i c s ) . Furthermore, the estimates appeared t o adequate-l y t r a c e the dependent v a r i a b l e and the R squared v a l u e s , i n gen-e r a l , would appear t o be l a r g e and confirm the adequateness of the model using e i t h e r the symmetric or asymmetric c r e d i t v a r i a b l e . The review of the r e s i d u a l s i n d i c a t e d t h a t the precondi-t i o n s f o r r e g r e s s i o n a n a l y s i s had not l i k e l y been v i o l a t e d . A l s o , the Durbin-Watson s t a t i s t i c was l a r g e and the c o r r e l a t i o n c o e f f i -c i e n t i n consecutive r e s i d u a l s squared was not s i g n i f i c a n t l y d i f -f e r e n t than zero at the .05 l e v e l of confidence, i n d i c a t i n g t h a t the hypothesis of a u t o c o r r e l a t i o n i n the r e s i d u a l s may be r e j e c t e d . Using the Cochrane-Orcutt technique the two-stage l e a s t squares approach provided smaller e r r o r measurements (root-mean-squared-error, mean absolute e r r o r ) and the R squared values i n the ex-post estimates of the dependent v a r i a b l e were l a r g e r . How-ever, the two-stage l e a s t squares approach was unable to i d e n t i f y the independent e f f e c t of a l l the p o t e n t i a l explanatory v a r i a b l e s , the R squared values i n the ex-ante estimates were smaller and a fewer number of turns i n the dependent v a r i a b l e were estimated c o r r e c t l y . In general, i t would appear that the estimates of the v a r i o u s s p e c i f i c a t i o n s of the housing s t a r t s model traced 123 t h e d e p e n d e n t v a r i a b l e a d e q u a t e l y , and t h e s u p e r i o r p e r f o r m a n c e o f t h e e s t i m a t e s when u s i n g t h e s y m m e t r i c c r e d i t v a r i a b l e a p p e a r -ed t o p r o v i d e e v i d e n c e i n s u p p o r t o f t h e h y p o t h e s i s o f t h e s y m m e t r i c e f f e c t o f c r e d i t a v a i l a b i l i t y . C o n c l u s i o n The t e s t i n g o f t h e h o u s i n g s t a r t s model a p p e a r e d t o c o n -f i r m t h e h y p o t h e s i s t h a t g i v e n a l e v e l o f p r o f i t a b l e n e s s o f d e v e l o p i n g l a n d and t h e i n v e s t m e n t r e q u i r e d p e r u n i t , d e v e l o p e r s w o u l d d e s i r e t o m a i n t a i n a c e r t a i n number o f u n i t s u n d e r c o n s t r u c -t i o n . A l t h o u g h t h e c r e d i t c o n d i t i o n s v a r i a b l e s u s e d a p p e a r e d t o s u c c e s s f u l l y i n d i c a t e t h e e f f e c t o f t h e p r i c e and a v a i l a b i l i t y o f c r e d i t , t h e use o f t h e s y m m e t r i c c r e d i t c o n d i t i o n s v a r i a b l e d i d n o t p r o v i d e r e s u l t s t h a t were c o n v i n c i n g l y s u p e r i o r t o t h e u s e o f t h e a s y m m e t r i c c r e d i t v a r i a b l e . However, t h e r e s u l t s o f t h e t e s t -i n g a p p e a r e d t o f a v o u r t h e u s e o f t h e s y m m e t r i c c r e d i t c o n d i t i o n s v a r i a b l e and t h u s s u p p o r t t h e h y p o t h e s i s o f t h e s y m m e t r i c e f f e c t o f c r e d i t a v a i l a b i l i t y on t h e p r o d u c t i o n o f h o u s i n g s t a r t s . The p o s s i b l e b e t t e r p e r f o r m a n c e o f t h e s y m m e t r i c c r e d i t v a r i a b l e may stem f r o m i t s s u c c e s s o f i n d i c a t i n g t h e p o t e n t i a l f o r house p r i c e s t o r i s e f a s t e r t h a n d e v e l o p m e n t c o s t s . However, t h e a p p a r e n t com-p a r a b l e p e r f o r m a n c e o f t h e a s y m m e t r i c c r e d i t v a r i a b l e may stem f r o m i t s s u c c e s s o f i n d i c a t i n g t h e p o t e n t i a l f o r r e d u c t i o n s i n t h e o c c u p a t i o n o f n e w l y c o m p l e t e d h o u s e s ; and, f r o m t h e n a t u r e o f f l u c t u a t i o n s i n t h e c r e d i t a v a i l a b i l i t y i n d i c a t o r w h i c h was s u b -j e c t t o r a d i c a l movements i n t h e d i r e c t i o n o f c r e d i t t i g h t n e s s compared t o modest movements i n t h e d i r e c t i o n o f e a s i e r c r e d i t c o n d i t i o n s . I t was t h o u g h t t h a t t h e s t u d y was s u c c e s s f u l i n showing 124 t h e r e l a t i o n s h i p between t h e number o f h o u s i n g s t a r t s , i n a l i m i t e d m a r k e t a r e a , and t h e m a j o r d e t e r m i n i n g v a r i a b l e s a t t r i -b u t e d t o t h e l o c a l and n a t i o n a l e c o n o m i c e n v i r o n m e n t . The e s t i -mates a p p e a r e d t o a d e q u a t e l y t r a c e t h e d e p e n d e n t v a r i a b l e ; a l -t h o u g h , t h e e s t i m a t e s f o r 1968, 1976, 1977, and 1978 a p p e a r e d t o be c o n s i s t e n t l y low w i t h r e s p e c t t o t h e a c t u a l v a l u e o f t h e de-p e n d e n t v a r i a b l e . The marked weakness o f t h e model i n t h e s e y e a r s a p p e a r e d t o c o i n c i d e w i t h a s m a l l e r p r o p o r t i o n o f t h e t o t a l number o f h o u s i n g s t a r t s c o n s i s t i n g o f a p a r t m e n t u n i t s (see TABLE V . l . W i t h r e s p e c t t o t h e l a t t e r p a r t o f t h e s t u d y p e r i o d , t h e d e c l i n e i n t h e p r o d u c t i o n o f new a p a r t m e n t ( r e n t a l ) u n i t s p r o b -a b l y stemmed f r o m p r o v i n c i a l l e g i s l a t i o n t h a t r e g u l a t e d r e n t l e v e l s . T h e r e f o r e , i t w o u l d a p p e a r t h a t w e a k n e s s e s i n t h e r e n t -a l , o r a p a r t m e n t u n i t , m a r k e t may c o n t r i b u t e t o i n c r e a s e d compe-t i t i o n o f s u p p l i e r s i n t h e g r o u n d - o r i e n t e d h o u s i n g m a r k e t . A t t e m p t s t o i n c l u d e an e x p l a n a t o r y v a r i a b l e i n t h e h o u s i n g s t a r t s m o d e l , t h a t i n d i c a t e d t h e r e l a t i v e a d v a n t a g e o f g r o u n d - o r i e n t e d 7 h o u s i n g r e l a t i v e t o a p a r t m e n t d e v e l o p m e n t , p r o v e d u n s u c c e s s f u l . I n v i e w o f t h e a t t e m p t t o model a l o c a l h o u s i n g m a r k e t w i t h i n a s p e c i f i e d g e o g r a p h i c a r e a , t h e e x p l a n a t o r y v a r i a b l e s c o n -s i d e r e d , t h e i n d i c a t o r s u s e d f o r t h e p e r i o d i c m a g n i t u d e o f t h e s e v a r i a b l e s , and t h e a p p a r e n t w e a k n e s s e s i n t h e m o d e l , i t w o u l d a p p e a r t h a t f u t u r e e s t i m a t i n g a t t e m p t s may i n c l u d e t h e f o l l o w i n g : 1. A v a r i a b l e t h a t w o u l d measure t h e p e r i o d i c a d v a n t a g e o f d e v e l o p i n g a p a r t m e n t ( r e n t a l ) u n i t s r e l a t i v e t o g r o u n d - o r i e n t e d h o u s i n g ( p r i m a r i l y owner o c c u p i e d ) u n i t s . 2. A r e v i s e d e s t i m a t e o f t h e number o f u n o c c u p i e d new 125 g r o u n d - o r i e n t e d d w e l l i n g u n i t s b a s e d on an i m p r o v e d e s t i m a t e o f t h e number o f u n o c c u p i e d new row h o u s e s . S p e c i f i c a l l y , t h e number o f row d w e l l i n g v a c a n c i e s m i g h t be i d e n t i f i e d f r o m a v a i l a b l e s u r v e y s o f t h e num-b e r o f ne w l y c o m p l e t e d and u n o c c u p i e d a p a r t m e n t and row d w e l l i n g u n i t s . W i t h an i m p r o v e d e s t i m a t e o f t h e num-b e r o f u n o c c u p i e d new h o u s e s , t h i s v a r i a b l e o u g h t t o p r o v i d e b e t t e r r e s u l t s as w e l l as p e r m i t a g r e a t e r d e-g r e e o f c o n f i d e n c e i n t h e v a l i d i t y o f t h e measure. 3. A l t h o u g h t h e u s e o f dummy v a r i a b l e s f o r d i f f e r e n t s e a s o n s a p p e a r e d t o be s u c c e s s f u l , t h e t e c h n i q u e has t h e d i s a d v a n t a g e o f n o t i d e n t i f y i n g s e v e r e w e a t h e r c o n -d i t i o n s , a t t r i b u t e d t o u n u s u a l s n o w f a l l s , d u r i n g t h e "WINTER" s e a s o n . I f a c o n t i n u o u s i n d e x was d e v e l o p e d , t h e r e w o u l d be t h e a d v a n t a g e o f f e w e r e x p l a n a t o r y v a r i -a b l e s and t h e p o t e n t i a l t o i n d i c a t e t h e s e v e r i t y o f w e a t h e r c o n d i t i o n s . 4 . A r e v i s e d e s t i m a t e o f t h e c r e d i t c o n d i t i o n s v a r i a b l e s b a s e d on an e s t i m a t e o f t h e mortgage a p p r o v a l s by p r i -v a t e ( n o n - i n s t i t u t i o n a l ) l e n d e r s , i n a d d i t i o n t o t h e a p p r o v a l s by i n s t i t u t i o n a l l e n d e r s . A n n u a l e s t i m a t e s o f m o r t g a g e a p p r o v a l s by n o n - i n s t i t u t i o n a l l e n d e r s a r e p r o v i d e d by t h e Canada M o r t g a g e and H o u s i n g C o r p o r a t i o n ; however, i t w o u l d be n e c e s s a r y t o f i n d a means t o a l l o -c a t e t h e a n n u a l v a l u e t o e a c h month. 126 F o o t n o t e s Two p a c k a g e computer programs (TSP and SPSS) have been u s e d t o e s t i m a t e t h e v a r i o u s m o d e l s b e c a u s e o f t h e r e l a t i v e e a s e o f g e n e r a t i n g s p e c i f i c s t a t i s t i c s o r p l o t s o f f e r e d by e a c h p r o g r a m . TSP o r Time S e r i e s P r o c e s s o r h as been u s e d f o r t h e f o l l o w i n g : a) e s t i m a t i o n o f t h e v a l u e o f " r h o " when u s i n g t h e C o c h r a n e -O r c u t t t e c h n i q u e b) e s t i m a t i o n o f t h e 1 11" s t a t i s t i c f o r t h e c o n s t a n t c) e s t i m a t i o n o f t h e c o r r e l a t i o n c o e f f i c i e n t between c o n s e c u t i v e r e s i d u a l s d) c o m p a r i s o n o f t h e a c t u a l and f i t t e d v a l u e s o f t h e d e p e n d e n t v a r i a b l e ( i n c l u d i n g t h e c o r r e l a t i o n c o e f f i -c i e n t , R s q u a r e d , r o o t - m e a n - s q u a r e d - e r r o r , and t h e mean a b s o l u t e e r r o r ) . e) a l l t h e c o e f f i c i e n t s and s t a t i s t i c s u s i n g t h e t w o - s t a g e C o c h r a n e - O r c u t t t e c h n i q u e . f ) a l l t h e p l o t s SPSS o r S t a t i s t i c a l P a c k a g e f o r t h e S o c i a l S c i e n c e s h a s b e e n u s e d t o e s t i m a t e a l l t h e c o e f f i c i e n t s and s t a t i s t i c s ( e x c e p t t h e " t " s t a t i s t i c f o r t h e c o n s t a n t ) when u s i n g t h e o r d i n a r y C o c h r a n e -O r c u t t t e c h n i q u e . 2 I b i d . I b i d . I b i d . I b i d , The endogenous v a r i a b l e s (PF, VC) have been r e p l a c e d by t h e f o l l o w i n g i n s t r u m e n t v a r i a b l e s : PF: VC: (HP) A C _ t ' (VC) ( - t DIACHCW, TR IU N C R E D  T R ' I U ' CRED' COMP, N £ ^ £ , SPRING, FALL, F u r t h e r m o r e , b e c a u s e o f t h e m u t u a l d e t e r m i n i n g a f f e c t o f t h e v a r i a b l e "COMP" t h e " ( I U C F _ t - COMP)" v a r i a b l e was r e p l a c e d by i t s components. (IUCF . - COMP): (IUCF , COMP) 127 N o t a t i o n : PF P o t e n t i a l P r o f i t V a r i a b l e DIACIICW = A DIOH I f n e g a t i v e x CHCW - 1 AC I f p o s i t i v e x CHCW IU I n vestment R e q u i r e d Per U n i t CRED = C r e d i t C o n d i t i o n s Based on the Assumption HP S e l l i n g P r i c e o f New Houses (NCRED) o f t h e Symmetric (Asymmetric) E f f e c t o f C r e d i t A v a i l a b i l i t y AC P r e - t a x C o s t s D u r i n g Development and M a r k e t i n g VC I n v e n t o r y o f Unoccu p i e d New Houses TR C o r p o r a t e Income Tax Rate IUCF P r o f i t M o t i v a t e d G r o u n d - O r i e n t e d Housing U n i t s Under C o n s t r u c t i o n LABOH = Labour F o r c e COMP P r o f i t M o t i v a t e d G r o u n d - O r i e n t e d STKOH = St o c k o f Ground O r i e n t e d Houses Housing U n i t C o m p l e t i o n s DIOH Average D i s p o s a b l e Income SPRING March, A p r i l CHCW Change i n the P o p u l a t i o n , t h a t Form Households/ R e l a t i v e t o SUMMER -• = May, June, J u l y , August the S t o c k o f Houses FALL = September, O c t o b e r , November LABOH , LABOH. STKOH ' STKOH 'To i n d i c a t e t h e r e l a t i v e a d v a n t a g e o f a p a r t m e n t d e v e l o p m e n t ( p r i m a r i l y f o r r e n t i n g ) r e l a t i v e t o g r o u n d o r i e n t e d h o u s i n g d e v e l o p m e n t ( p r i m a r i l y f o r home-ownership) t h e r a t i o o f l o c a l r e n t a l r a t e s t o new house p r i c e s was u s e d . However, t h i s v a r i a b l e d i d n o t p r o v e s i g n i f i c a n t l y d i f f e r e n t t h a n z e r o a t t h e .05 l e v e l o f c o n f i d e n c e and i n g e n e r a l d i d n o t a p p e a r t o h e l p t h e c a p a b i l i t -i e s o f t h e model t o t r a c e movements i n t h e d e p e n d e n t v a r i a b l e ( g r o u n d o r i e n t e d h o u s i n g s t a r t s ) . I n v i e w o f t h i s , i t w o u l d a p p e a r t h a t t h e r e l a t i v e a t t r a c t i v e n e s s o f a p a r t m e n t d e v e l o p m e n t may n o t be i n d i c a t e d by t h i s s i m p l e r a t i o o f p r i c e s c h a r a c t e r i s t i c o f t h e two m a r k e t s . A l t h o u g h i t i s r e a s o n a b l e t o assume t h a t when P r o v i n c i a l l e g i s l a t i o n p e r t a i n i n g t o r e n t l e v e l s come i n t o e f f e c t i n l a t e 1975 w o u l d have an im m e d i a t e a f f e c t on t h e e x p e c t a t i o n s o f t h e p r o f i t a b l e n e s s o f a p a r t m e n t d e v e l o p m e n t , t h e a c t u a l i m p a c t on t h e r a t i o o f r e n t s t o house p r i c e s may t a k e y e a r s b e f o r e s u b -s t a n t i a l c h a n g e s have been n o t e d . F u r t h e r m o r e , t h e a p p a r e n t a t t r a c t i v e n e s s o f a p a r t m e n t d e v e l o p m e n t i n t h e mid-1970s, however, p r o b a b l y stemmed f r o m t h e s i z e o f t h e p o t e n t i a l m a r k e t o f young a d u l t s r e q u i r i n g s e p a r a t e , low commitment, b u t a f f o r d a b l e h o u s i n g . I t w o u l d a p p e a r , t h e r e f o r e , t h a t an a t t e m p t t o d e s i g n a s i m p l e v a r i a b l e t h a t w o u l d r e f l e c t t h e r e l a t i v e a d v a n t a g e o f a p a r t m e n t d e v e l o p m e n t , t h a t w o u l d be i n d e p e n d e n t o f t h e o t h e r e x p l a n a t o r y v a r i a b l e s i n t h e h o u s i n g s t a r t s model may be d i f f i c u l t . 128 BIBLIOGRAPHY T h e o r y S o u r c e s Bank o f Canada. The E q u a t i o n s o f RDX2 R e v i s e d and E s t i m a t e d  t o 4Q72. T e c h n i c a l R e p o r t 5. O t t a w a : Bank o f Canada, 1976. B e c k e r , A r t h u r P. L a n d and B u i l d i n g T a x e s : T h e i r E f f e c t on Econom- i c D e v e l o p m e n t . M a d i s o n : The U n i v e r s i t y o f W i s c o n s i n P r e s s , 1969. Bouey, G e r a l d K. A c c o u n t i n g f o r M o n e t a r y P o l i c y . Remarks b e f o r e a m e e t i n g o f t h e C e r t i f i e d G e n e r a l A c c o u n t a n t s A s s o c i a t i o n o f O n t a r i o i n T o r o n t o on J a n u a r y 30, 1969. O t t a w a : Bank o f Canada, 1969. Bouey, G e r a l d K. " R e c e n t M o n e t a r y D e v e l o p m e n t , " Bank o f Canada  Review. Otta w a : Bank o f Canada, O c t o b e r 1973. pp. 15-2 3. B r i g h a m , Eugene F. F i n a n c i a l Management: T h e o r y and P r a c t i c e . H i n s d a l e , I l l i n o i s : The D r y d e n P r e s s , 1977. Chung, J o s e p h H. C y c l i c a l I n s t a b i l i t y i n R e s i d e n t i a l C o n s t r u c t i o n  i n C a n ada. O t t a w a : E c o n o m i c C o u n c i l o f Canada, 1976. F a c u l t y o f Commerce and B u s i n e s s A d m i n i s t r a t i o n , R e a l E s t a t e  and A p p r a i s a l D i p l o m a C o u r s e : E c o n o m i c s o f R e a l  P r o p e r t y . V a n c o u v e r : U n i v e r s i t y o f B r i t i s h C o l u m b i a , 1975. F a i r , Ray C , and J a f f e e D w i g h t M. "Methods o f E s t i m a t i o n f o r M a r k e t s i n D i s e q u i l i b r i u m " , E c o n o m e t r i c a , V o l . 40, No. 3 (May, 1 9 7 2 ) , pp. 497-514. F a i r , Ray C. " D i s e q u i l i b r i u m i n H o u s i n g M o d e l s " , The J o u r n a l  o f F i n a n c e , V o l . 27 (May, 1 9 7 2 ) , pp. 207-221. F i s h e r , R o b e r t M., and Siegman, C h a r l e s J . " H o u s i n g and F i n a n c i a l R e s t r a i n t : O b s e r v a t i o n s on F o r e i g n E x p e r i e n c e " , Ways t o M o d e r a t e F l u c t u a t i o n s i n H o u s i n g C o n s t r u c t i o n . F e d e r a l R e s e r v e S t a f f S t u d y . W a s h i n g t o n , D. C. P u b l i c a t i o n S e r v i c e s , B o a r d o f G o v e r n o r s o f t h e F e d e r a l R e s e r v e System, M a r c h 1972. G r e b l e r , L e o , B l a n k , D a v i d , and W i n n i c k , L e w i s . C a p i t a l F o r m a t i o n i n R e s i d e n t i a l R e a l E s t a t e : T r e n d s and P r o s p e c t s . New Y o r k : N a t i o n a l B u r e a u of" E c o n o m i c R e s e a r c h , 1956. 129 H a r r i s , Duane G. " I n t e r e s t R a t e s , N o n - P r i c e Terms and t h e A l l o c a -t i o n o f Bank C r e d i t " , S o u t h e r n E c o n o m i c J o u r n a l , V o l . 40 ( C h a p e l H i l l , N. C a r o l i n a : U n i v e r s i t y o f N o r t h C a r o l i n a , 1974), pp. 428-433. H o r n g r e n , C h a r l e s T. C o s t A c c o u n t i n g : A M a n a g e r i a l E m p h a s i s , 4 t h E d . E n g l e w o o d C l i f f s , N . J . : P r e n t i c e - H a l l I n c . , 1977. Huang, D a v i d S. "A S t u d y o f t h e M a r k e t f o r New H o u s i n g U n i t s " , P r o c e e d i n g s o f t h e B u s i n e s s and E c o n o m i c S t a t i s t i c s  S e c t i o n o f t h e A m e r i c a n S t a t i s t i c a l A s s o c i a t i o n ( 1 9 6 9 ) , pp. 702-712. K e n t , R i c h a r d J . " C r e d i t R a t i o n i n g and t h e Home M o r t g a g e M a r k e t " , Money, C r e d i t , arid B a n k i n g , V o l . 12, No. 3 ( A u g u s t , 1980) pp. 488-501. L a n g h o u t , J . A n a l y s i s and I n t e r p r e t a t i o n o f C a n a d i a n F i n a n c i a l S t a t e m e n t s . S t . J o h n ' s N e w f o u n d l a n d : U n i v e r s i t y P r e s s o f C anada, n.d. M a i s e l , Sherman J . "A T h e o r y o f F l u c t u a t i o n s i n R e s i d e n t i a l C o n s t r u c t i o n S t a r t s " , The A m e r i c a n E c o n o m i c Review, V o l . I l l (June, 1 9 6 3 ) , pp. 359-379. M e i g s , W a l t e r B.; M o s i c h , A. 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" C r e d i t R a t i o n i n g , I n t e r e s t R ate L a g s , and M o n e t a r y P o l i c y S peed", Q u a r t e r l y J o u r n a l O f E c o n o m i c s , V o l . 82 ( F e b r u a r y , 1 9 6 8 ) , pp. 54-83. Van H o m e , James C., D i p c h a n d , C e c i l , and Hanrahan, J . R o b e r t . F u n d a m e n t a l s o f F i n a n c i a l Management. 3 r d e d . S c a r b o r o u g h : P r e n t i c e - H a l l o f Canada, 1977. D a t a S o u r c e s Bank o f Canada. Bank o f Canada Review. Otta w a : Bank o f Canada, M o n t h l y . B e e c h , J . W. " P u b l i c F i n a n c i n g f o r S m a l l Companies", R e a d i n g s  I n C a n a d i a n B u s i n e s s F i n a n c e . E d i t e d by Samuel M a r t i n . T o r o n t o : M c G r a w - H i l l Company o f Canada L t d . , 1969. Broadway, R o b i n W., and K i t c h e n , H a r r y M. C a n a d i a n Tax P o l i c y . C a n a d i a n Tax P a p e r No. 63. 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T o r o n t o : Queen's P r i n t e r , 1960. 131 O n t a r i o M i n i s t r y o f C o l l e g e s and U n i v e r s i t i e s . R e p o r t o f t h e  M i n i s t r y o f U n i v e r s i t y A f f a i r s . T o r o n t o : S t a t i s t i c a l S e r v i c e s , M i n i s t r y o f C o l l e g e s and U n i v e r s i t i e s , A n n u a l . O n t a r i o M i n i s t r y o f E d u c a t i o n . E d u c a t i o n S t a t i s t i c s . T o r o n t o : M i n i s t r y o f E d u c a t i o n , A n n u a l . O n t a r i o M i n i s t r y o f E d u c a t i o n , I n f o r m a t i o n and Systems B r a n c h . P r i v a t e S c h o o l s E n r o l l m e n t . T o r o n t o : M i n i s t r y o f E d u c a t i o n , A n n u a l . O n t a r i o M i n i s t r y o f H e a l t h . H o s p i t a l S t a t i s t i c s . T o r o n t o : I n f o r m a t i o n Systems D i v i s i o n , M i n i s t r y o f H e a l t h , 1977. M i n i s t e r e de 1 ' E d u c a t i o n , Gouvernement du Quebec. S t a t i s t i q u e s  de 1 ' E n s e i g n m e n t : P e r s o n n e l E n s e i g n a n t . C a t a l o g u e No. 22-P6869-2. Quebec C i t y : Le S e r v i c e G e n e r a l C o m m u n i c a t i o n s du M i n i s t e r e de 1 ' E d u c a t i o n , A n n u a l . M i n i s t e r e de 1 ' E d u c a t i o n , Gouvernement du Quebec. R e p e r t o i r e  Pes O r g a n i s m s E t Pes E c o l e s . Quebec C i t y : L e S e r v i c e G e n e r a l Pes C o m m u n i c a t i o n s du M i n i s t e r e de 1 ' E d u c a t i o n , A n n u a l . Revenue Canada, O p e r a t i o n s R e s e a r c h and S t a t i s t i c s P i v i s i o n . T a x a t i o n S t a t i s t i c s . C a t a l o g u e No. RV44-1969 t o RV44-197 9. Ot t a w a : Revenue Canada, A n n u a l . S p u r r , P. L a n d and U r b a n D e v e l o p m e n t . T o r o n t o : James L o r i m e r and Company, 1976. S t a t i s t i c s Canada. B u i l d i n g P e r m i t s . C a t a l o g u e No. 64-203 Ottaw a : S t a t i s t i c s Canada, A n n u a l . S t a t i s t i c s Canada. C a n a d i a n S t a t i s t i c a l Review. P u b l i c a t i o n No. 11-003E. O t t a w a : S t a t i s t i c s Canada, M o n t h l y . S t a t i s t i c s C anada. C o n s t r u c t i o n P r i c e S t a t i s t i c s . C a t a l o g u e No. 62-007. O t t a w a : S t a t i s t i c s Canada, M o n t h l y . S t a t i s t i c s Canada. C o r p o r a t i o n F i n a n c i a l S t a t i s t i c s . C a t a l o g u e -No. 61-207. O t t a w a : S t a t i s t i c s Canada, A n n u a l . S t a t i s t i c s Canada. C o r p o r a t i o n T a x a t i o n S t a t i s t i c s . C a t a l o g u e No. 61-208. O t t a w a : S t a t i s t i c s Canada, A n n u a l . S t a t i s t i c s Canada. Employment E a r n i n g s and H o u r s . C a t a l o g u e s No. 72-002 M o n t h l y and No. 72-517 O c c a s i o n a l . O t t a w a : S t a t i s t i c s Canada. S t a t i s t i c s Canada. F e d e r a l Government Employment. C a t a l o g u e No. 72-004. O t t a w a : S t a t i s t i c s Canada, Q u a r t e r l y . S t a t i s t i c s Canada. F e d e r a l Government Employment i n M e t r o p o l i t a n  A r e a s . C a t a l o g u e No. 72-005. O t t a w a : S t a t i s t i c s Canada, A n n u a l . S t a t i s t i c s Canada. H i s t o r i c a l L a b o u r F o r c e S t a t i s t i c s . C a t a l o g u e No. 71-201. O t t a w a : S t a t i s t i c s Canada, A n n u a l . S t a t i s t i c s Canada. H o u s i n g . C a t a l o g u e No. 93-726. O t t a w a : S t a t i s t i c s Canada, 1971. S t a t i s t i c s Canada. L o c a l Government Employment. C a t a l o g u e No. 72-009. O t t a w a : S t a t i s t i c s Canada, Q u a r t e r l y . S t a t i s t i c s Canada. N a t i o n a l Income and E x p e n d i t u r e A c c o u n t s . C a t a l o g u e s No. 13-001 Q u a r t e r l y , Nos. 13-531 and 13-53 O c c a s i o n a l and No. 13-210 A n n u a l . O t t a w a : S t a t i s t i c s C anada. S t a t i s t i c s Canada. O c c u p i e d D w e 1 l i n g s . C a t a l o g u e No. 93-727. O t t a w a : S t a t i s t i c s Canada, 1971. S t a t i s t i c s Canada, The Consumer P r i c e I n d e x . C a t a l o g u e No. 63-010. O t t a w a : S t a t i s t i c s Canada, Q u a r t e r l y . APPENDIX I ESTIMATION OF THE DEPENDENT AND INDEPENDENT VARIABLES I n t r o d u c t i o n A p p e n d i x I p r o v i d e s t h e a s s u m p t i o n s and methods u s e d t o e s t i m a t e t h e d e p e n d e n t and d e t e r m i n i n g v a r i a b l e s . S p e c i f i c a l l y t h e s e l e c t e d v a r i a b l e s , and e s t i m a t e s o f t h e i r p e r i o d i c m a g n i -t u d e s , have been d i s c u s s e d i n t h e f o l l o w i n g o r d e r : 1. P o t e n t i a l P r o f i t V a r i a b l e 2. S e l l i n g P r i c e s and De v e l o p m e n t C o s t s • 3. H o u s i n g U n i t E s t i m a t e s 4 . C r e d i t C o n d i t i o n s 5. M a g n i t u d e o f L o c a l C o n s t r u c t i o n I n d u s t r y S t r i k e s 6. L o c a l A d u l t P o p u l a t i o n and Income 7. S e a s o n C a t e g o r i e s P o t e n t i a l P r o f i t V a r i a b l e The i n c e n t i v e t o t h e p r i v a t e s e c t o r t o d e v e l o p h o u s e s stems f r o m t h e e x p e c t e d p r o f i t i n i n v e s t i n g i n l a n d d e v e l o p m e n t a f t e r a s s e s s i n g a l l t h e r e v e n u e s , c o s t s , and t h e n e c e s s a r y r a t e o f r e t u r n . To compute t h e e x p e r i e n c e d r a t e o f r e t u r n o f an i n v e s t m e n t i n l a n d d e v e l o p m e n t , e s t i m a t e s o f t h e f o l l o w i n g c o s t s w o u l d be r e q u i r e d : 1. raw l a n d a c q u i s i t i o n 133 134 2. h o l d i n g c h a r g e s a) i n t e r e s t c h a r g e s f o r l a n d h o l d i n g b) p r o p e r t y t a x e s 3. s u b d i v i s i o n c o s t s a) h a r d s e r v i c e s b) r o u g h g r a d i n g c) c o n s u l t a n t f e e s d) m u n i c i p a l d e v e l o p m e n t l e v i e s e) o v e r h e a d 4. b u i l d i n g and a n c i l l a r y l o t improvements 5. f i n a n c i n g c o s t s 6. income t a x e s ( l e s s a l l o w a b l e income t a x d e d u c t i o n s f r o m o t h e r income) 7. t h e r e q u i r e d r a t e o f r e t u r n However, i t has been a r g u e d t h a t a d e c i s i o n maker who has made an e x i s t i n g i n v e s t m e n t commitment s h o u l d p r i m a r i l y be c o n -c e r n e d w i t h new e x p e n d i t u r e s and r e v e n u e s . L e t b y g o n e s be b y g o n e s . . . . Don't moan a b o u t y o u r sunk c o s t s . . . . M a k e a h a r d - h e a d e d c a l c u l a t i o n o f t h e e x t r a c o s t s y o u ' l l i n c u r by any d e c i s i o n and w e i g h t h e s e a g a i n s t i t s e x t r a a d v a n t a g e s . C a n c e l o u t a l l t h e good t h i n g s and bad t h i n g s t h a t w i l l go on anyway, w h e t h e r y o u make an a f f i r m a t i v e o r ^ n e g a t i v e d e c i s i o n on t h e p o i n t u n d e r c o n s i d e r a t i o n . F u r t h e r m o r e , t h e argument s t a t e s t h a t a f i r m w o u l d p r o d u c e a l o n g i t s m a r g i n a l c o s t c u r v e p r o v i d e d t h e s e l l i n g p r i c e r e c o v e r e d t h e p r o d u c t i o n v a r i a b l e c o s t s ( i n c l u d i n g a n o r m a l r e t u r n t o c a p i t a l ) . A t s u c h p o i n t s , t h e f i r m w o u l d be g e t t i n g s o m e t h i n g t o w a r d c o v e r -i n g i t s f i x e d c o s t s , and e i t h e r i t w o u l d be g e t t i n g m a x i m i z e d 2 p o s i t i v e p r o f i t s , o r a t l e a s t w o u l d be m i n i m i z i n g i t s l o s s e s . C l e a r l y , a b u s i n e s s w o u l d n o t c o n t i n u e i n d e f i n i t e l y w i t h o u t e a r n i n g enough t o c o v e r a l l c o s t s . However, t h e r e l a t i o n s h i p b etween p r e v a i l i n g s e l l i n g p r i c e s and v a r i a b l e c o s t s ( i . e . d e v e l o p m e n t c o s t s ) i n p r o d u c t i o n may be more i m p o r t a n t t h a n a c t u a l p r o f i t l e v e l s i n m o d e l l i n g t h e s h o r t - r u n b e h a v i o u r o f t h e d e v e l o p m e n t i n d u s t r y . C o n s i s t e n t w i t h t h i s a s s u m p t i o n i s t h e 135 t h e o r y t h a t t h e s u p p l y o f u r b a n l a n d w o u l d t e n d t o be e l a s t i c w i t h r e s p e c t t o a p r i c e r i s e and i n e l a s t i c w i t h r e s p e c t t o a 3 p r i c e d e c l i n e . T h e r e f o r e , t h e p o t e n t i a l p r o f i t v a r i a b l e h as been b a s e d on t h e r e v e n u e s and e x p e n d i t u r e s t o d e v e l o p and m a r k e t 4 a d w e l l i n g u n i t w h i l e e x c l u d i n g "sunk c o s t s " . S e l l i n g P r i c e s and D e v e l o p m e n t C o s t s I n t r o d u c t i o n An a t t e m p t has been made t o e s t i m a t e t h e p r i c e s and c o s t s p e r t a i n i n g t o t h e d e v e l o p m e n t o f s i n g l e - d e t a c h e d and row h o u s e s i n t h e O n t a r i o p o r t i o n o f t h e O t t a w a - H u l l M e t r o p o l i t a n A r e a t h r o u g h o u t t h e s t u d y p e r i o d . The g e n e r a l a p p r o a c h t o e s t i m a t e t h e p e r i o d i c p r i c e s and c o s t s p e r t a i n i n g t o new d e v e l o p m e n t has be e n t o e s t i m a t e v a l u e s f o r a s p e c i f i c t i m e p e r i o d ( t h a t were c o n s i s t e n t w i t h r e s p e c t t o p r i c e , q u a n t i t y , t y p e and l o c a t i o n ) and t o a d j u s t t h e s e v a l u e s b a s e d on m o n t h l y i n d i c i e s t h a t were r e p r e s e n t a t i v e o f p r i c e movements i n t h e m a r k e t . The b e s t s o u r c e o f d a t e d p r i c e s and q u a n t i t y o f new s i n g l e -d e t a c h e d and row h o u s i n g i n t h e O n t a r i o p o r t i o n o f t h e O t t a w a -H u l l M e t r o p o l i t a n A r e a was t h e 1971 d a t a r e p o r t e d by t h e Canada M o r t g a g e and H o u s i n g C o r p o r a t i o n (CMHC) f o r new h o u s e s w i t h m o r t g a g e s a p p r o v e d u n d e r t h e N a t i o n a l H o u s i n g A c t (NHA). As shown i n T a b l e A - l , t h e q u a n t i t y o f NHA mortgage a p p r o v a l s i n 1971 f o r new s i n g l e - d e t a c h e d and row h o u s e s was l a r g e i n number as w e l l as w i t h r e s p e c t t o t h e t o t a l number o f s t a r t s o f a l l g r o u n d o r i e n t e d h o u s e s . T h e r e f o r e , t h e u s e o f CHMC d a t a p e r t a i n -i n g t o p r i c e s and q u a n t i t y o f new g r o u n d o r i e n t e d h o u s i n g i n t h e O n t a r i o p o r t i o n o f t h e O t t a w a - H u l l M e t r o p o l i t a n A r e a and f i n a n c e d u n d e r t h e N a t i o n a l H o u s i n g A c t , t o i n d i c a t e m a r k e t c o n d i t i o n s i n 136 1971, w o u l d a p p e a r t o be r e a s o n a b l e , T7ABLE A - l NEW GROUND-ORIENTED HOUSING IN THE ONTARIO PORTION OF THE METROPOLITAN AREA a -1971-M u n i c i p a l i t i e s : T o t a l C o s t : B u i l d i n g C o s t : Number o f U n i t s : M u n i c i p a l i t i e s : T o t a l C o s t : B u i l d i n g C o s t : Number o f U n i t s : S i n g l e - D e t a c h e d Houses Ottawa G l o u c e s t e r Nepean $30,637 $30,426 $32,662 $21,846 $22,080 $24,489 (697) 28 488 181 Row Houses (Condominium and F r e e h o l d ) Ottawa $20,104 $16,290 (698) 177 G l o u c e s t e r $21,986 $17,697 417 NHA M o r t g a g e A p p r o v a l s : T o t a l H o u s i n g S t a r t s P e r c e n t o f S t a r t s w i t h NHA M o r t g a g e A p p r o v a l s : S i n g l e Houses 6 9 7 b 2,497 27.9% Nepean $24,901 $21,359 104 Row Houses 698 1,180 59.2% D a t a o b t a i n e d f r o m t h e S t a t i s t i c a l S e r v i c e s D i v i s i o n o f t h e Canada M o r t g a g e and H o u s i n g C o r p o r a t i o n . ""NHA M o r t g a g e A p p r o v a l s f o r new s i n g l e - d e t a c h e d h o u s e s . ' I n c l u d e s a l l s i n g l e f a m i l y h o u s i n g ( i . e . s i n g l e - d e t a c h e d , d o u b l e s , and d u p l e x h o u s e s ) . 137 House P r i c e s The p e r i o d i c s e l l i n g p r i c e o f new s i n g l e - d e t a c h e d d w e l l i n g s i n t h e O n t a r i o p o r t i o n o f t h e O t t a w a - H u l l M e t r o p o l i t a n A r e a , has been b a s e d on an e s t i m a t e o f t h e a v e r a g e m o n t h l y p r i c e i n 1971 and a m o n t h l y p r i c e i n d e x t h a t m e a s u r e s movements i n t h e a v e r a g e s e l l i n g p r i c e o f new h o u s e s o f f i x e d p r o p o r t i o n s and l o c a t i o n , t h r o u g h o u t t h e s t u d y p e r i o d . The a v e r a g e m o n t h l y p r i c e i n 1971 o f new s i n g l e - d e t a c h e d d w e l l i n g s has been a p p r o x i m a t e d by t h e 1971 a n n u a l a v e r a g e t o t a l c o s t ($31,015) o f NHA f i n a n c e d new s i n g l e -d e t a c h e d d w e l l i n g s i n t h e l a r g e r m u n i c i p a l i t i e s o f t h e O n t a r i o p o r t i o n o f t h e O t t a w a - H u l l M e t r o p o l i t a n A r e a ( i . e . C i t y o f Ottawa and t h e T o w n s h i p s o f G l o u c e s t e r and N e p e a n ) . B e c a u s e t h e a v e r a g e t o t a l c o s t a p p r o x i m a t e l y e q u a l l e d t h e a v e r a g e s e l l i n g p r i c e o f NHA f i n a n c e d new s i n g l e - d e t a c h e d h o u s e s , and b e c a u s e f i f t y p e r -c e n t o f t h e number o f NHA mortgage a p p r o v a l s f o r s i n g l e - d e t a c h e d d w e l l i n g s o c c u r r e d i n t h e f i r s t and s e c o n d h a l v e s o f t h e y e a r , t h e a n n u a l a v e r a g e t o t a l c o s t v a l u e w o u l d a p p e a r t o r e f l e c t s e l l -i n g p r i c e s t h r o u g h o u t t h e y e a r . 6 The e s t i m a t e d a v e r a g e m o n t h l y p r i c e o f new s i n g l e - d e t a c h e d h o u s e s has b een matched w i t h t h e 1971 a v e r a g e m o n t h l y v a l u e o f t h e p r i c e i n d e x f o r new h o u s e s , w h i c h has b een u s e d t o e s t i m a t e t h e m o n t h l y p r i c e o f t h e new s i n g l e - d e t a c h e d h o u s e s , w i t h t h e c h a r a c t e r i s t i c s o f t h e o r i g i n a l sample, t h r o u g h o u t t h e s t u d y p e r i o d . The new house p r i c e i n d e x , u s e d i n t h i s s t u d y , c o n s i s t s o f t h e S t a t i s t i c s Canada New House P r i c e I n d e x f o r O t t a w a - H u l l f o r 7 t h e p e r i o d 1970 t o 1979. F o r t h e p e r i o d 1968 t o 1969, however, a p r i c e i n d e x was computed on t h e b a s i s o f t h e r a t i o o f t h e s e l l i n g p r i c e and t h e r e c o r d e d a s s e s s m e n t v a l u e f o r new s i n g l e -g d e t a c h e d h o u s e s , i n a s i n g l e s u b - m a r k e t . 138 S u b d i v i s i o n C o s t s O b j e c t i v e ; S u b d i v i s i o n s f o r r e s i d e n t i a l d e v e l o p m e n t r e q u i r e ex-p e n d i t u r e s f o r h a r d s e r v i c e s , r o u g h g r a d i n g , c o n s u l t a n t f e e s , o v e r h e a d , and m u n i c i p a l d e v e l o p m e n t l e v i e s . The o b j e c t i v e has been t o e s t i m a t e t h e c o s t s o f p r e p a r i n g a b u i l d i n g l o t f o r a s i n g l e - d e t a c h e d h o u s e and f o r a row house i n t h e O n t a r i o p o r t i o n o f t h e M e t r o p o l i t a n A r e a . C o s t s have been computed on t h e b a s i s o f e s t i m a t e s o f t h e p r e v a i l i n g p r i c e t o p r e p a r e s e r v i c e d r e s i d e n -t i a l l a n d ( p e r u n i t and p e r f r o n t f o o t o f r o a d ) , as w e l l as t h e q u a n t i t y o f s e r v i c e d l a n d and r o a d f r o n t a g e r e q u i r e d p e r l o t t h a t w o u l d be c o n s i s t e n t w i t h t h e d e n s i t y o f d e v e l o p m e n t sampled. I n v i e w o f t h e a b ove, p e r i o d i c p r i c e s have been e s t i m a t e d f o r h a r d s e r v i c e s , r o u g h g r a d i n g , c o n s u l t a n t f e e s , and o v e r h e a d as w e l l as f o r m u n i c i p a l d e v e l o p m e n t l e v i e s . F u r t h e r m o r e , an a t t e m p t has b e en made t o e s t i m a t e t h e w e i g h t e d a v e r a g e l o t s i z e f o r s i n g l e - d e t a c h e d h o u s e s and f o r row h o u s e s i n f u l l y s e r v i c e d NHA a p p r o v e d s u b d i v i s i o n s , t h a t were a c t i v e i n 1971, and t o e s t i m a t e t h e r e q u i r e d r o a d f r o n t a g e p e r l o t on t h e b a s i s o f t h e r o a d f o o t a g e r e q u i r e d p e r d e v e l o p e d a c r e i n a low d e n s i t y r e s i d e n -t i a l n e i g h b o u r h o o d . I n summary, i t was e s t i m a t e d t h a t i n 19 71 t h e a v e r a g e new l o t s i z e o f t h e sample o f s i n g l e - d e t a c h e d h o u s e s w o u l d p e r m i t 5.2 l o t s p e r g r o s s a c r e (a b u i l d i n g l o t , r i g h t s -of-way, and p a r k l a n d ) and r e q u i r e 6 4 f e e t o f r o a d f r o n t a g e p e r r e s i d e n t i a l l o t . S i m i l a r l y , row h o u s i n g c o u l d be b u i l t a t 13.5 u n i t s p e r g r o s s a c r e ( i . e . 15 u n i t s p e r n e t a c r e ) and r e q u i r e 9 2 7 f e e t o f r o a d f r o n t a g e p e r u n i t . S e r v i c i n g C o s t s . S e r v i c i n g e x p e n d i t u r e s i n c l u d e t h o s e i n c u r r e d f o r r o u g h g r a d i n g , h a r d s e r v i c e s , c o n s u l t a n t s f e e s and o v e r h e a d 139 t o p r e p a r e l a n d f o r d e v e l o p m e n t . C o n s u l t i n g c o s t s i n c l u d e e x p e n d i t u r e s i n c u r r e d f o r d e s i g n c o n s u l t a n t s , s u p e r v i s i o n o f t h e c o n s t r u c t i o n by c o n s u l t a n t s a s w e l l as a d m i n i s t r a t i o n and i n t e r -m i t t e n t s u p e r v i s i o n by t h e m u n i c i p a l i t y . O v e r h e a d e x p e n d i t u r e s c o n s i s t o f t h e management e x p e n d i t u r e s o f t h e d e v e l o p e r i n c l u d i n g o f f i c e s t a f f , r e n t , r e s e a r c h and a d v e r t i s i n g . I n t h i s s t u d y , an a t t e m p t h as b e e n made t o d e t e r m i n e t h e p e r i o d i c c o s t s f o r t h e s e a c c o u n t s b a s e d on an e s t i m a t e o f t h e p e r i o d i c p r i c e p e r f o o t o f r o a d f r o n t a g e and t h e s p e c i f i c f e e t o f r o a d f r o n t a g e p e r r e s i -d e n t i a l l o t ( i . e . 64 f e e t f o r a s i n g l e - d e t a c h e d h o u s e and 27 f e e t f o r a row h o u s e ) . The p e r i o d i c p r i c e p e r f r o n t f o o t o f r o a d has been b a s e d on a n n u a l d a t a between 196 8 and 1979. A n n u a l v a l u e s have been assumed t o r e p r e s e n t t h e m i d - y e a r p r i c e and e s t i m a t e s o f m o n t h l y v a l u e s have been e s t i m a t e d by i n t e r p o l a t i n g between t h e s e p o i n t s . M u n i c i p a l D e v e l o p m e n t L e v i e s . The m u n i c i p a l d e v e l o p m e n t l e v i e s i n c l u d e t h e s t a n d a r d c h a r g e p e r l o t as w e l l a s , i f a p p l i c a b l e , a c h a r g e p e r d e v e l o p e d a c r e . The p e r i o d i c d e v e l o p m e n t l e v i e s f o r s i n g l e - d e t a c h e d and row h o u s e s i n t h e O n t a r i o p o r t i o n o f t h e O t t a w a - H u l l M e t r o p o l i t a n A r e a have been e s t i m a t e d by t h e 19 71 a v e r a g e m o n t h l y c h a r g e and a m o n t h l y p r i c e i n d e x , f o r e a c h h o u s i n g t y p e , t h a t m e a s u r e s c h a n g e s i n t h e l e v y amount t h r o u g h -o u t t h e s t u d y p e r i o d . I t was n o t e d t h a t d e v e l o p m e n t l e v i e s v a r y f r o m one t y p e o f h o u s i n g u n i t t o a n o t h e r as w e l l as f r o m one m u n i c i p a l i t y t o a n o t h e r . I n v i e w o f t h e above an a t t e m p t was made t o s t a n d a r d i z e t h e l o c a t i o n o f d e v e l o p m e n t i n o r d e r t h a t t h e d i f f e r e n c e between t h e e s t i m a t e d m u n i c i p a l d e v e l o p m e n t l e v i e s , and t h u s t h e d e v e l o p m e n t c o s t s , f o r s i n g l e - d e t a c h e d and 140 row h o u s e s w o u l d n o t be d i s t o r t e d by t h e d i f f e r e n t l o c a t i o n s o f d e v e l o p m e n t p r e v a i l i n g i n t h e b a s e t i m e p e r i o d . However, t h e m o n t h l y p r i c e i n d i c i e s , t h a t r e f l e c t t h e p e r i o d i c c h a n g e s i n d e v e l o p m e n t l e v i e s , were b a s e d on t h e a v e r a g e l o c a t i o n s o f s i n g l e - d e t a c h e d and row h o u s i n g d e v e l o p m e n t t h r o u g h o u t t h e s t u d y p e r i o d as n o t e d b e l o w . F o r s i n g l e - d e t a c h e d h o u s e s , t h e 1971 a v e r a g e m o n t h l y l e v y was b a s e d on t h e w e i g h t e d a p p l i c a b l e c h a r g e s o f t h e l a r g e r muni-c i p a l i t i e s o f t h e O n t a r i o p o r t i o n o f t h e M e t r o p o l i t a n A r e a ( i . e . t h e C i t y o f Ottawa, and t h e T o w n s h i p s o f G l o u c e s t e r and N e p e a n ) , where t h e w e i g h t s were t h e p r o p o r t i o n o f t h e NHA m o r t g a g e a p p r o v -a l s f o r new s i n g l e - d e t a c h e d d w e l l i n g s t h a t were i n e a c h m u n i c i p a l -i t y . The m o n t h l y i n d e x t o measure c h a n g e s i n t h e d e v e l o p m e n t l e v i e s f o r s i n g l e - d e t a c h e d h o u s e s was d e s i g n e d t o r e f l e c t t h e a v e r a g e l o c a t i o n o f a l l s i n g l e - f a m i l y h o u s i n g d e v e l o p m e n t ( i . e . s i n g l e - d e t a c h e d , d o u b l e s , and d u p l e x h o u s e s ) t h r o u g h o u t t h e s t u d y p e r i o d and i n p a r t i c u l a r t h e e s t i m a t i o n p e r i o d . S p e c i f i c a l l y t h i s i n d e x was b a s e d on t h e m o n t h l y w e i g h t e d a v e r a g e c h a r g e s f o r s i n g l e - d e t a c h e d h o u s e s , i n t h e t h r e e m u n i c i p a l i t i e s n o t e d above, where t h e w e i g h t s were t h e a v e r a g e p r o p o r t i o n o f t h e number o f s i n g l e - f a m i l y d w e l l i n g s t a r t s t h a t o c c u r e d i n e a c h m u n i c i p a l i t y between 1968 and 1977. S i m i l a r l y , f o r row h o u s i n g t h e 1971 a v e r a g e m o n t h l y l e v y was b a s e d on t h e w e i g h t e d c h a r g e s o f t h e C i t y o f Ottawa and t h e T o w n s h i p s o f G l o u c e s t e r and Nepean; b u t , t h e w e i g h t s u s e d were t h e same as t h o s e u s e d t o d e t e r m i n e t h e 1971 w e i g h t e d a v e r a g e m o n t h l y l e v y f o r s i n g l e - d e t a c h e d h o u s e s , i n o r d e r t h a t t h e d i f f e r -e n c e between t h e a v e r a g e s i n g l e - d e t a c h e d and row house d e v e l o p m e n t c o s t s w o u l d n o t s i m p l y r e f l e c t d i f f e r e n t d e v e l o p m e n t l o c a t i o n s . 141 However, t h e m o n t h l y i n d e x o f d e v e l o p m e n t l e v i e s f o r row h o u s i n g was d e s i g n e d t o r e f l e c t t h e l o c a t i o n o f t h i s t y p e o f d e v e l o p m e n t t h r o u g h o u t t h e s t u d y p e r i o d and i n p a r t i c u l a r t h e e s t i m a t i o n p e r i o d . S p e c i f i c a l l y t h i s l e v y i n d e x was b a s e d on t h e m o n t h l y w e i g h t e d a v e r a g e l e v y f o r row h o u s e s , i n t h e t h r e e m u n i c i p a l i t i e s n o t e d above, where t h e w e i g h t s were t h e a v e r a g e p r o p o r t i o n o f t h e number o f row h o u s i n g s t a r t s t h a t o c c u r r e d i n e a c h m u n i c i p a l i t y between 1968 and 1977. B u i l d i n g and / A n c i l l a r y L o t improvement C o s t s B u i l d i n g and a n c i l l a r y l o t improvement c o s t s i n c l u d e ex-p e n d i t u r e s f o r t h e c o n s t r u c t i o n o f a h o u s e , d r i v e w a y and l a t e r a l s t o t h e l o t l i n e as w e l l as b u i l d i n g p e r m i t f e e s . The p e r i o d i c c o s t s f o r b u i l d i n g and a n c i l l a r y l o t improvements f o r s i n g l e -d e t a c h e d and row h o u s e s i n t h e O n t a r i o p o r t i o n o f t h e O t t a w a - H u l l M e t r o p o l i t a n A r e a has b e e n b a s e d on an e s t i m a t e o f a v e r a g e m o n t h l y c o s t i n 1971 and a m o n t h l y p r i c e i n d e x t h a t m e a s u r e s movements i n b u i l d i n g c o s t s o f new h o u s e s o f f i x e d p r o p o r t i o n s and l o c a t i o n s , t h r o u g h o u t t h e s t u d y p e r i o d . The e s t i m a t e o f t h e 1971 a v e r a g e m o n t h l y b u i l d i n g and l o t improvement c o s t s , t h a t c o r r e s p o n d t o t h e e s t i m a t e o f t h e a v e r a g e s e l l i n g p r i c e o f t h e sample o f s i n g l e - d e t a c h e d d w e l l i n g s , has b een 12 e s t i m a t e d t o be $22,696. T h i s e s t i m a t e r e p r e s e n t s t h e 1971 w e i g h t e d a n n u a l a v e r a g e b u i l d i n g c o s t s r e p o r t e d by t h e owners and b u i l d e r s a p p l y i n g f o r t h e a p p r o v a l o f m o r t g a g e s u n d e r t h e N a t i o n a l H o u s i n g A c t f o r new s i n g l e - d e t a c h e d d w e l l i n g s i n t h e t h r e e l a r g e s t m u n i c i p a l i t i e s i n t h e O n t a r i o p o r t i o n o f t h e O t t a w a - H u l l M e t r o p o l -i t a n A r e a . S i m i l a r l y , t h e e s t i m a t e o f t h e 1971 a v e r a g e m o n t h l y b u i l d i n g and l o t improvement c o s t s f o r row h o u s i n g , t h a t c o r r e s -142 ponds t o t h e same l o c a t i o n o f t h e sample o f t h e s i n g l e - d e t a c h e d h o u s e s c o n s i d e r e d , h as been e s t i m a t e d t o be $18,591. T h i s e s t i -mate r e p r e s e n t s t h e 1971 w e i g h t e d a n n u a l a v e r a g e b u i l d i n g c o s t s r e p o r t e d by t h e owners and b u i l d e r s a p p l y i n g f o r t h e a p p r o v a l o f m o r t g a g e s u n d e r t h e N a t i o n a l H o u s i n g A c t f o r new row h o u s i n g (condominium and f r e e - h o l d t e n u r e ) i n t h e t h r e e l a r g e s t m u n i c i p a l -i t i e s i n t h e O n t a r i o p o r t i o n o f t h e O t t a w a - H u l l M e t r o p o l i t a n A r e a . However, t h e w e i g h t s u s e d were t h e same as t h o s e u s e d t o d e t e r m i n e t h e 1971 w e i g h t e d m o n t h l y a v e r a g e b u i l d i n g c o s t s f o r s i n g l e -d e t a c h e d h o u s e s , i n o r d e r t h a t t h e d i f f e r e n c e between t h e e s t i -m ated a v e r a g e s i n g l e - d e t a c h e d and row house d e v e l o p m e n t c o s t s w o u l d n o t s i m p l y r e f l e c t d i f f e r e n t d e v e l o p m e n t l o c a t i o n s . S i m i l a r t o t h e d i s c u s s i o n on house p r i c e s , t h e e s t i m a t e d a v e r a g e m o n t h l y c o s t s have b e e n matched w i t h t h e 1971 a v e r a g e m o n t h l y v a l u e s o f t h e r e s i d e n t i a l b u i l d i n g c o n s t r u c t i o n c o s t i n -dex, w h i c h has been u s e d t o e s t i m a t e t h e m o n t h l y c o s t t o c o n s t r u c t new s i n g l e - d e t a c h e d and row h o u s e s , w i t h c h a r a c t e r i s t i c s o f t h e o r i g i n a l s a m p l e s , t h r o u g h o u t t h e s t u d y p e r i o d . The r e s i d e n t i a l b u i l d i n g c o s t i n d e x c o n s i s t s o f t h e S t a t i s t i c s Canada r e s i d e n t i a l c o n s t r u c t i o n i n p u t c o s t i n d e x f o r O n t a r i o f o r t h e p e r i o d 1971 t o 13 1979, and t h e i n d e x f o r Canada f o r t h e p e r i o d 1968 t o 1970. Lan d C o s t Repayment I n t h e O n t a r i o p o r t i o n o f t h e O t t a w a - H u l l M e t r o p o l i t a n A r e a , d e v e l o p e r s w o u l d a p p e a r t o have made m a j o r l a n d a c q u i s i t i o n s many y e a r s p r i o r t o t h e s t u d y p e r i o d . However, on t h e b a s i s o f t h e a s s u m p t i o n t h a t l a n d h o l d i n g s t h r o u g h o u t t h e s t u d y p e r i o d were s u b j e c t t o an o u t s t a n d i n g m o r t g a g e , i t w o u l d be n e c e s s a r y t o e s t i m a t e t h e p r i n c i p a l r e p a y m e n t upon t h e s a l e o f a h o u s e . F u r -143 t h e r m o r e , i n o r d e r t o e s t i m a t e t h e income t a x e x p e n s e s t h a t w o u l d o c c u r ( g i v e n t h e d e c i s i o n t o d e v e l o p ) , i t w o u l d be n e c e s s a r y t o e s t i m a t e t h e o r i g i n a l a c q u i s i t i o n p r i c e and f i n a n c i n g c h a r a c t e r -i s t i c s w h i c h w o u l d a f f e c t t h e m a g n i t u d e o f t h e p e r m i t t e d t a x d e d u c t i o n s . A l t h o u g h i t has n o t been p o s s i b l e t o d e t e r m i n e d e t a i l s o f l a n d t r a n s a c t i o n s , a s s o c i a t e d w i t h d e v e l o p m e n t o c c u r r i n g a t v a r i o u s t i m e s t h r o u g h o u t t h e s t u d y p e r i o d , an a t t e m p t was made t o e s t i m a t e t h e p r i c e p a i d f o r l a n d a d j a c e n t t o d e v e l o p i n g a r e a s d u r i n g a p e r i o d when c o n s i d e r a b l e d e v e l o p e r l a n d a c q u i s i t i o n was e x p e r i -e n c e d . I t has b e e n assumed t h a t l a n d may have been a c q u i r e d by d e v e l o p e r s as e a r l y as 1960, d u r i n g a " l a n d boom" p e r i o d and t h a t an a c q u i s i t i o n p r i c e o f $1800 p e r a c r e may r e p r e s e n t a t y p i c a l 14 raw l a n d p r i c e , a l t h o u g h on t h e h i g h s i d e . The o u t s t a n d i n g p r i n c i p a l t o be r e p a i d f o r s i n g l e - d e t a c h e d h o u s e s ($173 p e r l o t ) has been e s t i m a t e d on t h e b a s i s o f t h e a c q u i s i t i o n p r i c e , t h e s p e c i f i c a t i o n o f 5.2 l o t s p e r g r o s s a c r e , a l o a n - t o - v a l u e r a t i o o f 5 0 p e r c e n t , and t h e a s s u m p t i o n t h a t no o r i g i n a l p r i n c i p a l h as 15 been r e p a i d . F u r t h e r m o r e , i t has been assumed t h a t i n t e r e s t payments have b e e n b a s e d on an i n t e r e s t r a t e o f 7.26 p e r c e n t w h i c h r e p r e s e n t s t h e a v e r a g e c o n v e n t i o n a l m o r t g a g e r a t e o f l e n d i n g i n -s t i t u t i o n s i n O n t a r i o i n 1 9 6 0 . ^ A d d i t i o n a l H o l d i n g C h a r g e s A d d i t i o n a l h o l d i n g c h a r g e s as a c o n s e q u e n c e o f d e v e l o p i n g l a n d h as b e e n e s t i m a t e d by t h e i n c r e a s e i n p r o p e r t y t a x e s a t t r i -b u t e d t o t h e improvement i n l a n d a s p a r t o f t h e d e v e l o p m e n t a c t i -v i t y . The i n c r e a s e i n p r o p e r t y t a x e s has been e s t i m a t e d by t h e a v e r a g e p r o p e r t y t a x f o r s e r v i c e d l a n d minus t h e a v e r a g e p r o p e r t y 144 t a x f o r u n s e r v i c e d l a n d , b a s e d on t h e r e s i d e n t i a l - f a r m m i l l r a t e s and t h e a s s e s s m e n t o f l a n d i n t h e T o w n s h i p s o f G l o u c e s t e r and 17 Nepean. I t has a l s o b e e n assumed t h a t a l l p r o p e r t y t a x e s a r e p a i d i n J a n u a r y and t h a t d u r i n g t h e d e v e l o p m e n t p h a s e p r o p e r t y t a x e s w o u l d be b a s e d on t h e a s s e s s m e n t o f s e r v i c e d l o t s . D e v e l o p m e n t F i n a n c i n g C o s t s D e v e l o p e r s f i n a n c e i n v e s t m e n t s by b u s i n e s s l o a n s , m o r t g -a g e s , bonds and e q u i t y ( i n t h e f o r m o f s t o c k and r e t a i n e d e a r n -i n g s ) . The e x p e n d i t u r e s r e q u i r e d f o r f i n a n c i n g t h e c o n s t r u c t i o n p h a s e o f a d e v e l o p m e n t depend upon t h e m a g n i t u d e o f t h e p r i n c i p a l , t h e p r e v a i l i n g i n t e r e s t r a t e s , f i n a n c i n g f e e s , and t h e a m o r t i z -a t i o n p e r i o d o f b o r r o w e d f u n d s , as w e l l as f l o t a t i o n c o s t s a s s o c -i a t e d w i t h t h e i s s u e o f bonds and s t o c k s . The s i z e o f t h e p r i n c i p a l has been b a s e d on e s t i m a t e s o f t h e c o s t o f s u b d i v i s i o n , b u i l d i n g and l o t improvements as w e l l as t h e p r o p o r t i o n o f c a p i t a l c o s t s t o be f u n d e d by b o r r o w i n g . An a t t e m p t has been made t o d e t e r m i n e t h e p r o p o r t i o n o f i n v e s t m e n t f u n d s o b t a i n e d by b u s i n e s s l o a n s m o r t g a g e s and b o n d s . The p r o -p o r t i o n o f c a p i t a l d e r i v e d f r o m d i f f e r e n t s o u r c e s s h o u l d be b a s e d on t h e m a r k e t v a l u e s o f t h e c a p i t a l components. T h i s w o u l d r e -q u i r e d e t e r m i n i n g t h e m a r k e t v a l u e o f a l l d e b t s (some o f w h i c h may n o t be t r a d e d a t a l l ) and t h e m a r k e t v a l u e o f common e q u i t y (number o f s h a r e s t i m e s t h e c u r r e n t p r i c e p e r s h a r e ) , and r e c o n -18 s t r u c t i n g a m a r k e t v a l u e c a p i t a l s t r u c t u r e . B r i g h a m n o t e s , however, t h a t e v e n t h o u g h i t w o u l d be t h e o r e t i c a l l y p r e f e r a b l e t o use m a r k e t v a l u e w e i g h t s , most f i r m s ( f o r p r a c t i c a l r e a s o n s ) w o u l d , 19 i n f a c t , t a r g e t on book v a l u e c a p i t a l s t r u c t u r e s . I n v i e w o f t h e above, an a t t e m p t has been made t o e s t i m a t e t h e p r e v a i l i n g 145 a v e r a g e s t r u c t u r e o f d e v e l o p e r s , i n t h e s t u d y a r e a , on t h e b a s i s o f S t a t i s t i c s Canada d a t a on t h e book v a l u e l i a b i l i t i e s o f " R e a l 20 E s t a t e O p e r a t o r s and D e v e l o p e r s " . S p e c i f i c a l l y an a t t e m p t has been made t o e s t i m a t e t h e p r o p o r t i o n o f c a p i t a l t h a t may be c o n -s i d e r e d as b u s i n e s s l o a n s , m o r t g a g e d e b t , bond d e b t , and e q u i t y 21 ( p r e f e r r e d and common s t o c k , as w e l l as r e t a i n e d e a r n i n g s ) . I n v i e w o f t h e above, t h e m a g n i t u d e o f t h e p r i n c i p a l o f b o r r o w e d f u n d s has been d e t e r m i n e d by t h e p r o d u c t o f t h e p r o p o r t i o n o f c a p i t a l composed o f d e b t i n s t r u m e n t s and t h e d e v e l o p m e n t p h a s e e x p e n d i t u r e s . The a m o r t i z a t i o n p e r i o d has been assumed t o be 12 months t o f i n a n c e t h e s u b d i v i s i o n o f l a n d and 6 months t o f i n a n c e t h e b u i l d i n g o f a house and l o t i m p r o v e m e n t s , w i t h a l l t h e p r i n c i p a l 22 r e p a i d upon t h e s a l e o f a h o u s e . I n t e r e s t payments have been assumed t o o c c u r m o n t h l y b a s e d on t h e w e i g h t e d - a v e r a g e i n t e r e s t r a t e and t h e o u t s t a n d i n g p r i n c i p a l . The w e i g h t e d - a v e r a g e i n t e r e s t r a t e has been b a s e d on an e s t i m a t e o f t h e i n t e r e s t r a t e f o r b u s i -n e s s l o a n s ( p r i m e b u s i n e s s bank r a t e p l u s 2 p e r c e n t ) , t h e c o n v e n -t i o n a l m o r t g a g e i n t e r e s t r a t e , and t h e a v e r a g e i n t e r e s t r a t e o f 2 0 c o r p o r a t e b onds, w e i g h t e d by t h e p r o p o r t i o n o f t h e c a p i t a l 23 s t r u c t u r e composed o f e a c h d e b t i n s t r u m e n t . M o r t g a g e and b r o k e r a g e f e e s have been assumed m i n i m a l i n v i e w o f t h e l a r g e b u i l d e r s i n t h e a r e a and t h e p o t e n t i a l f o r f a v o u r a b l e f i n a n c i n g t e r m s . F l o t a t i o n c o s t s have been d e b i t e d c o i n c i d e n t t o i n i t i a l c a s h o u t l a y s and e s t i m a t e d on t h e b a s i s o f 8 p e r c e n t o f t h e bond and s t o c k c a p i t a l u s e d t o f i n a n c e t h e s u b d i v i s i o n , b u i l d i n g and 24 l o t i m p r o v e m e n t s as w e l l as a d d i t i o n a l l a n d h o l d i n g c h a r g e s . 146 Income T a x e s Income t a x (ITAX) e x p e n d i t u r e s , have been d e t e r m i n e d by m u l t i p l y i n g t h e p r e v a i l i n g t a x r a t e t i m e s t h e n e t r e v e n u e . The t a x r a t e (TR) has been d e t e r m i n e d by t h e p r e v a i l i n g F e d e r a l c o r p o r a t e t a x r a t e ( a d j u s t e d f o r s u r t a x e s and d i s c o u n t s ) minus 25 t h e p r o v i n c i a l a b a t e m e n t p l u s t h e O n t a r i o c o r p o r a t e t a x r a t e . The n e t r e v e n u e has been e s t i m a t e d by s u b t r a c t i n g e l i g i b l e d e d u c -t i o n s f r o m t h e s e l l i n g p r i c e o f a house (HP). The e l i g i b l e d e d u c t i o n s i n c l u d e t h e t o t a l c o s t s f o r s u b d i v i d i n g l a n d (SUB), b u i l d i n g a house and l o t improvements (BLDG), f i n a n c i n g ( F I N C ) , l a n d a c q u i s i t i o n (LAND), and f o r l a n d h o l d i n g e x p e n d i t u r e s t h a t 2 6 have n o t a l r e a d y b e en d e d u c t e d (HOLD). E l i g i b l e l a n d h o l d i n g c o s t d e d u c t i o n s have been b a s e d on p r o p e r t y t a x e s and m o n t h l y i n t e r e s t payments t o meet mortgage commitments t o c a r r y l a n d h o l d i n g s a s w e l l a s on p r e v a i l i n g t a x r e g u l a t i o n s . P r i o r t o May o f 1974, h o l d i n g c o s t s a t t r i b u t e d t o d e v e l o p m e n t have been d e t e r m i n e d by an e s t i m a t e o f t h e d i f f e r e n c e between p r o p e r t y t a x e s computed on s e r v i c e d and raw l a n d a s s e s s -27 ment. S u b s e q u e n t l y , h o l d i n g c o s t s have been b a s e d on t h e a c c u -m u l a t e d sum o f i n t e r e s t payments and p r o p e r t y t a x e s . B a s e d on t h e above t h e e s t i m a t e o f income t a x e x p e n d i t u r e s has been b a s e d on e x p r e s s i o n 5.6: ITAX = (TR) (HP-SUB-BLDG-FINC-LAND-HOLD) 5.6 R e q u i r e d R a t e o f R e t u r n W e i g h t e d - A v e r a g e C o s t o f C a p i t a l . The r e q u i r e d r a t e o f r e t u r n , o r t a r g e t r a t e o f r e t u r n , may be t h e r a t e o f t h e a v e r a g e f i r m o f com-p a r a b l e s i z e , i n t h e same l i n e o f b u s i n e s s , o r i t may be t h e m i n i -147 mum a c c e p t a b l e r a t e o f r e t u r n f o r c a p i t a l employed i n t h e b u s i n e s s , 28 b a s e d on t h e c o s t o f c a p i t a l . I n t h i s s t u d y , i t has been assumed t h a t t h e r e l a t i v e p r o f i t -a b i l i t y o f l a n d d e v e l o p m e n t i n v e s t m e n t s may be i n d i c a t e d by e s t i -m a t i n g t h e minimum a c c e p t e d r a t e o f r e t u r n by means o f t h e w e i g h t e d - a v e r a g e c o s t o f c a p i t a l . The r a t i o n a l e u n d e r l y i n g t h e w e i g h t e d - a v e r a g e c o s t o f c a p i t a l h as been t h a t b y f i n a n c i n g i n t h e p r o p o r t i o n s s p e c i f i e d and a c c e p t i n g p r o p o s a l s t h a t y i e l d more t h a n t h e w e i g h t e d - a v e r a g e c o s t , t h e f i r m w o u l d be a b l e t o i n c r e a s e t h e 29 m a r k e t p r i c e o f i t s s t o c k o v e r t h e l o n g - r u n . d e v e l o p m e n t f i r m s i n t h e Ottawa a r e a , an a t t e m p t has been made t o sum t h e c o s t s o f c a p i t a l , i n f i n a n c i n g by b u s i n e s s l o a n s , m o r t -g a g e s , bonds, s t o c k s and r e t a i n e d e a r n i n g s , t h a t have been w e i g h t e d by t h e i r p r o p o r t i o n o f t h e i n c r e m e n t a l c a p i t a l u s e d by d e v e l o p m e n t f i r m s i n Canada, as shown i n e x p r e s s i o n 5.7: C o s t o f C a p i t a l . The p e r i o d i c c o s t s o f c a p i t a l have been b a s e d on e s t i m a t e s o f t h e e x p l i c i t c o s t s o f d e b t i n s t r u m e n t s , and t h e c o s t o f e q u i t y c a p i t a l . The e x p l i c i t c o s t s o f e a c h d e b t i n s t r u m e n t has b e en c a l c u l a t e d as one minus t h e m a r g i n a l t a x r a t e t i m e s t h e a p p l i c a b l e i n t e r e s t r a t e o f t h e d e b t i n s t r u m e n t t y p e a s shown i n K o 30 e x p r e s s i o n 5.8: To e s t i m a t e t h e w e i g h t e d - a v e r a g e c o s t o f c a p i t a l o f l a n d W e i g h t e d A v e r a g e C o s t o f C a p i t a l P r o p o r t i o n o f C o s t o f C a p i t a l D e r i v e d C a p i t a l o f From E a c h s o u r c e E a c h Type o f Funds o f Funds 5.7 l E x p l i c i t C o s t s o f Debt C1.0 m a r g i n a l t a x r a t e ) x i n t e r e s t r a t e 5.8 148 The e q u i t y s o u r c e s o f f i n a n c i n g i n c l u d e p r e f e r r e d s t o c k , common s t o c k s and r e t a i n e d e a r n i n g s . B e c a u s e o f t h e s i m i l a r i t y o f t h e s e s o u r c e s o f f i n a n c i n g and t h e a v a i l a b i l i t y o f d a t a , an a t t e m p t has been made t o e s t i m a t e t h e c o s t o f t h i s c a p i t a l as t h e 31 b a s i s o f t h e c o s t o f common s t o c k e q u i t y . The c o s t o f common s t o c k e q u i t y , w h i c h i n c l u d e s b o t h common s t o c k i s s u e s and r e t a i n e d e a r n i n g s has b e e n d e f i n e d as t h e minimum r a t e o f r e t u r n t h a t a company must e a r n on t h e e q u i t y - f i n a n c e d p o r t i o n o f an i n v e s t m e n t p r o j e c t i n o r d e r t o l e a v e t h e m a r k e t p r i c e o f t h e s h a r e s un-32 c h a n g e d . A l t e r n a t i v e l y , i t has been d e f i n e d as t h e r e q u i r e d r e t u r n on common s t o c k . B r i g h a m has n o t e d t h a t , i n e q u i l i b r i u m , t h e e x p e c t e d r a t e o f r e t u r n must be e q u a l t o t h e r e q u i r e d r a t e o f r e t u r n , w h i c h a c c o r d i n g t o t h e C a p i t a l A s s e t P r i c i n g M o d e l may be d e f i n e d as t h e 33 sum o f a r i s k l e s s r a t e and a r i s k premium. The r i s k premium may be e s t i m a t e d by t h e d i f f e r e n c e between t h e e x p e c t e d e x c e s s r e t u r n o f t h e m a r k e t p o r t f o l i o , o r a v e r a g e s t o c k , w i t h r e s p e c t t o t h e s a f e i n t e r e s t r a t e , t i m e s a c o e f f i c i e n t ( b e t a ) e x p r e s s i n g t h e r i s k 34 o f t h e t y p e o f s h a r e r e l a t i v e t o o t h e r s t o c k s . I n t h i s s t u d y , an a t t e m p t has been made t o measure t h e minimum r a t e o f r e t u r n u s i n g t h e C a p i t a l A s s e t P r i c i n g M o d e l , as shown i n e x p r e s s i o n 5.9: R e q u i r e d Minimum R i s k ( E x p e c t e d ) R e q u i r e d _ F r e e + B e t a x R a t e o f R e t u r n R a t e o f R a t e o f o f a M a r k e t R e t u r n R e t u r n P o r t f o l i o o f Common S t o c k B a s e d on c o m p u t a t i o n s made by Kalymon, t h e v a l u e o f b e t a h as been e s t i m a t e d t o be e q u a l t o 1.6 5 and t h e r e q u i r e d r a t e o f r e t u r n f o r R i s k F r e e R a t e o f R e t u r n 5.9 1 4 9 a m a r k e t p o r t f o l i o o f common s t o c k s has been e s t i m a t e d t o be e q u a l 35 t o 6.77 p e r c e n t p l u s t h e e x p e c t e d r a t e o f i n f l a t i o n . A l t h o u g h t h e r e w o u l d n o t a p p e a r t o be a s i m p l e s o l u t i o n t o d e t e r m i n e t h e p e r i o d i c e x p e c t a t i o n s p e r t a i n i n g t o t h e r a t e o f i n f l a t i o n , an a t t e m p t has been made t o e s t i m a t e p r e v a i l i n g t r e n d s by d e t e r m i n i n g t h e a v e r a g e r a t e o f i n c r e a s e i n t h e n a t i o n a l consumer p r i c e i n d e x o v e r t h e p r e c e d i n g t h r e e y e a r s . The r i s k f r e e r a t e has been p r o x i e d by t h e p r e v a i l i n g l o n g - t e r m f e d e r a l government bond i n t e r e s t r a t e , i n v i e w o f B r i g h a m ' s o b s e r v a t i o n t h a t l o n g - t e r m r a t e s have been more c o n s i s t e n t w i t h t h e t h e o r y t h a n have s h o r t -3 6 t e r m r a t e s . I n summary t h e r e f o r e , t h e c o s t o f e q u i t y c a p i t a l h as been e s t i m a t e d by t h e C a p i t a l A s s e t P r i c i n g M o d e l u s i n g a v a l u e o f 1.6 5 f o r beta., t h e sum o f 6.77. p e r c e n t p l u s t h e a v e r a g e r a t e o f i n f l a t i o n f o r t h e r e q u i r e d r e t u r n f r o m a m a r k e t p o r t f o l i o , and t h e l o n g - t e r m government bond r a t e as t h e r i s k f r e e r a t e . H o u s i n g U n i t E s t i m a t e s I n t r o d u c t i o n S i n c e t h e model t o be e s t i m a t e d p e r t a i n s t o p r o f i t m o t i -v a t e d g r o u n d o r i e n t e d h o u s i n g s t a r t s ( i n c l u d i n g t h o s e f o r p e r s o n a l u s e o r i n v e s t m e n t ) , an a t t e m p t has been made t o d e t e r m i n e t h e m o n t h l y t o t a l number o f new s i n g l e - d e t a c h e d , d o u b l e s , d u p l e x , and row h o u s i n g u n i t s , as w e l l as t h e number o f n o n - p r o f i t ( p u b l i c ) m o t i v a t e d h o u s i n g u n i t s , t h a t c o m p r i s e t h e number o f s t a r t s , com-p l e t i o n s , u n i t s u n d e r c o n s t r u c t i o n and v a c a n t i n v e n t o r y . Non-p r o f i t ( p u b l i c ) m o t i v a t e d h o u s i n g has been d e f i n e d t o c o n s i s t o f t h o s e u n i t s f u n d e d u n d e r t h e F e d e r a l - P r o v i n c i a l P u b l i c H o u s i n g P rogram, and t h e N o n - P r o f i t C o r p o r a t i o n s Low R e n t a l H o u s i n g P r o -3 7 gram. I n g e n e r a l t h e m o n t h l y number o f h o u s i n g u n i t s by 150 c a t e g o r y f o r t h e d e f i n e d m a r k e t a r e a has b een d e t e r m i n e d u s i n g Canada M o r t g a g e and H o u s i n g C o r p o r a t i o n (CMHC) d a t a f o r m u n i c i -p a l i t i e s w i t h i n t h e C e n sus M e t r o p o l i t a n A r e a ; however, e s t i m a t e s were n e e d e d f o r some s u b u r b a n m u n i c i p a l i t i e s f o r t h e y e a r s w i t h i n s t u d y p e r i o d p r i o r t o 1972. H o u s i n g S t a r t s M o n t h l y h o u s i n g s t a r t s by t y p e , f i n a n c i n g and m u n i c i p a l i t y were d e t e r m i n e d u s i n g d a t a p r o v i d e d by t h e S t a t i s t i c a l S e r v i c e s D i v i s i o n o f t h e Canada H o u s i n g and M o r t g a g e C o r p o r a t i o n (CMHC), and, t o a r e l a t i v e l y s m a l l e x t e n t , on t h e b a s i s o f b u i l d i n g p e r m i t d a t a f o r new h o u s i n g , o r t h e i n c r e a s e i n t h e h o u s i n g s t o c k , f o r some s u b u r b a n m u n i c i p a l i t i e s f o r t h e p e r i o d b e g i n n i n g i n 1967 t o 3 8 t h e e n d o f 1971. S p e c i f i c a l l y , d a t a on b u i l d i n g p e r m i t a p p r o v -a l s was o b t a i n e d f o r t h e M u n i c i p a l i t i e s o f C u m b e r l a n d , March, S o u l b o u r n , Richmond and W e s t - H u l l f r o m S t a t i s t i c s Canada and t h e i r p u b l i c a t i o n B u i l d i n g P e r m i t s C a t a l o g u e No. 64-001 ( m o n t h l y ) , o r 39 f r o m t h e T o w n s h i p o f C u m b e r l a n d . A l t h o u g h b u i l d i n g p e r m i t d a t a was t h e b e s t a l t e r n a t i v e t o CMHC i n f o r m a t i o n , i t was n e c e s s a r y t o d e t e r m i n e t h e number o f h o u s i n g s t a r t s i n t h e M u n i c i p a l i t i e s o f T o u r a i n e and T e m p l e t o n E a s t b a s e d on an e s t i m a t e o f t h e i n c r e a s e i n t h e h o u s i n g s t o c k , t h e p r o p o r t i o n o f t h e t o t a l number o f c o m p l e -t i o n s t h a t o c c u r r e d e a c h month, and t h e p e r i o d i c t i m e l a g r e l a t i o n -40 s h i p between h o u s i n g s t a r t s and c o m p l e t i o n . H o u s i n g U n i t C o m p l e t i o n s and U n i t s Under C o n s t r u c t i o n A l t h o u g h d a t a on h o u s i n g c o m p l e t i o n s and u n i t s u n d e r c o n -s t r u c t i o n has b een made a v a i l a b l e f o r most o f t h e a r e a and t i m e p e r i o d s t u d i e d , i t h a s b e e n n e c e s s a r y t o e s t i m a t e t h e number o f c o m p l e t i o n s and u n i t s u n d e r c o n s t r u c t i o n ( o f g r o u n d o r i e n t e d 151 d w e l l i n g s ) f o r n o n - p r o f i t h o u s i n g o v e r t h e e n t i r e s t u d y p e r i o d and f o r u n i t s n o t i n c l u d e d i n CMHC r e c o r d e d d a t a d u r i n g t h e 1968 t o 1971 p e r i o d . The method u s e d t o make t h e s e e s t i m a t e s h as been b a s e d on a s t o c k - f l o w model o f u n i t s u n d e r c o n s t r u c t i o n , t h e a s s u m p t i o n t h a t t h e number o f u n i t s u n d e r c o n s t r u c t i o n i n any p e r i o d may be d e t e r m i n e d by a s i m p l e f u n c t i o n o f t h e most r e c e n t h o u s i n g s t a r t s p e r month, and t h e a s s u m p t i o n t h a t t e m p o r a l c h a n ges t o t h e number o f u n i t s u n d e r c o n s t r u c t i o n , n o t a t t r i b u t e d t o s t a r t s o r c o m p l e t i o n s , may be s i m i l a r f o r p r o f i t and n o n - p r o f i t h o u s i n g f o r v a r i o u s m u n i c i p a l i t i e s i n t h e a r e a . I n v i e w o f t h e ab o v e , t h e number o f c o m p l e t i o n s o f g r o u n d o r i e n t e d h o u s i n g f o r t h e added s u b u r b a n m u n i c i p a l i t i e s and non-p r o f i t h o u s i n g h a s b e e n e s t i m a t e d by t h e change i n t h e number o f u n i t s u n d e r c o n s t r u c t i o n p l u s s t a r t s p l u s an a d j u s t m e n t b a s e d on 41 u n e x p l a i n e d d e l e t i o n s and a d d i t i o n s . The number o f u n i t s u n d e r c o n s t r u c t i o n h as b e e n e s t i m a t e d on t h e b a s i s o f t h e most r e c e n t s t a r t s , i n t h e added s u b u r b a n m u n i c i p a l i t i e s and o f n o n - p r o f i t h o u s i n g , and t h e e s t i m a t e d r e l a t i o n s h i p between t h e number o f u n i t s u n d e r c o n s t r u c t i o n and t h e most r e c e n t s t a r t s w h i c h has been d e t e r m i n e d u s i n g CMHC r e c o r d e d d a t a . S i m i l a r l y , t h e p e r i o d i c a d -j u s t m e n t t o t h e e s t i m a t e d number o f u n i t s c o m p l e t e d h as been e s t i m a t e d on t h e b a s i s o f t h e p r o p o r t i o n o f t h e sum o f t h e change i n CMHC r e c o r d e d u n i t s u n d e r c o n s t r u c t i o n and s t a r t s n o t e x p l a i n e d by c o m p l e t i o n s . I n v e n t o r y o f U n o c c u p i e d New H o u s i n g U n i t s D a t a o r t h e number o f n e w l y c o m p l e t e d and u n o c c u p i e d s i n g l e , s e m i - d e t a c h e d and d u p l e x d w e l l i n g s h as been made a v a i l a b l e b y CMHC f o r t h e most o f t h e s t u d y a r e a and s t u d y p e r i o d . However, t o 1 5 2 e s t i m a t e t h e t o t a l i n v e n t o r y o f u n s o l d ( u n o c c u p i e d ) u n i t s i n t h e s t u d y a r e a , i t was n e c e s s a r y t o e s t i m a t e t h e i n v e n t o r y o f row d w e l l i n g u n i t s i n t h e s t u d y a r e a as w e l l as t h e i n v e n t o r y o f u n i t s i n t h e s u b u r b a n m u n i c i p a l i t i e s t h a t were n o t i n c l u d e d i n t h e CMHC r e c o r d e d d a t a u n t i l 1972. To a c c o m p l i s h t h i s t a s k , an a t t e m p t was made t o e s t i m a t e t h e p e r i o d i c p r o p o r t i o n o f ne w l y c o m p l e t e d g r o u n d o r i e n t e d d w e l l i n g s t h a t were n o t s o l d o r o c c u p i e d a t t h e end o f e a c h month and t o d e t e r m i n e t h e p r o d u c t o f t h i s v a l u e and t h e e s t i m a t e d t o t a l number o f ne w l y c o m p l e t e d g r o u n d o r i e n t e d d w e l l -i n g s . The p r o p o r t i o n has been e s t i m a t e d on t h e b a s i s o f t h e CMHC r e c o r d e d number o f ne w l y c o m p l e t e d and u n o c c u p i e d s i n g l e , s e m i -42 d e t a c h e d , and d u p l e x d w e l l i n g s . The t o t a l number o f g r o u n d o r i e n t e d h o u s i n g c o m p l e t i o n s ( w h i c h i n c l u d e s b o t h p r o f i t and non-p r o f i t h o u s i n g ) has b e e n e s t i m a t e d on t h e b a s i s o f t h e method d i s c u s s e d i n t h e p r e v i o u s s e c t i o n . L o c a l S t o c k o f Ground O r i e n t e d D w e l l i n g s The s t o c k o f g r o u n d o r i e n t e d h o u s i n g (STKOH) a t t h e b e g i n -n i n g o f e a c h month has been e s t i m a t e d on t h e b a s i s o f t h e s t o c k o f s i n g l e - d e t a c h e d , d o u b l e s ( d u p l e x e s ) , and row h o u s i n g w i t h i n t h e s t u d y a r e a i n June o f 1971 and t h e m o n t h l y number o f c o m p l e t i o n s , as w e l l as t h e a v e r a g e m o n t h l y number o f d e m o l i t i o n s i n t h e M e t r o -4 3 p o l i t a n A r e a o f t h e s u b j e c t c l a s s o f d w e l l i n g u n i t s . C r e d i t C o n d i t i o n s I n t r o d u c t i o n An a t t e m p t h as been made t o i n d i c a t e t h e p r i c e and a v a i l a -b i l i t y o f c r e d i t p r o v i d e d by p r i v a t e i n s t i t u t i o n a l l e n d e r s and by t h e government f o r p r o f i t m o t i v a t e d h o u s i n g . I n g e n e r a l , c r e d i t 153 c o n d i t i o n s have been i n d i c a t e d by t h e p r o d u c t o f t h e p r e v a i l i n g m o r t g a g e i n t e r e s t r a t e and s e v e r i t y o f c r e d i t a v a i l a b i l i t y i n d e x . C r e d i t c o n d i t i o n s , u n d e r t h e a s s u m p t i o n o f t h e s y m m e t r i c e f f e c t o f c r e d i t a v a i l a b i l i t y , have been s p e c i f i e d i n two f o r m s w h i c h d i f f e r w i t h r e s p e c t t o t h e a t t e m p t t o d i s t i n g u i s h between t h e f i n a n c i n g p r o v i d e d by p r i v a t e i n s t i t u t i o n a l l e n d e r s and by g o v e r n -ment : O p t i o n (A) M a r k e t c r e d i t c o n d i t i o n s (SMCRED) has been i n d i c a t e d by t h e p r o d u c t o f t h e a v e r a g e mortgage i n t e r e s t r a t e (AMR) and t h e s e v e r i t y o f c r e d i t a v a i l a b i l i t y i n d e x (SMA) f o r p r i v a t e i n s t i t u t i o n a l l e n d e r s and t h e Canada M o r t g a g e and H o u s i n g C o r p o r a t i o n (CMHC) d i r e c t l e n d i n g . F u r t h e r m o r e , t h e a v a i l -a b i l i t y o f f a v o u r a b l e government l e n d i n g t e r m s and sub-s i d i e s t o t h e p r o f i t m o t i v a t e d s e c t o r (G/M) has been i n d i c a t e d by t h e r a t i o o f CMHC mortgage a p p r o v a l s t o t h e t o t a l sum o f mo r t g a g e a p p r o v a l s f o r new p r o f i t m o t i v a t e d h o u s i n g by p r i v a t e i n s t i t u t i o n a l l e n d e r s and CMHC i n Canada. O p t i o n (B) An a t t e m p t has been made t o i n d i c a t e t h e c r e d i t c o n d i t i o n s p r o v i d e d by p r i v a t e i n s t i t u t i o n a l l e n d e r s and government s e p a r a t e l y . The c r e d i t c o n d i t i o n s p r o v i d e d by p r i v a t e i n s t i t u t i o n a l l e n d e r s (SPCRED) has been i n d i c a t e d by t h e p r o d u c t o f t h e a v e r a g e mortgage i n t e r e s t r a t e (PMR) and t h e s e v e r i t y o f c r e d i t a v a i l a b i l i t y i n d e x p e r t a i n i n g t o p r i v a t e i n s t i t u t i o n a l l e n d e r s (PMA). S i m i l a r l y c r e d i t c o n d i t i o n s p r o v i d e d by government (SGCRED) has been i n -d i c a t e d by t h e p r o d u c t o f t h e a v e r a g e m o r t g a g e i n t e r e s t r a t e (GMR) and t h e s e v e r i t y o f c r e d i t a v a i l a b i l i t y i n d e x (GMA) p e r t a i n i n g t o t h e Canada M o r t g a g e and H o u s i n g C o r -p o r a t i o n d i r e c t l e n d i n g t o t h e p r o f i t m o t i v a t e d s e c t o r . C r e d i t c o n d i t i o n s , u n d e r t h e a s s u m p t i o n o f t h e a s y m m e t r i c e f f e c t o f c r e d i t a v a i l a b i l i t y , h as been s p e c i f i e d i n a s i m i l a r manner as O p t i o n (A) o f t h e s y m m e t r i c c r e d i t c o n d i t i o n s v a r i a b l e , e x c e p t t h e measure o f c r e d i t a v a i l a b i l i t y has been m o d i f i e d t o s u p p r e s s v a l u e s t h a t i n d i c a t e d e a s i e r n o n - p r i c e c r e d i t t e r m s . M a r k e t c r e d i t c o n d i t i o n s (AMCRED) has b e e n i n d i c a t e d by t h e p r o d u c t o f t h e a v e r a g e mortgage i n t e r e s t r a t e (AMR) and t h e a s y m m e t r i c s e v e r i t y o f c r e d i t a v a i l a b i l i t y i n d e x (AMA). 154 F u r t h e r m o r e , t h e a v a i l a b i l i t y o f f a v o u r a b l e government l e n d i n g t e r m s and s u b s i d i e s t o t h e p r o f i t m o t i v a t e d s e c t o r (G/M) has b e en i n d i c a t e d i n t h e same manner as d i s c u s s e d above i n O p t i o n (A) o f t h e s y m m e t r i c c r e d i t c o n d i t i o n s v a r i a b l e . M o r t g a g e I n t e r e s t R a t e s The a v e r a g e m o r t g a g e i n t e r e s t r a t e i n t h e m a r k e t (AMR) has b e e n e s t i m a t e d by t h e w e i g h t e d - a v e r a g e i n t e r e s t r a t e o f t h e m o r t -gage i n t e r e s t r a t e s p e r t a i n i n g t o p r i v a t e i n s t i t u t i o n a l l e n d e r s (PMR) and government d i r e c t l e n d i n g (GMR), where t h e w e i g h t s r e p r e s e n t t h e p r o p o r t i o n o f t h e m o r t g a g e a p p r o v a l s , f o r a l l new h o u s i n g t o t h e p r o f i t m o t i v a t e d s e c t o r , f r o m e a c h s o u r c e . The m o r t g a g e i n t e r e s t r a t e p e r t a i n i n g t o p r i v a t e i n s t i t u t i o n a l l e n d e r s (PMR) has b e en e s t i m a t e d by t h e w e i g h t e d - a v e r a g e i n t e r e s t r a t e p e r t a i n i n g t o c o n v e n t i o n a l m o r t g a g e s and l o a n s by a p p r o v e d l e n d e r s u n d e r t h e N a t i o n a l H o u s i n g A c t , where t h e w e i g h t s r e p r e s e n t t h e p r o p o r t i o n o f t h e m o r t g a g e a p p r o v a l s , f o r a l l new h o u s i n g , f r o m 44 e a c h s o u r c e . The m o r t g a g e i n t e r e s t r a t e p e r t a i n i n g t o t h e d i r e c t l e n d i n g b y g o v e r n m e n t (GMR) has b e e n a p p r o x i m a t e d by t h e a v e r a g e i n t e r e s t r a t e on a p p r o v e d l e n d e r s home-ownership l o a n s . C r e d i t A v a i l a b i l i t y The I n d e x . I n g e n e r a l , t h e s e v e r i t y i n c r e d i t a v a i l a b i l i t y , o r t h e t i g h t n e s s i n n o n - p r i c e c r e d i t t e r m s ( i n c l u d i n g t h e c o m p e t i t i o n f o r money a t p r e v a i l i n g i n t e r e s t r a t e s ) has been i n d i c a t e d by t h e r a t i o o f t h e p r e v a i l i n g m o r t g a g e i n t e r e s t r a t e and t h e sum o f m o r t g a g e s a p p r o v e d f o r new h o u s i n g t o t h e p r o f i t m o t i v a t e d s e c t o r i n Canada. The s y m m e t r i c a v e r a g e c r e d i t a v a i l a b i l i t y i n d e x (SMA) w a s b a s e d on t h e a v e r a g e m o r t g a g e i n t e r e s t r a t e (AMR) and t h e s e a s o n a l l y a d -j u s t e d sum o f m o r t g a g e a p p r o v a l s f o r p r o f i t m o t i v a t e d new h o u s i n g by p r i v a t e i n s t i t u t i o n a l l e n d e r s and t h e Canada M o r t g a g e and Hous-155 i n g C o r p o r a t i o n (CMHC), e x p r e s s e d i n 1971 d o l l a r s . S i m i l a r l y t h e s y m m e t r i c c r e d i t a v a i l a b i l i t y i n d i c e s f o r p r i v a t e i n s t i t u t i o n -a l l e n d e r s (PMA) and f o r government d i r e c t l e n d i n g (GMA) have been b a s e d on t h e r a t i o o f t h e a p p l i c a b l e m o r t g a g e i n t e r e s t r a t e (PMR, GMR) and t h e p r e v a i l i n g m o r t g a g e a p p r o v a l s f o r new p r o f i t m o t i v a t -e d h o u s i n g , e x p r e s s e d i n c o n s t a n t 1971 d o l l a r s , b y p r i v a t e i n s t i -t u t i o n a l l e n d e r s and CMHC. However, o n l y t h e mo r t g a g e a p p r o v a l s by p r i v a t e i n s t i t u t i o n a l l e n d e r s h as been s e a s o n a l l y a d j u s t e d s i n c e t h e r e d i d n o t a p p e a r t o be c o n s i s t e n t e v i d e n c e o f s e a s o n -a l i t y i n CMHC mo r t g a g e a p p r o v a l s . The a s y m m e t r i c c r e d i t a v a i l a b i l i t y i n d e x (TAMA) has been b a s e d on t h e s y m m e t r i c c r e d i t a v a i l a b i l i t y i n d e x (SMA) a d j u s t e d t o s u p p r e s s l o w e r l e v e l s o f t h e i n d e x ( e a s i e r c r e d i t c o n d i t i o n s ) . S p e c i f i c a l l y t h o s e v a l u e s w h i c h were computed t o be l o w e r t h a n t h e a v e r a g e (4.78203) were a s s i g n e d t h e a v e r a g e v a l u e . Q u a n t i t y o f M o r t g a g e Loans'. The q u a n t i t y o f mortgage l o a n s a p p r o v e d by p r i v a t e i n s t i t u t i o n a l l e n d e r s (PIMRT) has been e s t i m a t e d by t h e sum o f m o r t g a g e s a p p r o v e d f o r new h o u s i n g by c o n v e n t i o n a l l e n d e r s 45 and by a p p r o v e d l e n d e r s u n d e r t h e N a t i o n a l H o u s i n g A c t . The number o f government l o a n s (CMHCMRT) a p p r o v e d f o r t h e p r o f i t m o t i v a t e d s e c t o r f o r new h o u s i n g h as been e s t i m a t e d by t h e sum o f mortgage a p p r o v a l s b y CMHC u n d e r S e c t i o n s 15.01, 15.02, 34.15, 34.18, 58.01, 58.02 and 14.12 o f t h e N a t i o n a l H o u s i n g A c t w h i c h 46 e x c l u d e s l o a n s f o r p u b l i c h o u s i n g . F u r t h e r m o r e , t o e x p r e s s t h e m a g n i t u d e o f mo r t g a g e l o a n s i n c o n s t a n t 1971 d o l l a r s , t h e p r e v a i l -i n g m o n t h l y m o r t g a g e a p p r o v a l s were d i v i d e d by an e s t i m a t e o f t h e m o n t h l y a v e r a g e p r i c e l e v e l s i n t h e n a t i o n a l economy. 156 N a t i o n a l P r i c e s . The c o s t o f goods and s e r v i c e s i n t h e economy (MGNEP) ha s b e e n i n d i c a t e d by an e s t i m a t e o f t h e m o n t h l y g r o s s 4 7 n a t i o n a l e x p e n d i t u r e d e f l a t o r . T h i s e s t i m a t e has b een b a s e d on t h e p u b l i s h e d q u a r t e r l y v a l u e , t h e a s s u m p t i o n t h a t t h e a v e r a g e m o n t h l y r a t e o f i n f l a t i o n between t h e m i d d l e months o f e a c h q u a r -t e r may be a p p r o x i m a t e d by t h e g e o m e t r i c r a t e o f i n c r e a s e between q u a r t e r s , and t h a t t h e a v e r a g e m o n t h l y p r i c e i n d e x i n any q u a r t e r may be a p p r o x i m a t e d by t h e p u b l i s h e d q u a r t e r l y v a l u e . T h e r e f o r e , t h e f i r s t s t e p was t o c a l c u l a t e t h e g e o m e t r i c r a t e o f i n c r e a s e between t h e c u r r e n t and p r e c e d i n g q u a r t e r as w e l l as w i t h t h e f o l l o w i n g q u a r t e r . The s e c o n d s t e p was t o e x p r e s s t h e e s t i m a t e d p r i c e i n d e x f o r e a c h month as a f u n c t i o n o f t h e v a l u e o f t h e m i d d l e month and t h e c o r r e s p o n d i n g r a t e o f i n c r e a s e c a l c u l a t e d i n s t e p one. The t h i r d s t e p i n v o l v e d a d d i n g t h e e x p r e s s i o n s i n s t e p two, d i v i d i n g by t h r e e t o d e t e r m i n e an a v e r a g e , e q u a t i n g t h i s ex-p r e s s i o n w i t h t h e p u b l i s h e d q u a r t e r l y v a l u e , and s o l v i n g f o r t h e s i n g l e unknown t o e s t i m a t e t h e p r i c e i n d e x f o r t h e m i d d l e month i n t h e q u a r t e r . The f o u r t h s t e p u s e d t h e e s t i m a t e d v a l u e f o r t h e m i d d l e month, and t h e e x p r e s s i o n s i n s t e p two, t o e s t i m a t e t h e p r i c e i n d e x f o r t h e f i r s t and t h i r d months. A l t h o u g h t h e method was n o t p e r f e c t , i t p r o v i d e d a s i m p l e means t o smooth an i m p o r t a n t i n d i c a t o r o f t h e p u r c h a s i n g power o f money. M a g n i t u d e o f L o c a l C o n s t r u c t i o n I n d u s t r y S t r i k e s An a t t e m p t has b een made t o i d e n t i f y t h e m a g n i t u d e o f m a j o r s t r i k e s i n t h e c o n s t r u c t i o n i n d u s t r y t h a t w o u l d a f f e c t r e s i d e n t i a l d e v e l o p m e n t i n t h e O t t a w a - H u l l M e t r o p o l i t a n A r e a . An e s t i m a t e o f t h e number o f man-days o f c o n s t r u c t i o n work l o s t has b e e n made b a s e d on t h e s t r i k e s i n t h e c o n s t r u c t i o n i n d u s t r y r e c o r d e d i n 157 L a b o u r Canada's p u b l i c a t i o n S t r i k e s and L o c k o u t s i n Canada and 48 a r t i c l e s i n t h e l o c a l n e w s p a p e r s . M a j o r s t r i k e s have been d e f i n e d as t h r e e d a y s o r more and i n v o l v i n g 5 0 men o r more, i n o r d e r t o e a s e t h e work i n v o l v e d i n i d e n t i f y i n g t h e number o f man-d a y s . L o c a l A d u l t P o p u l a t i o n and Income P o p u l a t i o n To i n d i c a t e t h e number o f a d u l t s , w h i c h c o n t r i b u t e t o t h e q u a n t i t y o f g r o u n d - o r i e n t e d h o u s i n g demanded and s h a r e s t h e t o t a l d i s p o s a l income, an a t t e m p t has b e e n made t o e s t i m a t e t h e p e r i o d i c s i z e o f t h e l o c a l l a b o u r f o r c e (LABOH), b a s e d on t h e m o n t h l y number o f e m p l o y e e s and t h e unemployment r a t e i n t h e h o u s i n g m a r k e t a r e a . The m a g n i t u d e o f t h e e m p l o y e d l a b o u r f o r c e has been computed by t h e sum o f t h e m o n t h l y e s t i m a t e s o f t h e number o f e m p l o y e e s i n t h e c o m m e r c i a l s e c t o r o f t h e economy, t h e f e d e r a l govenment, l o c a l g o v e r n m e n t s , t h e p u b l i c and p r i v a t e s c h o o l s , t h e c o l l e g e s and 49 u n i v e r s i t i e s , as w e l l as t h e h o s p i t a l s . Where m o n t h l y d a t a was a v a i l a b l e ( c o m m e r c i a l s e c t o r and l o c a l government employment), t h e e s t i m a t e was b a s e d on a s e a s o n a l l y a d j u s t e d s e r i e s . However, when o n l y a n n u a l d a t a was a v a i l a b l e , e s t i m a t e s o f t h e m o n t h l y v a l u e s were b a s e d on t h e a v e r a g e r a t e o f i n c r e a s e ( f e d e r a l government and h o s p i t a l s e mployment), o r on an assumed p e r i o d when employment l e v e l s w o u l d l i k e l y be s t a b l e ( s c h o o l s , c o l l e g e s and u n i v e r s i t i e s ) . B e c a u s e t h e computed t o t a l e m p l o y e d l a b o u r f o r c e has been b a s e d on t h e summations o f s e a s o n a l l y a d j u s t e d e s t i m a t e s o r e s t i m a t e s where s e a s o n a l v a r i a t i o n w o u l d n o t be i n d i c a t e d , t h e t o t a l l a b o u r f o r c e h as b e e n e s t i m a t e d b a s e d on t h e q u o t i e n t o f t h e t o t a l employed 158 i l a b o u r f o r c e d i v i d e d by one m i n u s t h e s e a s o n a l l y a d j u s t e d m o n t h l y 50 unemployment r a t e f o r t h e O t t a w a - H u l l C e nsus M e t r o p o l i t a n A r e a . Income The p u r c h a s i n g power o f a p o p u l a t i o n depends upon i t s s a v -i n g s and income a f t e r t a x e s . A l t h o u g h i t i s d i f f i c u l t t o e s t i m a t e t h e a v a i l a b i l i t y o f s a v i n g s an a t t e m p t has b een made t o e s t i m a t e l o c a l d i s p o s a b l e income l e v e l s . The d i s p o s a b l e income (DIOH) o f a d u l t s i n t h e m a r k e t a r e a has b e e n b a s e d on an e s t i m a t e o f t h e a n n u a l income and on t h e b a s i s o f t h e a s s u m p t i o n t h a t t h e a v e r a g e m o n t h l y r a t e o f i n c r e a s e between t h e m i d d l e p o i n t o f e a c h y e a r i n t h e s t u d y p e r i o d may be a p p r o x i m a t e d by t h e g e o m e t r i c r a t e o f i n -c r e a s e between a n n u a l income e s t i m a t e s . A n n u a l d i s p o s a b l e income l e v e l s have been e s t i m a t e d by d i v i d i n g t h e a n n u a l t o t a l d i s p o s a b l e income i n t h e M e t r o p o l i t a n A r e a o f Ottawa and H u l l (as r e p o r t e d by Revenue Canada) by an e s t i m a t e o f t h e t o t a l l o c a l l a b o u r f o r c e 51 c o n s i s t e n t w i t h t h e t i m i n g o f t h e d a t a c o l l e c t i o n . S p e c i f i -c a l l y t h e t o t a l l a b o u r f o r c e c o n s i s t e n t w i t h t h e d a t e o f f i l i n g t a x r e t u r n s has been computed by t h e a v e r a g e o f t h e l a b o u r f o r c e e s t i m a t e s i n t h e f i r s t f o u r months i n t h e f o l l o w i n g y e a r . The c o s t o f l o c a l consumer goods and s e r v i c e s has b een i n d i c a t e d by 52 t h e consumer p r i c e i n d e x f o r t h e O t t a w a - H u l l M e t r o p o l i t a n A r e a . S e a s o n s C a t e g o r i e s E a c h month was i d e n t i f i e d as b e i n g w i t h i n one o f f o u r s e a s o n s i n a c c o r d a n c e w i t h i t s c a l e n d a r p o s i t i o n and a v e r a g e w e a t h e r s e v e r i t y . S p e c i f i c a l l y t h o s e months w i t h an a v e r a g e m o n t h l y t e m p e r a t u r e b e l o w f r e e z i n g were d e f i n e d as w i n t e r ( i . e . December, J a n u a r y , F e b r u a r y , March) t o i n d i c a t e c o l d t e m p e r a t u r e , snow a c c u m u l a t i o n s and s h o r t e r d a y s . I n c o n t r a s t t h o s e months 1 5 9 w i t h an a v e r a g e m o n t h l y t e m p e r a t u r e o f s i x t y d e g r e e s o r more were 5 3 . . d e f i n e d t o be summer ( i . e . J u n e , J u l y , A u g u s t ) . T h e - r e m a i n i n g months were c l a s s i f i e d as S p r i n g and F a l l a c c o r d i n g l y . 160 F o o t n o t e s ''"Paul A. Samuelson and A n t h o n y S c o t t , E c o n o m i c s (2d e d . ; T o r o n t o : M c G r a w - H i l l Company o f Canada, 1 9 6 8 ) , p. 551. 2 I b i d . , p. 512. 3 A r t h u r P. B e c k e r , L a n d and B u i l d i n g T a x e s : T h e i r E f f e c t  on E c o n o m i c D e v e l o p m e n t ( M a d i s o n : The U n i v e r s i t y o f W i s c o n s i n P r e s s , 1 9 6 9 ) , pp. 18 and 19. 4 S i n c e an a t t e m p t h a s been made t o e x c l u d e "sunk c o s t s " and c o s t s t h a t w o u l d be i n c u r r e d r e g a r d l e s s o f t h e d e c i s i o n t o d e v e l o p , e x p e n d i t u r e s i n c u r r e d t o a c q u i r e and h o l d l a n d have o n l y b een c o n -s i d e r e d t o t h e e x t e n t t h a t i t a f f e c t e d c u r r e n t e x p e n d i t u r e s o r t a x d e d u c t i o n s . C o n s e q u e n t l y e s t i m a t e s were made o f t h e f o l l o w i n g : 1. t h e o u t s t a n d i n g p r i n c i p a l t o be r e p a i d upon s e l l i n g a p r o p e r t y 2. e l i g i b l e t a x d e d u c t i o n s w i t h r e s p e c t t o a) t h e o r i g i n a l a c q u i s i t i o n c o s t o f l a n d b) t h e sum o f l a n d h o l d i n g c o s t s ( i n c l u d i n g i n t e r e s t payments and p r o p e r t y tax): n o t p r e v i o u s l y d e-d u c t e d . 5 I n 1971, 813 s i n g l e - d e t a c h e d d w e l l i n g s t a r t s were NHA f i n a n c e d and 800 were f i n a n c e d c o n v e n t i o n a l l y i n t h e O n t a r i o p o r t i o n o f t h e O t t a w a - H u l l CMA (1966 b o u n d a r i e s ) . T h e r e f o r e , b e c a u s e NHA f i n a n c e d new s i n g l e - d e t a c h e d h o u s e s r e p r e s e n t e d a l a r g e s h a r e o f t h e m a r k e t and b e c a u s e t h e a v e r a g e t o t a l c o s t o f a new s i n g l e - d e t a c h e d d w e l l i n g ($31015) w i t h NHA a p p r o v e d f i n a n c i n g was a p p r o x i m a t e l y e q u a l t o t h e a n n u a l a v e r a g e s e l l i n g p r i c e ($31076) o f new s i n g l e - d e t a c h e d d w e l l i n g s ( h a v i n g NHA a p p r o v e d l o a n s and s o l d by b u i l d e r s ) , t h e a v e r a g e t o t a l c o s t f i g u r e w o u l d a p p e a r t o p r o v i d e an a d e q u a t e e s t i m a t e o f t h e m a r k e t v a l u e o f new h o u s e s . ^ U n p u b l i s h e d d a t a , p r o v i d e d by t h e Canada M o r t g a g e and H o u s i n g C o r p o r a t i o n , i n d i c a t e s t h a t t h e r e were 349 l o a n s a p p r o v e d f o r s i n g l e - d e t a c h e d d w e l l i n g s i n t h e f i r s t h a l f o f 1971 and 343 l o a n s a p p r o v e d i n t h e s e c o n d h a l f . 7 The new house p r i c e i n d e x was p r o v i d e d i n t h e p u b l i c a t i o n : S t a t i s t i c s C a nada, C o n s t r u c t i o n P r i c e S t a t i s t i c s , C a t a l o g u e No. 62-007 (Ottawa: S t a t i s t i c s Canada, M o n t h l y ) . S i n c e t h e i n d e x i s b a s e d on t h e p r i c e movements i n a l l g r o u n d - o r i e n t e d d w e l l i n g s , and n o t e x c l u s i v e l y s i n g l e - d e t a c h e d d w e l l i n g s , i t w o u l d have t h e d e s i r a b l e c h a r a c t e r i s t i c s o f r e f l e c t i n g p r i c e movements i n a l l t h e d w e l l i n g u n i t t y p e s p r o v i d e d f o r i n t h e m o d e l s . See A p p e n d i x I I " E x t e n d i n g t h e New House P r i c e I n d e x " f o r a b r i e f r e v i e w o f t h e method u s e d t o e s t i m a t e movements i n new house p r i c e s f o r 1968 and 1969. 161 9 See A p p e n d i x I I I " A v e r a g e L o t S i z e , L o t s P e r G r o s s A c r e and Road F r o n t a g e P e r L o t " f o r a r e v i e w o f t h e method u s e d t o e s t i m a t e t h e c h a r a c t e r i s t i c s o f t h e t y p i c a l l o t and s u b d i v i s i o n . "^The t y p e s o f e x p e n d i t u r e s f o r h a r d s e r v i c e s i n c l u d e t h e f o l l o w i n g p r e p a r a t i o n s and i n s t a l l a t i o n s : 1. s a n i t a r y s ewers 6. r o a d s 2. s t o r m sewers 7. c u r b s and 3. w a t e r m a i n s 8. h y d r o 4. l a t e r a l s 9. s o d d i n g 5. s i d e w a l k s See A p p e n d i x IV " E s t i m a t e o f S e r v i c i n g C o s t s " f o r a r e v i e w o f t h e method and a s s u m p t i o n s u s e d t o e s t i m a t e t h e a n n u a l and m o n t h l y v a l u e s o f t h e c o s t o f i n s t a l l h a r d s e r v i c e s , r o u g h g r a d i n g , c o n s u l t a n t f e e s and o v e r h e a d . 12 D a t a f o r b u i l d i n g c o s t s have b e e n p r o v i d e d b y t h e S t a t i s t i c -a l S e r v i c e s D i v i s i o n o f t h e Canada M o r t g a g e and H o u s i n g C o r p o r a -t i o n . 13 S t a t i s t i c s Canada, C a n a d i a n S t a t i s t i c a l Review, C a t a l o g u e No. 11-003E (Ottawa: S t a t i s t i c s Canada, M o n t h l y ) . 14 See A p p e n d i x V " C o s t o f Raw L a n d " f o r a r e v i e w o f t h e r a t i o n a l e o f t h e e s t i m a t e s p e r t a i n i n g t o t h e t i m i n g and a c q u i s i -t i o n p r i c e o f raw l a n d . " ^ I t has b e e n n o t e d t h a t raw l a n d a c q u i s i t i o n s a r e h e a v i l y l e v e r a g e d a t 40 t o 6 0 p e r c e n t o f t h e c o s t . See S p u r r , L a n d and  U r b a n D e v e l o p m e n t , p. 240. " ^ C e n t r a l M o r t g a g e and H o u s i n g C o r p o r a t i o n , C a n a d i a n H o u s i n g  S t a t i s t i c s (Ottawa: C e n t r a l M o r t g a g e and H o u s i n g C o r p o r a t i o n , 1 9 6 2 ) , p. 47. 17 See A p p e n d i x VI " P r o p e r t y T a x e s " f o r an e x p l a n a t i o n o f how p r o p e r t y t a x e s were e s t i m a t e d on t h e b a s i s o f t h e p r e v a i l i n g m i l l r a t e s and t h e a s s e s s m e n t p r a c t i c e s o f t h e T o w n s h i p s o f G l o u c e s t e r and Nepean. 18 James C. Van H o r n e , C e c i l D i p c h a n d , and J . R o b e r t H a n r a han, F u n d a m e n t a l s o f F i n a n c i a l Management (3d e d . ; S c a r b o r o u g h : P r e n -t i c e H a l l o f Canada, 1 9 7 7 ) , p. 357. 19 Eugene F. B r i g h a m , F i n a n c i a l Management: T h e o r y and P r a c -t i c e ( H i n s d a l e , I l l i n o i s : The D r y d e n P r e s s , 1 9 7 7 ) , p. 608. 20 S t a t i s t i c s Canada, C o r p o r a t i o n F i n a n c i a l S t a t i s t i c s , C a t a l o g u e No. 61-207 (Ottawa: S t a t i s t i c s Canada, A n n u a l ) . 21 A l t h o u g h t h e a v a i l a b i l i t y o f S t a t i s t i c s Canada d a t a w o u l d a p p e a r a d e q u a t e f o r d e t e r m i n i n g t h e p e r i o d i c r e l a t i v e m a g n i t u d e o f d i f f e r e n t s o u r c e s o f c a p i t a l , e s t i m a t e s were n e c e s s a r y where d a t a was a b s e n t o r a g g r e g a t e d d i f f e r e n t l y . See A p p e n d i x V I I 162 " E s t i m a t e s o f P r o p o r t i o n s o f C a p i t a l From V a r i o u s S o u r c e s " f o r an e x p l a n a t i o n o f how t h e e s t i m a t e s were made. 22 The same t i m i n g scheme has b een a p p l i e d as "used by P e t e r S p u r r i n L a n d and U r b a n D e v e l o p m e n t , p. 52. 23 C a n a d i a n i n t e r i m l o a n s have i n t e r e s t r a t e s a t 1% t o 2% p e r c e n t above t h e p r i m e bank r a t e . Commerce 309 L e c t u r e s , U n i v e r s i t y o f B r i t i s h C o l u m b i a , O c t o b e r , 1975. 24 J . W. B e e c h has n o t e d t h a t f l o t a t i o n c o s t s f o r b o n d s , p r e -f e r r e d and common s t o c k s i n c l u d e a l l t h e c o s t s a s s o c i a t e d w i t h m a r k e t i n g s e c u r i t i e s . A l t h o u g h t h e t o t a l f l o t a t i o n c o s t s w o u l d v a r y w i t h r e s p e c t t o a bond o r t y p e o f s t o c k , t h e d o l l a r v a l u e o f t h e i s s u e , t h e number o f s h a r e s as w e l l as t h e p e r c e i v e d l e v e l o f r i s k , B e e c h h a s n o t e d t h a t t h e t o t a l f e e s and e x p e n d i t u r e s may v a r y f r o m f i v e t o e i g h t p e r c e n t o f t h e v a l u e o f t h e i s s u e . See h i s c h a p t e r on " P u b l i c F i n a n c i n g f o r S m a l l Companies" i n R e a d i n g s  i n C a n a d i a n B u s i n e s s F i n a n c e , e d . Samuel M a r t i n ( T o r o n t o : McGraw-H i l l Co. o f Canada L t d . , 1 9 6 9 ) , p. 133. 25 S t a t i s t i c s Canada, C o r p o r a t i o n T a x a t i o n S t a t i s t i c s , C a t a l o g u e No. 61-208 (Ottawa: S t a t i s t i c s Canada, A n n u a l ) ; and R o b i n W. Broadway and H a r r y M. K i t c h e n , C a n a d i a n Tax P o l i c y , C a n a d i a n Tax P a p e r No. 6 3 ( T o r o n t o : C a n a d i a n Tax F o u n d a t i o n , May, 1 9 8 0 ) , p. 114. 2 ^  The t o t a l c o s t s f o r s u b d i v i d i n g l a n d i n c l u d e s t h e p r o v i s i o n .of h a r d s e r v i c e s , r o u g h g r a d i n g , c o n s u l t a n t f e e s , o v e r h e a d , and d e v e l o p m e n t l e v i e s . A l t h o u g h t h e Income Tax A c t p r e s c r i b e s w h i c h e x p e n d i t u r e s made and c o s t s i m p u t e d may be d e d u c t e d and when, no a t t e m p t has b een made t o d i s t i n g u i s h between o p e r a t i n g and c a p i t a l c o s t s as w e l l as w h i c h d e d u c t i o n s may be made i n t h e p r e v a i l i n g t a x p e r i o d o r upon t h e s u b s e q u e n t g a i n i n g o f income. T h e r e f o r e , t h e a t t e m p t t o e s t i m a t e t h e m a g n i t u d e o f e l i g i b l e t a x d e d u c t i o n s by means o f an e s t i m a t e o f t h e d e v e l o p m e n t c o s t s i n c u r r e d and t o a p p r o x i m a t e t h e t i m i n g o f t h e d e d u c t i o n s by a s s u m i n g a s i n g l e d e d u c t i o n p e r i o d ( i . e . a t t h e t i m e o f t h e p r o c e e d s o f s a l e ) , w o u l d f a i l t o model r e a l i t y i n i t s c o m p l e x i t y . However, i n s p i t e o f t h e s e s h o r t c o m i n g s , t h e p r o c e d u r e u s e d w o u l d a p p e a r t o p r o v i d e an a d e q u a t e a p p r o x i m a t i o n o f t h e m a g n i t u d e and t i m i n g o f t h e e l i g i b l e d e d u c t i o n s . 27 P r i o r t o May 1974 d e d u c t i o n s o f i n t e r e s t payments and •".prop-e r t y t a x e s i n c u r r e d i n m a i n t a i n i n g an i n v e n t o r y o f l a n d were p e r m i t t e d i n d e t e r m i n i n g p e r i o d i c income t a x e s . However, as o f May 1, 1974 d e d u c t i o n s o f t h i s t y p e were o n l y p e r m i t t e d when t h e l a n d was u s e d as a f a c t o r i n p r o d u c t i o n . 2 8 J . L a n g h o u t , A n a l y s i s and I n t e r p r e t a t i o n o f C a n a d i a n F i n a n c i a l S t a t e m e n t s ( S t . J o h n ' s , N e w f o u n d l a n d : U n i v e r s i t y P r e s s o f Canada, n . d . ) , p. 188. 2 9 James C. Van H o m e , e t a l . F u n d a m e n t a l s o f F i n a n c i a l Management, pp. 359 and 360. 163 3 0 I b i d . , pp. 351-356. 31 A l t h o u g h t h e c o s t o f p r e f e r r e d s t o c k o u g h t t o be c a l c u l a t e d as t h e r a t i o o f t h e s t a t e d a n n u a l d i v i d e n d and t h e n e t p r o c e e d s o f t h e p r e f e r r e d s t o c k i s s u e , t h e r e does n o t a p p e a r t o be an a v a i l a b l e m easure o f e i t h e r o v e r t h e i n v e s t m e n t p e r i o d . However, s i n c e t h e c o s t o f p r e f e r r e d s t o c k w o u l d be l e s s t h a n t h e c o s t a p p l i c a b l e t o o t h e r s o u r c e s o f e q u i t y ( l o w e r r i s k l e v e l ) , and b e c a u s e p r e f e r r e d s t o c k s r e p r e s e n t a r e l a t i v e l y s m a l l c o n t r i b u t i o n t o t h e t o t a l f i n a n c i n g p a c k a g e , t h e c o s t o f p r e f e r r e d s t o c k has b een a p p r o x i -mated by t h e c o s t o f common s t o c k e q u i t y . 32 Van H o m e e t a l . F u n d a m e n t a l s o f F i n a n c i a l Management, p. 353. 3 3 I b i d . , p. 598. 34 I b i d . , p. 602. 35 B a s i l A. Kalymon, P r o f i t s i n t h e R e a l E s t a t e I n d u s t r y ( V a n c o u v e r : F r a s e r I n s t i t u t e , 1 9 7 8 ) , p. 25. 3 6 Eugene F. B r i g h a m , F i n a n c i a l Management: T h e o r y and P r a c t i c e , p. 668. 37 I t was assumed t h a t h o u s i n g s t a r t s f i n a n c e d by t h e F e d e r a l Government u n d e r S e c t i o n s 15.1, 40, 43, 44, and 47 r e p r e s e n t e d h o u s i n g i n i t i a t e d by n o n - p r o f i t o r g a n i z a t i o n s . T h e r e f o r e , an a t t e m p t was made t o e x c l u d e t h e s e d e v e l o p m e n t s when t e s t i n g t h e h o u s i n g s t a r t s m o d e l s . 3 8 Of t h e 19943 e s t i m a t e d g r o u n d - o r i e n t e d h o u s i n g s t a r t s b etween J a n u a r y 196 8 and December 1971, 12.3 p e r c e n t was e s t i m a t e d u s i n g b u i l d i n g p e r m i t i n f o r m a t i o n and 4.6 p e r c e n t was e s t i m a t e d b a s e d on t h e i n c r e a s e i n t h e h o u s i n g s t o c k and t h e r e m a i n i n g p r o -p o r t i o n s were b a s e d on t h e Canada M o r t g a g e and H o u s i n g C o r p o r a t i o n d a t a . 39 A l t h o u g h b u i l d i n g p e r m i t d a t a was g e n e r a l l y a v a i l a b l e on a m o n t h l y b a s i s , f o r t h e p e r i o d J a n u a r y 1967 t o June 1970 i t was n e c e s s a r y t o e s t i m a t e t h e s t a r t s f o r M a r c h T o w n s h i p b a s e d on t h e a n n u a l o r s e m i - a n n u a l b u i l d i n g p e r m i t d a t a and t h e p r o p o r t i o n o f a n n u a l h o u s i n g s t a r t s , i n o t h e r a r e a s o f t h e O n t a r i o p a r t o f t h e s t u d y a r e a , o c c u r r i n g i n e a c h month. 40 The number o f g r o u n d - o r i e n t e d h o u s i n g s t a r t s t h a t o c c u r r e d e a c h month between J a n u a r y 1968 and December 1971 i n t h e M u n i c i p a l -i t i e s o f T o u r a i n e and T e m p l e t o n E a s t has b een d e t e r m i n e d b a s e d on an e s t i m a t e o f t h e t o t a l number o f house c o m p l e t i o n s , t h e p r o p o r -t i o n o f t h e t o t a l number o f house c o m p l e t i o n s t h a t o c c u r r e d e a c h month, and t h e p e r i o d i c t i m e l a g r e l a t i o n s h i p between h o u s i n g s t a r t s and c o m p l e t i o n s . The t o t a l number o f h o u s e c o m p l e t i o n s t h a t o c c u r r e d d u r i n g t h e c e n s u s p e r i o d between 1966 and 1971, as w e l l as between 1971 and 1976, h a s b een b a s e d on t h e i n c r e a s e i n t h e h o u s i n g s t o c k as e s t i m a t e d by t h e i n c r e a s e i n t h e number o f o c c u p i e d d w e l l i n g u n i t s . The p r o p o r t i o n o f t h e t o t a l number o f 164 h ouse c o m p l e t i o n s t h a t o c c u r r e d e a c h month was b a s e d on t h e p u b l i s h e d m o n t h l y number o f c o m p l e t i o n s t h a t o c c u r r e d between 1972 and 1976, and on t h e p r o p o r t i o n o f t h e t o t a l number o f house c o m p l e t i o n s t h a t o c c u r r e d e a c h month i n t h e Quebec p o r t i o n o f t h e s t u d y a r e a w h e r e . p u b l i s h e d d a t a was a v a i l a b l e . F u r t h e r -more, t h e p e r i o d i c t i m e l a g r e l a t i o n s h i p between h o u s i n g s t a r t s and c o m p l e t i o n s was a l s o b a s e d on t h e p u b l i s h e d m o n t h l y d a t a on s t a r t s and c o m p l e t i o n s f o r m u n i c i p a l i t i e s w i t h i n t h e Quebec p a r t o f t h e s t u d y a r e a and a s t o c k - f l o w model o f u n i t s u n d e r c o n s t r u c -t i o n as d i s c u s s e d i n A p p e n d i x V I I I " E s t i m a t e s o f C o m p l e t i o n s and U n i t s Under C o n s t r u c t i o n " . 41 See Appendxx V I I I " E s t i m a t e s o f C o m p l e t i o n s and U n i t s Under C o n s t r u c t i o n " f o r an e x p l a n a t i o n o f how c o m p l e t i o n s and u n i t s u n d e r c o n s t r u c t i o n were e s t i m a t e d f o r t h e added s u b u r b a n m u n i c i -p a l i t i e s and n o n - p r o f i t h o u s i n g . 42 D a t a on t h e number o f n e w l y c o m p l e t e d and u n o c c u p i e d d w e l l i n g s has been p r o v i d e d by t h e S t a t i s t i c a l S e r v i c e s D i v i s i o n o f t h e Canada H o u s i n g and M o r t g a g e C o r p o r a t i o n . 43 The June 1971 s t o c k o f o c c u p i e d d w e l l i n g s was o b t a i n e d f r o m t h e p u b l i c a t i o n : S t a t i s t i c s Canada, O c c u p i e d D w e l l i n g s , C a t a l o g u e No. 93-727 (Ottawa: S t a t i s t i c s Canada, 1 9 7 1 ) , and The June 1971 s t o c k o f v a c a n c i e s was o b t a i n e d f r o m t h e p u b l i c a t i o n : S t a t i s t i c s Canada, H o u s i n g , C a t a l o g u e No. 93-726 (Ottawa: S t a t i s t i c s Canada, 1 9 7 1 ) , and The a n n u a l number o f d e m o l i t i o n s by h o u s i n g t y p e was o b t a i n e d f r o m t h e B u i l d i n g P e r m i t D i v i s i o n o f S t a t i s t i c s Canada. 44 Whereas t h e c o n v e n t i o n a l m o r t g a g e i n t e r e s t r a t e r e p r e s e n t s t h e a v e r a g e o f p r i m e c o n v e n t i o n a l m o r t g a g e i n t e r e s t r a t e s , t h e i n t e r e s t r a t e o f l o a n s u n d e r t h e N a t i o n a l H o u s i n g A c t (NHA) has been a p p r o x i m a t e d by t h e a v e r a g e NHA i n t e r e s t r a t e on a p p r o v e d l e n d e r s home-ownership l o a n s . M o n t h l y i n t e r e s t r a t e s were r e -p o r t e d i n t h e p u b l i c a t i o n : Canada M o r t g a g e and H o u s i n g C o r p o r a -t i o n , C a n a d i a n H o u s i n g S t a t i s t i c s (Ottawa: Canada M o r t g a g e and H o u s i n g C o r p o r a t i o n , A n n u a l ) . 45 M o n t h l y d a t a on m o r t g a g e a p p r o v a l s f o r new h o u s i n g u n d e r c o n v e n t i o n a l t e r m s and t h e N a t i o n a l H o u s i n g A c t were o b t a i n e d f r o m t h e p u b l i c a t i o n : S t a t i s t i c s Canada, C a n a d i a n S t a t i s t i c a l  Review, C a t a l o g u e No. 11-003E (Ottawa: S t a t i s t i c s Canada, M o n t h l y ) . 46 M o n t h l y d a t a on m o r t g a g e l o a n s f i n a n c e d by t h e F e d e r a l Government has been p r o v i d e d by t h e S t a t i s t i c a l S e r v i c e s D i v i s i o n o f t h e Canada M o r t g a g e and H o u s i n g C o r p o r a t i o n . 47 Q u a r t e r l y v a l u e s o f t h e g r o s s n a t i o n a l e x p e n d i t u r e de-f l a t o r were p r o v i d e d i n t h e p u b l i c a t i o n : S t a t i s t i c s Canada, N a t i o n a l Income and E x p e n d i t u r e A c c o u n t s , C a t a l o g u e s No. 13-001 Q u a r t e r l y and No. 13-533 O c c a s i o n a l (Ottawa: S t a t i s t i c s C a n a d a ) . 165 48 L a b o u r Canada, S t r i k e s a n d L o c k o u t s i n Canada, C a t a l o g u e No. 331-89STR (Ottawa: L a b o u r Canada, A n n u a l ) . 49 See A p p e n d i x IX " E s t i m a t e s o f t h e Q u a n t i t y o f Employment" f o r an e x p l a n a t i o n o f how e s t i m a t e s were made o f t h e p r e v a i l i n g number o f e m p l o y e e s i n e a c h s e c t o r o f t h e l o c a l economy. 5 0 Unemployment r a t e s f o r t h e O t t a w a - H u l l M e t r o p o l i t a n A r e a were o b t a i n e d f r o m t h e D e p a r t m e n t o f Employment and I m m i g r a t i o n . 5 1 A l t h o u g h d a t a on income was o b t a i n e d d i r e c t l y f r o m t h e S t a t i s t i c s S e c t i o n o f Revenue Canada, o r f r o m t h e i r p u b l i c a t i o n T a x a t i o n S t a t i s t i c s , i t was n e c e s s a r y t o e s t i m a t e t h e p r o p o r t i o n o f t h e t o t a l income i n t h e Quebec p o r t i o n o f t h e M e t r o p o l i t a n A r e a t h a t was d i s p o s a b l e income. The d i s p o s a b l e income f o r M e t r o p o l i t a n H u l l was e s t i m a t e d by m u l t i p l y i n g t h e r e c o r d e d t o t a l income by t h e r a t i o o f d i s p o s a b l e income t o t o t a l p e r s o n a l income f o r t h e P r o v i n c e o f Quebec. P r o v i n c i a l d a t a on income and t a x e s was o b t a i n e d f r o m t h e p u b l i c a t i o n : S t a t i s t i c s Canada, N a t i o n a l  Income and E x p e n d i t u r e A c c o u n t s , C a t a l o g u e No. 13-531 O c c a s i o n a l and No. 13-210 A n n u a l (Ottawa: S t a t i s t i c s C a n a d a ) . 52 S t a t i s t i c s Canada, C a n a d i a n S t a t i s t i c a l Review. 53 D a t a on t e m p e r a t u r e s f o r t h e Ottawa I n t e r n a t i o n a l A i r p o r t were o b t a i n e d f r o m t h e p u b l i c a t i o n : E n v i r o n m e n t Canada, M o n t h l y  R e c o r d : M e t e o r o l o g i c a l O b s e r v a t i o n s (Downsview, O n t a r i o : E n v i r o n m e n t Canada, M o n t h l y ) . APPENDIX I I EXTENDING THE NEW HOUSE PRICE INDEX An a t t e m p t was made t o measure t h e r a t e o f i n c r e a s e i n new house p r i c e s f o r t h e 1 9 6 8 - 1 9 6 9 p e r i o d by e s t i m a t i n g t h e m o n t h l y a v e r a g e s e l l i n g p r i c e r e l a t i v e t o t h e q u a n t i t y o f h o u s i n g s e r v i c e p r o v i d e d . The t r a n s a c t i o n s c o n s i d e r e d were a l l s a l e s o f s i n g l e d e t a c h e d d w e l l i n g s , between a b u i l d e r ( d e v e l o p e r ) and a consumer, w i t h i n a s e l e c t e d g e o g r a p h i c a r e a , and r e c o r d e d i n t h e TEELA S u r v e y . The: r e l a t i v e q u a n t i t y o f h o u s i n g s e r v i c e s p r o v i d e d by e a c h p r o p e r t y was c o n s i d e r e d a d e q u a t e l y a c c o u n t e d f o r by m a i n -t a i n i n g a s i n g l e h o u s i n g u n i t t y p e , t h e same a s s e s s m e n t scheme t h r o u g h o u t t h e sample p e r i o d , and a g e o g r a p h i c a r e a h a v i n g s i m i l a r p r o p e r t y l o c a t i o n c h a r a c t e r i s t i c s . The sample g e o g r a p h i c a r e a was s e l e c t e d on t h e b a s i s o f t h e Census T r a c t t h a t had t h e l a r g e s t i n c r e a s e i n s i n g l e f a m i l y d w e l l i n g s between 1 9 6 6 and 1 9 7 1 . On t h e b a s i s o f t h i s c r i t e r i a , C e n s us T r a c t 8 3 ( 1 9 6 6 Census) was s e l e c t e d and 7 4 2 t r a n s a c t i o n s were r e c o r d e d f o r t h e p e r i o d J u l y 1 9 6 7 t o December 1 9 7 0 . However, i n an a t t e m p t t o m i n i m i z e t h e v a r i a n c e a t t r i b u t e d t o u n u s u a l s i z e d p r o p e r t i e s w i t h i n a s m a l l sample, o n l y t h o s e p r o p e r t i e s w i t h assessments- between $ 2 9 0 0 and $ 4 4 9 9 were c o n s i d e r e d . T h i s a d j u s t m e n t d e l e t e d a l l a s s e s s m e n t c a t e g o r i e s ( d e t e r m i n e d : b y t h e number o f h u n d r e d s o f a s s e s s e d d o l l a r s ) w i t h s a m p l e s o f f e w e r t h a n 20 t r a n s a c t i o n s . The r e m a i n i n g 6 5 7 t r a n s a c t i o n s were u s e d t o p r o v i d e a m o n t h l y 1 6 6 167 i n d e x o f h o u s e p r i c e s . I n o r d e r t o e x t e n d t h e S t a t i s t i c s Canada New House P r i c e I n d e x s e r i e s , t h e a v e r a g e m o n t h l y i n d e x f o r 1970 f o r b o t h p r i c e s e r i e s were e q u a t e d and u s e d t o a d j u s t t h e a u t h o r s i n d e x t o a 1970 b a s e o f 94.7, as r e c o r d e d i n t h e p u b l i s h e d s e r i e s . One f u r t h e r m o d i f i c a t i o n was made t o smooth t h e a u t h o r ' s p r i c e s e r i e s by u s i n g a m o v i n g c e n t e r e d a v e r a g e o v e r t h r e e month p e r i o d s . APPENDIX I I I AVERAGE LOT S I Z E , LOTS PER GROSS ACRE AND ROAD FRONTAGE PER LOT I n t r o d u c t i o n To d e t e r m i n e t h e c o s t o f s e r v i c i n g a r e s i d e n t i a l l o t c o n -s i s t e n t w i t h t h e 1971 a v e r a g e .NHA f i n a n c e d s i n g l e - d e t a c h e d h o u s e and row h o u s e i n t h e O n t a r i o p o r t i o n o f t h e M e t r o p o l i t a n A r e a , e s t i m a t e s have been made o f t h e e x t e n t o f r o a d and s e r v i c e d l a n d p e r l o t p r o v i d e d by a d e v e l o p e r . A c c o r d i n g l y , an a t t e m p t was made t o e s t i m a t e t h e a v e r a g e l o t s i z e , l o t s p e r n e t r e s i d e n t i a l a c r e , and t h e r o a d f o o t a g e r e q u i r e d . E s t i m a t e s were b a s e d on 1971 ap-p r o v e d s u b d i v i s i o n s w i t h i n t h e t h r e e m u n i c i p a l i t i e s i n t h e O n t a r i o p o r t i o n o f t h e M e t r o p o l i t a n A r e a t h a t e x p e r i e n c e d most o f t h e new low d e n s i t y r e s i d e n t i a l g r o w t h d u r i n g t h e s t u d y p e r i o d and r e p r e -s e n t e d t h e p r i m a r y l o c a t i o n o f NHA a p p r o v e d l o a n s f o r g r o u n d o r i e n t e d h o u s i n g i n 19 71 ( i . e . t h e C i t y o f O t tawa, and t h e Town-s h i p s o f G l o u c e s t e r and N e p e a n ) . S i n g l e - D e t a c h e d Houses A v e r a g e L o t S i z e . The a v e r a g e T o t s i z e f o r a s i n g l e - d e t a c h e d h ouse w i t h an NHA a p p r o v e d l o a n i n 1971 has b e e n e s t i m a t e d t o be 57 f e e t by 100 f e e t . The d e p t h has b e en e s t i m a t e d t o be 100 f e e t b a s e d on t h e o b s e r v a t i o n t h a t t h i s was t h e most f r e q u e n t d i m e n -s i o n and b e c a u s e t h i s v a l u e r e p r e s e n t e d t h e minimum z o n i n g b y - l a w r e q u i r e m e n t . The f r o n t a g e h a s been e s t i m a t e d t o be 57 f e e t b a s e d 168 169 on t h e t y p i c a l l o t f r o n t a g e s o f s i n g l e - d e t a c h e d d w e l l i n g s and t h e d i s t r i b u t i o n o f new s i n g l e - d e t a c h e d d w e l l i n g s w i t h NHA a p -p r o v e d l o a n s among t h e t h r e e m u n i c i p a l i t i e s sampled."*" E x t e n t o f Road P e r N e t . I n o r d e r t o d e t e r m i n e t h e e x t e n t o f r o a d R e s i d e n t i a l A c r e r e q u i r e d t o be p r o v i d e d by a d e v e l o p e r p e r n e t r e s i d e n t i a l a c r e , an a t t e m p t has been made t o d e t e r m i n e t h e number o f r o a d f e e t p e r a c r e o f l a n d d e v e l o p e d , t h e number o f n e t r e s i d e n t i a l a c r e s p e r a c r e o f l a n d d e v e l o p e d , and t h e number o f l o t s p e r n e t r e s i -d e n t i a l a c r e . A d e v e l o p e r i n O n t a r i o w o u l d be r e q u i r e d t o d e d i -c a t e 5 p e r c e n t o f t h e g r o s s a r e a o f t h e s u b d i v i s i o n f o r p a r k l a n d , and a l t h o u g h t h e d e v e l o p e r may be r e q u i r e d t o r e s e r v e l a n d f o r s c h o o l p u r p o s e s , he w o u l d be u n d e r no o b l i g a t i o n t o s e l l t h e l a n d a t l e s s t h a n m a r k e t v a l u e . T h e r e f o r e , i n t h i s s t u d y t h e d e v e l o p -ed l a n d c o n s i d e r e d w o u l d be t h e l a n d f o r r o a d s , l o t s , and p a r k s . To d e t e r m i n e t h e e x t e n t o f r o a d r e q u i r e d p e r a c r e o f r e s i -d e n t i a l l o t s and p a r k l a n d , an a t t e m p t h a s b e e n made t o s e l e c t a n e i g h b o u r h o o d o f c o n t i g u o u s low d e n s i t y r e s i d e n t i a l d e v e l o p m e n t t o u s e t h e o b s e r v e d r o a d s t r u c t u r e , w i t h m i n o r m o d i f i c a t i o n s t o t h e o b s e r v e d l a n d u s e , t o e s t i m a t e t h e r e l a t i o n s h i p . A n e i g h b o u r -hood i n t h e T o w n s h i p o f G l o u c e s t e r was s e l e c t e d f o r a n a l y s i s on t h e b a s i s t h a t t h e T o w n s h i p e x p e r i e n c e d t h e l a r g e s t i n c r e a s e i n t h e number o f s i n g l e - d e t a c h e d d w e l l i n g s d u r i n g t h e . s t u d y p e r i o d , t h e e x i s t i n g d e v e l o p m e n t was p r e d o m i n a n t l y o f s i n g l e - d e t a c h e d d w e l l i n g s , t h e r o a d p a t t e r n was e a s i l y a s s i g n e d e x c l u s i v e l y t o t h e r e s i d e n t i a l d e v e l o p m e n t c o n s i d e r e d , and t h e age o f t h e d e v e l -opment ( l a t e 1960's and e a r l y 1 9 7 0 ' s ) . An a t t e m p t was a l s o made t o d e t e r m i n e w h i c h r o a d s were p r o v i d e d by t h e d e v e l o p e r . 170 The following estimates were made on the basis of the se-lected neighbourhood: 1. E x i s t i n g Situation a) Gross area = 409 acres b) Roads provided by developer (1) 60' road right-of-way 46334 feet (2) 66' road right-of-way 12348 feet (3) 86' road right-of-way 4354 feet c) Undeveloped blocks = 67.97 acres 2. Undeveloped Blocks a) Residential l o t s (1) 9.66 acres representing the area of land i n the unsubdivided acreage that i s served by the adjacent 4209 feet of road as observed. (2) 23.65 acres representing the area of land hypothetically subdivided into 180.7 l o t s (5700 square feet each) and requiring an i n t e r n a l road system of 5151 feet. b) Parkland (1) 20.45 acres representing 5% of the gross area (2) 6.38 acres representing the difference i n area between the 6 6 foot right-of-ways re-quired and the observed 60 foot r i g h t - o f -ways (3) .71 acres representing the difference i n area between the 66 foot right-of-ways required and the hypothetical 60 foot right-of-ways used to provide an i n t e r n a l road system to the 23.65 net r e s i d e n t i a l acres requiring an i n t e r n a l road system noted above c) Roads (1) 5151 feet of road with a 60 foot r i g h t - o f -way representing an i n t e r n a l road system of l o c a l streets to the 2 3.65 net r e s i d e n t i a l acres noted above Based on the above, i t would require 68,187 feet of road to serve 283.23 net r e s i d e n t i a l acres. Although the average l o t si z e has been assumed to be 57 feet by 100 feet, an additional 20 feet of l o t depth (as observed) has been provided along the major c o l l e c t o r road, thereby reducing the e f f e c t i v e net r e s i d e n t i a l 171 a c r e s t o 279.41 a c r e s . T h e r e f o r e , 68,187 f e e t o f r o a d w o u l d s e r v e 2,135 l o t s w i t h 31.94 l i n e a l f e e t o f r o a d p e r l o t , o r a p p r o x i m a t e l y 64 f e e t o f r o a d f r o n t a g e p e r l o t . Summary. The 19 71 a v e r a g e new s i n g l e - d e t a c h e d h o u s e , w i t h an NHA a p p r o v e d m o r t g a g e , i n t h e O n t a r i o p o r t i o n o f t h e O t t a w a - H u l l Met-r o p o l i t a n A r e a was assumed t o have been d e v e l o p e d a t 5.2 u n i t s p e r g r o s s r e s i d e n t i a l a c r e , w i t h an a v e r a g e l o t s i z e o f 5,700 s q u a r e f e e t . F u r t h e r m o r e , i t was assumed t h a t a d e v e l o p m e n t o f t h i s d e n s i t y w o u l d r e q u i r e 64 f e e t o f r o a d f r o n t a g e p e r l o t . Row H o u s i n g To d e t e r m i n e t h e l a n d and s e r v i c i n g r e q u i r e m e n t s p e r row d w e l l i n g u n i t , an a t t e m p t has been made t o s e l e c t a n e i g h b o u r h o o d o f c o n t i g u o u s row h o u s i n g d e v e l o p m e n t t o u s e t h e o b s e r v e d d e n s i t y and r o a d s t r u c t u r e , w i t h m i n o r m o d i f i c a t i o n s t o t h e o b s e r v e d l a n d u s e , t o e s t i m a t e t h e r e l a t i o n s h i p s . A n e i g h b o u r h o o d i n t h e Town-s h i p o f G l o u c e s t e r was s e l e c t e d f o r a n a l y s i s on t h e b a s i s t h a t t h e T o w n s h i p e x p e r i e n c e d most o f t h e row h o u s i n g d e v e l o p m e n t i n 1971 and a l a r g e s h a r e t h r o u g h o u t t h e s t u d y p e r i o d , t h e r e s i d e n t -i a l d e v e l o p m e n t c o n s i s t e d o f row d w e l l i n g s o n l y , t h e road, p a t t e r n was e a s i l y a s s i g n e d e x c l u s i v e l y t o t h e r e s i d e n t i a l d e v e l o p m e n t c o n s i d e r e d , and t h e age o f t h e d e v e l o p m e n t ( e a r l y 1 9 7 0 ' s ) . An a t t e m p t was a l s o made t o d e t e r m i n e w h i c h r o a d s were p r o v i d e d by t h e d e v e l o p e r . The f o l l o w i n g e s t i m a t e s were made on t h e b a s i s o f t h e s e -l e c t e d n e i g h b o u r h o o d : 172 1. E x i s t i n g S i t u a t i o n a) G r o s s a r e a = 54.6 a c r e s b) Roads p r o v i d e d b y d e v e l o p e r (1) ' " ' ' i n t e r n a l r o a d s = 5940 f e e t (2) p e r i m e t e r r o a d s = 2200 f e e t c) N e t r e s i d e n t i a l a r e a ( h o u s i n g and i n t e r n a l r o a d s ) (1) t o t a l a r e a = 37.9 a c r e s (2) row h o u s i n g u n i t s = 568 (3) n e t r e s i d e n t i a l d e n s i t y = 15 u n i t s p e r a c r e d) U n d e v e l o p e d b l o c k s = 13.9 a c r e s 2. U n d e v e l o p e d B l o c k s a) R e s i d e n t i a l l o t s (1) p o t e n t i a l n e t r e s i d e n t i a l a r e a = 11.2 a c r e s (2) p o t e n t i a l row u n i t s a t 15 p e r a c r e = 168 b) P a r k l a n d (1) p a r k l a n d r e q u i r e m e n t ( a t 5%) = 2.7 a c r e s c) Roads (1) p o t e n t i a l r o a d s i n a) = 1755 f e e t I n summary, i t has b e e n assumed t h a t t h e 1971 a v e r a g e new row h o u s i n g u n i t , w i t h an NHA a p p r o v e d m o r t g a g e , i n t h e O n t a r i o p o r t i o n o f t h e O t t a w a - H u l l M e t r o p o l i t a n A r e a was d e v e l o p e d a t 13.5 u n i t s p e r g r o s s r e s i d e n t i a l a c r e and r e q u i r e d 27 f e e t o f r o a d f r o n t a g e p e r u n i t . F o o t n o t e s "''Based on CMHC d a t a , t h e t y p i c a l l o t f r o n t a g e s f o r s i n g l e -d e t a c h e d d w e l l i n g i n new s u b d i v i s i o n s , i n 1971, a p p r o v e d f o r NHA m o r t g a g e s were 65 f e e t i n t h e T o w n s h i p o f Nepean, 55 f e e t i n t h e T o w n s h i p o f G l o u c e s t e r , and 50 f e e t i n t h e C i t y o f O t t a w a . F u r -t h e r m o r e , o f t h e 69 7 new s i n g l e - d e t a c h e d d w e l l i n g s f i n a n c e d u n d e r t h e N a t i o n a l H o u s i n g A c t i n 1971, 181 were i n Nepean, 488 were i n G l o u c e s t e r , and 2 8 were i n Ottawa. APPENDIX IV ESTIMATE OF SERVICING COSTS A n n u a l E s t i m a t e s A p p r o a c h . The a n n u a l p r i c e p e r f r o n t f o o t o f r o a d f o r s e r v i c i n g ( i . e . r o u g h g r a d i n g , h a r d s e r v i c e s , c o n s u l t a n t f e e s , and o v e r -head) has b e e n b a s e d on t h e v a l u e s o b t a i n e d f r o m t h e Canada H o u s i n g and M o r t g a g e C o r p o r a t i o n f o r t h e p e r i o d 1974 t o 1979 and an e s t i m a t e f o r t h e p e r i o d 1968 t o 1973 as shown i n T a b l e A-2. The e s t i m a t e f o r t h e l a t t e r p e r i o d has b e e n b a s e d on t h e p r i c e t o i n s t a l l h a r d s e r v i c e s and t h e a v e r a g e r a t i o o f s e r v i c i n g c o s t s t o h a r d s e r v i c e s . T h i s a p p r o a c h t o e s t i m a t e s e r v i c i n g c o s t s w o u l d a p p e a r t o be a p p r o p r i a t e s i n c e c o n s u l t a n t f e e s a r e o f t e n e x p r e s s e d as a c o n s t a n t p e r c e n t a g e o f t h e c o s t f o r h a r d s e r v i c e s and i t w o u l d a p p e a r r e a s o n a b l e , f o r c o n v e n i e n c e , t o assume r o u g h g r a d i n g c o s t s may be a p p r o x i m a t e d i n a s i m i l a r manner. O v e r h e a d c o s t s p e r u n i t o f p r o d u c t i o n / e x p e r i e n c e d by d e v e l o p e r s , w o u l d l i k e l y f l u c t u a t e i n t h e s h o r t - r u n w i t h c h a n g e s i n t h e l e v e l o f p r o d u c t i o n . However, as d i s c u s s e d below, i n v i e w o f a p p a r e n t b u s i n e s s p r a c t i c e s and t h e u s e o f o t h e r e x p l a n a t o r y v a r i a b l e s i n t h e h o u s i n g s t a r t s model t h a t d e t e r m i n e f l u c t u a t i o n s i n t h e volume o f h o u s i n g s t a r t s , i t w o u l d a p p e a r a p p r o p r i a t e and p r a t i c a l t o e s t i m a t e o v e r h e a d as a c o n s t a n t p r o p o r t i o n o f t o t a l s e r v i c i n g costs."' -174 TABLE A-2 ESTIMATES OF THE SERVICING COSTS PER FRONT FOOT H a r d S e r v i c e s C o s t T o t a l C o s t P e r F r o n t F o o t P e r F r o n t F o o t o f Road o f Road 1980 — 106.68 e 1979 93. 0^ 103.94 e 1978 88.5? 95.75 e 1977 82.07 91.55 e 1976 75.0? 84.90 e 1975 65.5° 76.35 e 1974 58. o r 74.67^ 1973 58.0° 66.71^ 1972 4 9 - 5 b 56.93^ 1971 47.0° 54.06J: 1970 44.0° 50.61J: 1969 44.86*: 1968 3 4 - 4 d 39.57^ 1967 31.0 35.66 a I n t e r v i e w w i t h A. F e e , a c o n s u l t a n t o f J . L. R i c h a r d s and A s s o c i a t e s L i m i t e d , O t tawa, M a r c h , 1979. D L e t t e r f r o m O l i v e r , M a n g i one, M c C a l l a and A s s o c i a t e s L i m i t e d C o n s u l t i n g E n g i n e e r s , O t tawa, A p r i l 3, 1979. J o s e p h Chung, L a n d and Low Income H o u s i n g , b a c k g r o u n d s t u d y f o r t h e Task F o r c e on Low Income H o u s i n g ( u n p u b l i s h e d p a p e r , Canada M o r t g a g e and H o u s i n g C o r p o r a t i o n , 1970), pp. 39 and 40. B a s e d on t h e a v e r a g e s e r v i c i n g c o s t s p e r i t e m e s t i m a t e d i n t h e 1967 and 196 8 s u b d i v i s i o n a g r e e m e n t s o f t h e C i t y o f Ottawa and t h e T o w n s h i p s o f G l o u c e s t e r and Nepean. e E s t i m a t e s were made f o r t h e T o w n s h i p s o f G l o u c e s t e r and Nepean by t h e A p p r a i s a l D e p a r t m e n t o f t h e Canada M o r t g a g e and H o u s i n g C o r p o r a t i o n . "^Estimates were made on t h e b a s i s o f t h e p r o d u c t o f t h e p r e v a i l i n g h a r d s e r v i c e s c o s t and t h e a v e r a g e r a t i o o f t o t a l s e r v i c i n g c o s t s t o h a r d s e r v i c e s , where t h e r a t i o was e s t i m a t e d u s i n g a v a i l a b l e d a t a f r o m 1974 t o 1979, n o t e d above. 176 O v e r h e a d . I t h a s b een a r g u e d t h a t companies with, e n g i n e e r i n g and c o n s t r u c t i o n d e p a r t m e n t s w h i c h r e g u l a r l y engage i n new c o n s t r u c -t i o n w o u l d l i k e l y e x p e r i e n c e r i s i n g o v e r h e a d e x p e n d i t u r e s w i t h 2 any s i g n i f i c a n t s e l f - c o n s t r u c t i o n a c t i v i t y . However, o v e r h e a d may i n c l u d e c o s t s w h i c h w o u l d be v a r i a b l e o r f i x e d i n t h e s h o r t -r u n . Whereas t o t a l v a r i a b l e - o v e r h e a d c o s t s f l u c t u a t e i n p r o -p o r t i o n t o c h a n g e s i n a c t i v i t y l e v e l s , by d e f i n i t i o n , t o t a l f i x e d -3 o v e r h e a d c o s t s do n o t change o v e r w i d e r a n g e s o f a c t i v i t y . T h e r e f o r e , t h e h i g h e r t h e l e v e l o f a c t i v i t y , t o t a l o v e r h e a d c o s t s w o u l d be l o w e r p e r u n i t o f p r o d u c t i o n . A c o s t i n g d i f f i c u l -t y a r i s e s h e r e , b e c a u s e management d e s i r e s a r e p r e s e n t a t i v e s t a n d a r d c o s t f o r a p r o d u c t d e s p i t e month-to-month changes i n 4 p r o d u c t i o n v o l u m e . To a v o i d c a p r i c i o u s c h a n g e s i n u n i t c o s t s i t has b een a r g u e d t h a t t o t a l f i x e d o v e r h e a d c o s t s o u g h t t o be a l l o c a t e d t o t h e u n i t s o f p r o d u c t i o n b a s e d on a n o r m a l l e v e l o f a c t i v i t y t h a t w i l l s a t i s f y a v e r a g e consumer demand o v e r a s p a n o f t i m e ( o f t e n . 5 f i v e y e a r s ) t h a t i n c l u d e s s e a s o n a l , c y c l i c a l and t r e n d f a c t o r s . I t has a l s o b een n o t e d t h a t " n o rmal a c t i v i t y makes more s e n s e as an o v e r h e a d b a s e when t h e r e a r e w ide s w i n g s i n b u s i n e s s volume t h r o u g h t h e y e a r s , e v e n t h o u g h t h e y e a r l y o v e r - and u n d e r a p p l i e d o v e r h e a d w o u l d n o t be c a r r i e d f o r w a r d i n t h e b a l a n c e s h e e t f r o m y e a r t o y e a r " . The u n i f o r m r a t e f o r a p p l y i n g f i x e d o v e r h e a d , w h i c h e l i m i n a t e s v a r i a t i o n s i n u n i t c o s t s a t t r i b u t e d t o f l u c t u a -t i o n s i n p r o d u c t i o n v o l u m e s , p r o v i d e s f o r t h e r e c o v e r y o f f i x e d c o s t s o v e r t h e l o n g - r u n . T h e r e f o r e , c ompanies e x p e c t t h a t o v e r -a p p l i c a t i o n i n some y e a r s w o u l d be o f f s e t by u n d e r a p p l i c a t i o n i n o t h e r y e a r s . A l t h o u g h c ompanies may f i n d t h e above method 'appro-p r i a t e i n r u n n i n g a b u s i n e s s , f o r income t a x p u r p o s e s t h e y e a r 177 would be deemed t o be t h e t i m e span f o r t h e a l l o c a t i o n o f under-o r o v e r a p p l i e d o v e rhead, and f o r t h i s r e a s o n i t would be n e c e s s a r y t o e s t i m a t e a c t u a l overhead e x p e n d i t u r e s p e r y e a r t o det e r m i n e a c t u a l income t a x d e d u c t i o n s . A l t h o u g h a d e v e l o p e r would r e q u i r e an e s t i m a t e o f overhead e x p e n d i t u r e s as w e l l as t h e p r e v a i l i n g under- o r o v e r a p p l i e d o v e r -head t o d e t e r m i n e e x p e c t e d p r o f i t s , t h e p o t e n t i a l p r o f i t v a r i a b l e has been d e t e r m i n e d u s i n g a s i n g l e e s t i m a t e f o r overhead f o r c o s t v a l u a t i o n and income t a x d e d u c t i o n p u r p o s e s . T h i s s i m p l i f i c a t i o n may r e s u l t i n e r r o r s when e s t i m a t i n g income t a x e s ; however, i n v i e w o f ap p a r e n t b u s i n e s s p r a c t i c e s i t has been assumed t h a t average overhead c o s t s p e r u n i t may b e s t be ap p r o x i m a t e d by t h e c o s t s used i n i n v e s t m e n t d e c i s i o n making. F u r t h e r m o r e , i t has been assumed t h a t , a l t h o u g h t h e p o t e n t i a l p r o f i t v a r i a b l e may not f u l l y i n d i c a t e p r e v a i l i n g e x p e c t e d p r o f i t s , changes i n t h e r e m a i n -i n g d e t e r m i n i n g v a r i a b l e s i n t h e h o u s i n g s t a r t s e q u a t i o n would i n d i c a t e changes i n e x p e c t e d p r o f i t s a t t r i b u t e d t o changes i n t h e t i m i n g o f cash f l o w s and i n t h e volume o f p r o d u c t i o n . 178 F o o t n o t e s x H o r n g r e n n o t e s two common s i m p l i f i c a t i o n s a r e w i d e l y u s e d i n t h e d e t e r m i n a t i o n o f c o s t f u n c t i o n s . F i r s t , a common assump-t i o n i s t h a t c o s t b e h a v i o u r c a n be s u f f i c i e n t l y e x p l a i n e d by one i n d e p e n d e n t v a r i a b l e . S e c o n d , l i n e a r a p p r o x i m a t i o n s t o c o s t f u n c t i o n s a r e 'good enough' e v e n t h o u g h n o n l i n e a r b e h a v i o u r i s (may be) more l i k e l y . H o r n g r e n n o t e s t h a t t h e d e t e r m i n i n g v a r i a b l e s e l e c t e d s h o u l d r e p r e s e n t one t h a t w o u l d be most l i k e l y t o have t h e most i n f l u e n c e on t o t a l c o s t i n c u r r e d . I n v i e w o f t h e n a t u r e o f t h e c o s t i t e m i n v o l v e d , i t w o u l d a p p e a r t h a t t h e c o s t o f i n s t a l l i n g h a r d s e r v i c e s may r e p r e s e n t t h e most i m p o r t a n t v a r i a b l e i n t h e t o t a l s e r v i c i n g c o s t . T h e r e f o r e , t h e c o s t t o i n s t a l l h a r d s e r v i c e s h a s b e e n s e l e c t e d t o e s t i m a t e t o t a l s e r v i c -i n g c o s t s , f o r t h o s e y e a r s when t h e v a l u e must be e s t i m a t e d , a l t h o u g h o v e r h e a d c o s t s may a c t u a l l y have c a u s e d f l u c u a t i o n s . ; a r o u n d t h e e s t i m a t e d v a l u e b a s e d on a s t a t i c r e l a t i o n s h i p ; i n C h a r l e s T. H o r n g r e n , C o s t A c c o u n t i n g : A M a n a g e r i a l E m p h a s i s , 4 t h e d . (Englewood C l i f f s , N . J . : P r e n t i c e - H a l l I n c . , 1 9 7 7 ) , p. 780. 2 W a l t e r B. M e i g s e t a l , I n t e r m e d i a t e A c c o u n t i n g , 3 r d C a n a d i a n A d d i t i o n ( T o r o n t o : M c G r a w - H i l l R y e r s o n L t d . , 1 9 8 0 ) , p. 440. 3 H o r n g r e n , pp. 261 and 263. 4 I b i d . , p. 283. 5 I b i d . , pp. 301-303. 6 I b i d . , p. 305. APPENDIX V COST OF RAW LAND To e s t i m a t e t h e c o s t i n c u r r e d f o r u n s e r v i c e d , o r raw l a n d , by d e v e l o p e r s on t h e O n t a r i o s i d e o f t h e M e t r o p o l i t a n A r e a , i t w o u l d be n e c e s s a r y t o know t h e t i m e when t h e l a n d was a c q u i r e d , t h e method o f a c q u i r i n g t h e p r o p e r t y ( i n c l u d i n g t h e t e r m s o f f i -n a n c i n g ) , as w e l l as t h e p r i c e p a i d . A l t h o u g h , i t was n o t p o s s i b l e t o d e t e r m i n e d e t a i l s o f l a n d t r a n s a c t i o n s , a s s o c i a t e d w i t h d e v e l o p m e n t o c c u r i n g a t v a r i o u s t i m e s t h r o u g h o u t t h e s t u d y p e r i o d , an a t t e m p t was made t o e s t i m a t e t h e p r i c e p a i d f o r l a n d a d j a c e n t t o d e v e l o p i n g a r e a s d u r i n g a p e r i o d when c o n s i d e r a b l e d e v e l o p e r l a n d a c q u i s i t i o n a c t i v i t y was e x p e r i e n c e d . I t has b een n o t e d t h a t between 1958 and 1965 m a j o r p o l i c y d e c i s i o n s and i m p l e m e n t a t i o n s by p u b l i c i n s t i t u t i o n s a p p e a r e d t o be c o - i n c i d e n t w i t h t h e l a n d a s s e m b l i e s o f m a j o r d e v e l o p m e n t firms."'" Between 1958 and 1962, t h e N a t i o n a l C a p i t a l C o m m i s s i o n a c q u i r e d 65 s q u a r e m i l e s o f l a n d , i n t h e l o c a t i o n s most l i k e l y t o have b e e n s e l e c t e d f o r f u r t h e r s u b d i v i s i o n s , e f f e c t i v e l y s t e r i l i z -2 i n g t h e a r e a f r o m d e v e l o p m e n t f o r a G r e e n b e l t . W i t h i n t h e i n n e r p e r i m e t e r o f t h e G r e e n b e l t , t h e r e was d e v e l o p a b l e l a n d t o accommodate more t h a n f i f t e e n y e a r s o f u r b a n g r o w t h , and many s u b d i v i d e r s f o u n d a l t e r n a t i v e s i t e s c o n t i g u o u s w i t h t h e m a i n u r b a n 3 f r o n t and w i t h p i p e d s e r v i c e s . F o l l o w i n g t h e i m p l e m e n t a t i o n o f t h e G r e e n b e l t , t h e r e were:-a number o f government p l a n s p r o p o s i n g g r o w t h nodes b e y o n d t h e 179 180 p e r i m e t e r o f t h e G r e e n b e l t and commitments were made f o r t h e e x -t e n s i o n o f t h e e a s t - w e s t e x p r e s s w a y , t h e Queensway. S u b s t a n t i a l l a n d a c q u i s i t i o n s were made by t h e p r i v a t e s e c t o r and by 19 65 t h e m a j o r d e v e l o p m e n t f i r m s had a c q u i r e d a 20 y e a r s u p p l y o f . 4 l a n d . A l t h o u g h p r i c e s f o r l a n d w i t h i n t h e i n n e r p e r i m e t e r o f t h e G r e e n b e l t a r e n o t a v a i l a b l e , i t was n o t e d t h a t t h e G r e e n b e l t was a c q u i r e d a t a p p r o x i m a t e l y $1000 p e r a c r e w h i l e most o f . t h e l a n d b e y o n d t h e G r e e n b e l t was a c q u i r e d a t p r i c e s between $500 and $1800 an a c r e (some p r i c e s were above $3000 p e r a c r e ) I n t h i s s t u d y , t h e d a t e o f a c q u i s i t i o n o f raw l a n d i n t h e O n t a r i o s i d e o f t h e M e t r o p o l i t a n A r e a has b e e n assumed t o be 1960, t o r e f l e c t t h e i m p a c t o f t h e f o r m a t i o n o f t h e G r e e n b e l t (1958 - 1962). I t w o u l d be r e a s o n a b l e t o c o n c l u d e t h a t d u r i n g t h e " l a n d boom" p e r i o d m a j o r l a n d a s s e m b l i e s by t h e p r i v a t e s e c -t o r w o u l d be c o n c u r r e n t w i t h a h e i g h t e n e d i n t e r e s t i n t h e l i m i t e d l a n d w i t h i n t h e i n n e r p e r i m e t e r o f t h e G r e e n b e l t , and a n a r r o w i n g o f t h e p o t e n t i a l l o c a t i o n s o f new u r b a n nodes b e y o n d t h e p e r i -m e t e r o f t h e G r e e n b e l t b e c a u s e o f t h e l i m i t e d d i r e c t a c c e s s t o 6 t h e c e n t r a l u r b a n a r e a . A l t h o u g h t h e G r e e n b e l t l a n d s a t $1000 p e r a c r e were r e p o r t e d l y a c q u i r e d a t premium v a l u e s , s p e c u l a t i o n on lands:: n o t a f f e c t e d by e x p r o p r i a t i o n may have i n d u c e d p r i c e l e v e l s t o w a r d s t h e h i g h s i d e o f t h e r e p o r t e d p r i c e r a n g e o f t y p i c a l t r a n s a c t i o n s . I n v i e w o f t h e above, i t has been assumed t h a t t h e t y p i c a l a c q u i s i t i o n p r i c e may have been as h i g h as $1800 p e r a c r e . 1 8 1 F o o t n o t e s ''"Alice Coleman, The P l a n n i n g C h a l l e n g e Of t h e Ottawa A r e a (Ottawa: Q u e e n 7 s P r i n t e r , 1 9 6 9 ) , pp. 4 4 - 6 0 . 2 I b i d . , p. 4 9 . 3 I b i d . , pp. 1 1 and 4 9 . 4 I b i d . , p. 6 0 . 5 P e t e r S p u r r , L a n d and U r b a n D e v e l o p m e n t ( T o r o n t o : James L o r i m e r and Company, 1 9 7 6 ) , pp. 8 8 and 8 9 . APPENDIX V I PROPERTY TAXES The p r o p e r t y t a x e s p a i d w h i l e h o l d i n g u n d e v e l o p e d l a n d i n t h e O n t a r i o p o r t i o n o f t h e M e t r o p o l i t a n A r e a , h as been e s t i m a t e d by t h e a v e r a g e t a x p a i d f o r l a n d h o l d i n g s i n G l o u c e s t e r and Nepean T o w n s h i p s . A l t h o u g h a s s e s s m e n t s on p r o p e r t i e s may o c c u r a t more t h a n one t i m e w i t h i n a y e a r d e p e n d i n g upon t h e e x t e n t o f im p r o v e m e n t s , an a t t e m p t h a s been made t o e s t i m a t e t h e a n n u a l p r o p e r t y t a x p a i d , i n e a c h T o w n s h i p , on t h e b a s i s o f t h e m i l l r a t e f o r r e s i d e n t i a l - f a r m a s s e s s m e n t and t h e a s s e s s e d v a l u e o f s e r v i c e d and raw l a n d . The m i l l r a t e h a s been e s t i m a t e d b y t h e a v e r a g e t a x r a i s e d p e r d o l l a r o f r e s i d e n t i a l - f a r m a s s e s s m e n t f o r e a c h T o w n s h i p . The a s s e s s e d v a l u e o f s e r v i c e d l a n d has been b a s e d on t h e r a t e a p p l i e d t o l o t s f o r s i n g l e - d e t a c h e d h o u s e s — $ 6 p e r f r o n t f o o t f o r G l o u c e s -t e r and $ 5 . 5 0 f o r Nepean. To d e t e r m i n e t h e a s s e s s e d v a l u e o f raw l a n d , an a t t e m p t has been made t o e s t i m a t e t h e a s s e s s e d v a l u e o f u n d e v e l o p e d l a n d i n l a r g e h o l d i n g s s l a t e d f o r u r b a n d e v e l o p m e n t . F o r t h e To w n s h i p o f G l o u c e s t e r , t h e a s s e s s e d v a l u e p e r a c r e o f " v a c a n t f a r m " and " v a c a n t r e s i d e n t i a l " l a n d was d e t e r m i n e d f o r a l l p r o p e r t i e s , o f 1 0 a c r e s o r more, d e s i g n a t e d f o r u r b a n d e v e l -opment i n t h e O r l e a n s Community O f f i c i a l P l a n . T h i r t y - f i v e p r o p e r t i e s were i d e n t i f i e d h a v i n g a combined a c r e a g e o f 1 8 4 2 . 0 9 5 a c r e s and h a v i n g an a v e r a g e a s s e s s e d v a l u e o f $ 8 4 . 4 9 p e r a c r e . 1 8 2 183 U n f o r t u n a t e l y c o l l e c t e d d a t a was n o t a v a i l a b l e f o r t h e T o w n s h i p o f Nepean, however, an e s t i m a t e o f t h e a s s e s s e d v a l u e o f u n -d e v e l o p e d l a n d has been b a s e d on t h e e s t i m a t e o f t h e G l o u c e s t e r a s s e s s e d v a l u e p e r a c r e and t h e r a t i o o f t h e a s s e s s e d v a l u e o f l a n d p e r a c r e f o r Nepean t o t h e a s s e s s e d v a l u e o f l a n d p e r a c r e f o r G l o u c e s t e r . S i n c e t h e a s s e s s e d v a l u e f o r l a n d i n c r e a s e s when t h e l a n d has b e e n s u b d i v i d e d and s e r v i c e d , t h e r e l a t i o n s h i p between t h e a s s e s s e d v a l u e o f l a n d f o r Nepean and G l o u c e s t e r has b e en b a s e d on p u b l i s h e d d a t a f o r a y e a r when b o t h had l i t t l e u r b a n d e v e l o p m e n t and a p p r o x i m a t e l y a b o u t t h e same amount o f d e v e l o p e d l a n d p e r a c r e . B a s e d on 19 51 d a t a , w h i c h r e p r e s e n t e d t h e f i r s t y e a r t h a t G l o u c e s t e r a d o p t e d i t s a s s e s s m e n t s y s t e m , Nepean's " l a n d " a s s e s s m e n t was e s t i m a t e d t o be 75.66 p e r c e n t o f G l o u c e s t e r ' s a s s e s s e d v a l u e o f l a n d p e r acre."'" I n v i e w o f t h e above, t h e a s s e s s e d v a l u e o f u n d e v e l o p e d l a n d s l a t e d f o r u r b a n d e v e l o p m e n t has b e e n e s t i m a t e d t o be $84.49 p e r a c r e f o r G l o u c e s t e r and $63.93 p e r a c r e f o r Nepean. F u r t h e r m o r e , t h e a s s e s s e d v a l u e o f s e r v i c e d l a n d has b een b a s e d on t h e r e p o r t e d v a l u e s p e r f r o n t f o o t f o r s i n g l e - d e t a c h e d h o u s e s , as w e l l a s o n t h e a s s u m p t i o n t h a t d e v e l o p e r s w o u l d be a b l e t o d e -v e l o p 5.2 l o t s p e r g r o s s a c r e and t h a t 6 4 f e e t o f r o a d f r o n t a g e w o u l d be r e q u i r e d p e r s e r v i c e d l o t . T h e r e f o r e , t h e p r o p e r t y t a x t o h o l d l a n d has b een b a s e d on t h e m i l l r a t e , t h e a s s e s s e d v a l u e o f s e r v i c e d a n d raw l a n d , as w e l l as t h e q u a n t i t y o f l a n d r e -q u i r e d p e r t y p e o f d w e l l i n g u n i t . 184 Footnotes The assessed value of serviced land per foot of frontage, i n the Townships of Gloucester and Nepean, was obtained from the Assessment Department of the Ontario Ministry of Revenue. The assessed value of unserviced land per acre i n the Township of Nepean r e l a t i v e to the Township of Gloucester was determined by comparing the sums of taxable and tax exempt land assessment divided by the t o t a l acreage for each municipality. The required data was reported i n the following publications: Department of Municipal A f f a i r s , 1951 Annual Report of Municipal S t a t i s t i c s (Toronto: Queen's Printer, 1952), pp. 11 and 61. and Department of Municipal A f f a i r s , Municipal Directory (Toronto: Queen's Prin t e r , 1960), p.6. APPENDIX V I I ESTIMATES OF PROPORTIONS OF CAPITAL FROM VARIOUS SOURCES Obj e c t i v e An a t t e m p t has been made t o e s t i m a t e t h e p r o p o r t i o n s .of c a p i t a l d e r i v e d f r o m d i f f e r e n t s o u r c e s on t h e b a s i s o f t h e book v a l u e s o f " R e a l E s t a t e O p e r a t o r s and D e v e l o p e r s " l i a b i l i t i e s p u b l i s h e d i n t h e S t a t i s t i c s Canada p u b l i c a t i o n C o r p o r a t i o n  F i n a n c i a l S t a t i s t i c s . S p e c i f i c a l l y e s t i m a t e s have been made o f t h e a n n u a l p r o p o r t i o n o f c a p i t a l d e r i v e d f r o m b u s i n e s s l o a n s , m o r t g a g e s , b o n d s , s t o c k s , and r e t a i n e d e a r n i n g s f o r t h e p e r i o d 1968 t o 1979. A l t h o u g h d a t a was n o t a v a i l a b l e f o r 1972, 1978 and 1979, t h e v a l u e s f o r 1972 have been e s t i m a t e d as t h e a v e r a g e o f t h e c a l c u l a t e d p r o p o r t i o n s f o r 1971 and 1973, w h i l e f t h e p r o p o r -t i o n s c a l c u l a t e d f o r 1977 have been u s e d t o e s t i m a t e t h e p r o p o r t i o n s o f c a p i t a l i n 1978 and 1979, B e c a u s e o f t h e r e l a t i v e s t a b i l i t y i n t h e p r o p o r t i o n s o f c a p i t a l a t t r i b u t e d t o v a r i o u s s o u r c e s , f r o m one y e a r t o t h e n e x t , t h e p r o p o r t i o n s o f c a p i t a l c a l c u l a t e d w o u l d a p p e a r t o be a d e q u a t e f o r e s t i m a t i n g a n n u a l v a l u e s when d a t a was n o t a v a i l a b l e as w e l l as f o r e s t i m a t i n g t h e v a l u e i n e a c h month. I n a d d i t i o n t o t h e d a t a p r o b l e m s n o t e d above, e s t i m a t e d were n e c e s s a r y p e r t a i n i n g t o d i f f e r e n t t y p e s o f d e b t . 185 186 B u s i n e s s L o a n s B u s i n e s s l o a n s have been d e f i n e d t o i n c l u d e t h o s e l i a b i l i t i e s c l a s s i f i e d by S t a t i s t i c s Canada as "bank l o a n s " , " s h o r t - t e r m l o a n s " , " l o a n s due t o s h a r e h o l d e r s o r a f f i l i a t e s " , " l o n g - t e r m bank l o a n s " , and " o t h e r l o n g - t e r m d e b t " . A f t e r 1970 t h e p r o p o r t i o n s o f c a p i t a l a t t r i b u t e d t o g e n e r a l l o a n s may be c a l c u l a t e d f r o m p u b l i s h e d d a t a . However, p r i o r t o 1970 t h e number o f d o l l a r s composed o f b u s i n e s s l o a n s has been e s t i m a t e d on t h e b a s i s o f t h e p r o p o r t i o n o f t o t a l l i a b i l i t i e s t h a t com-p r i s e d b u s i n e s s l o a n s , m o r t g a g e s and bond d e b t as w e l l as t h e p e r i o d i c amount o f t o t a l l i a b i l i t i e s , and t h e p e r i o d i c amount o f m o r t g a g e and bond d e b t . The p r o p o r t i o n o f l i a b i l i t i e s composed o f b u s i n e s s l o a n s , m o r t g a g e s and bond d e b t has been e s t i m a t e d on t h e b a s i s o f t h e d a t a p r o v i d e d s i n c e 1970. S i n c e t h e a v e r a g e p r o p o r t i o n f o r t h e y e a r s 1970 t o 1977, was t h e same as t h e p r o -p o r t i o n c a l c u l a t e d f o r 1970 ( t h e y e a r i m m e d i a t e l y f o l l o w i n g t h e p e r i o d t o be e s t i m a t e d ) , t h e r a t i o o f b u s i n e s s l o a n s , m o r t g a g e s and bond d e b t t o l i a b i l i t i e s h as been e s t i m a t e d t o be 98.9 p e r -c e n t . T h e r e f o r e , b a s e d on t h e d e b t t o l i a b i l i t i e s r a t i o , t h e m a g n i t u d e o f b u s i n e s s l o a n s f o r 196 8 and 1969 have been e s t i m a t e d by c a l c u l a t i n g t h e t o t a l d e b t and s u b t r a c t i n g t h e amount o f m o r t g a g e and bond d e b t . M o r t g a g e D e b t M o r t g a g e d e b t f o r t h e p e r i o d s i n c e 197 0 may be computed f r o m p u b l i s h e d d a t a . However, f o r t h e 1968 and 1969, t h e number o f d o l l a r s composed o f m o r t g a g e d e b t has been assumed t o be p r o p o r t i o n a l t o " n e t l o n g - t e r m d e b t " , w h i c h i n c l u d e s " l o n g - t e r m bank l o a n s " , " o t h e r l o n g - t e r m d e b t " , bonds ( i n c l u d i n g d e b e n t u r e s ) 187 as w e l l as m o r t g a g e s , b u t e x c l u d e s r e p a y m e n t s o f p r i n c i p a l due w i t h i n a y e a r . The r a t i o o f m o r t g a g e d e b t t o n e t l o n g - t e r m d e b t has been b a s e d on t h e v a l u e (76.2 p e r c e n t ) c a l c u l a t e d f o r 1970, s i n c e t h e d a t a between 1970 a n d 1977 i n d i c a t e d t h a t t h e r e has been a g r a d u a l i n c r e a s e i n t h e v a l u e o f t h e r a t i o , and 1970 r e p r e s e n t s t h e y e a r i m m e d i a t e l y f o l l o w i n g t h e p e r i o d t o be e s -t i m a t e d . T h e r e f o r e , b a s e d on t h e m o r t g a g e t o n e t l o n g - t e r m d e b t r a t i o , t h e m a g n i t u d e o f m o r t g a g e d e b t f o r 1968 and 1969 has been e s t i m a t e d by m u l t i p l y i n g t h e p u b l i s h e d v a l u e f o r n e t l o n g - t e r m d e b t by t h e e s t i m a t e d r a t i o . Bond D e b t Bond d e b t f o r 1968 and 1969 has been e s t i m a t e d i n t h e same manner as t h a t u s e d f o r m o r t g a g e s . The r a t i o o f bond d e b t t o n e t l o n g - t e r m d e b t has b e e n b a s e d oh t h e v a l u e (17.5 p e r c e n t ) c a l c u -l a t e d f o r 1970, s i n c e t h e d a t a between 1970 and 1977 i n d i c a t e d t h e r e has been a g r a d u a l d e c r e a s e i n t h e v a l u e o f t h e r a t i o , and 197 0 r e p r e s e n t s t h e y e a r i m m e d i a t e l y f o l l o w i n g t h e p e r i o d t o be e s t i m a t e d . T h e r e f o r e , b a s e d on t h e bond t o n e t l o n g - t e r m d e b t r a t i o , t h e m a g n i t u d e o f bond d e b t f r o m 1968 and 1969 has been e s t i m a t e d by m u l t i p l y i n g t h e p u b l i s h e d v a l u e f o r n e t l o n g - t e r m d e b t by t h e r a t i o . APPENDIX V I I I ESTIMATES OF COMPLETIONS AND UNITS UNDER CONSTRUCTION A l t h o u g h d a t a on h o u s i n g c o m p l e t i o n s and u n i t s u n d e r c o n -s t r u c t i o n has b e e n made a v a i l a b l e f o r most o f t h e a r e a and t i m e p e r i o d s t u d i e d , i t h a s b e e n n e c e s s a r y t o e s t i m a t e t h e number o f c o m p l e t i o n s and u n i t s u n d e r c o n s t r u c t i o n ( o f g r o u n d - o r i e n t e d d w e l l i n g s ) f o r n o n - p r o f i t h o u s i n g and f o r u n i t s c o n s t r u c t e d i n some s u b u r b a n m u n i c i p a l i t i e s between 1968 and 1971. The method u s e d t o make t h e s e e s t i m a t e s h a s b een b a s e d on a s t o c k f l o w m o d e l o f u n i t s u n d e r c o n s t r u c t i o n , t h e a s s u m p t i o n t h a t t h e number o f u n i t s u n d e r c o n s t r u c t i o n i n any p e r i o d may be d e t e r m i n e d by a s i m p l e f u n c t i o n o f t h e most r e c e n t h o u s i n g s t a r t s p e r month, and t h e a s s u m p t i o n t h a t t e m p o r a l c h a n g e s t o t h e number o f u n i t s u n d e r c o n s t r u c t i o n , n o t a t t r i b u t e d t o s t a r t s o r c o m p l e t i o n s , may be s i m i l a r f o r p r o f i t and n o n - p r o f i t h o u s i n g and f o r v a r i o u s m u n i c i -p a l i t i e s . The f i r s t s t e p i n t h e p r o c e d u r e has b e e n t o e s t i m a t e f o r e a c h p r o v i n c i a l p o r t i o n o f t h e s t u d y a r e a and f o r e a c h h o u s i n g t y p e ( s i n g l e - d e t a c h e d a n d d o u b l e o r row h o u s i n g ) t h e p e r i o d i c r e l a t i o n s h i p between t h e number o f u n i t s u n d e r c o n s t r u c t i o n a t t h e end o f a month and t h e number o f u n i t s u n d e r c o n s t r u c t i o n a t t h e end o f t h e p r e v i o u s month, c u r r e n t h o u s i n g s t a r t s , c u r r e n t c o m p l e t i o n s and c u r r e n t a d j u s t m e n t s . T h i s s t o c k f l o w m odel o f 188 189 h o u s i n g u n i t s u n d e r c o n s t r u c t i o n has been s p e c i f i e d a s shown i n e x p r e s s i o n A . l : p , c p , c p , c p , c p , c IUCF = IUCF + STSF - COMPF + ADJF A . l t t - 1 t t t N o t a t i o n : S u p e r s c r i p t s (p) and (c) r e s p e c t i v e l y r e f e r t o t h e s p e -c i f i c p r o v i n c i a l p o r t i o n s o f t h e s t u d y a r e a , and t h e h o u s i n g c l a s s ( s i n g l e f a m i l y o r row) IUCF = number o f g r o u n d - o r i e n t e d h o u s i n g u n i t s u n d e r t c o n s t r u c t i o n i n t h e c u r r e n t p e r i o d ( t ) o r p r e -v i o u s p e r i o d ( t - 1 ) STSF = number o f g r o u n d - o r i e n t e d h o u s i n g u n i t s t a r t s t i n t h e c u r r e n t p e r i o d (t) COMPF = number o f g r o u n d - o r i e n t e d h o u s i n g u n i t c o m p l e -t t i o n s i n t h e c u r r e n t p e r i o d ( t ) ADJF = c u r r e n t p e r i o d (t) a d j u s t m e n t s t o t h e number o f t u n i t s u n d e r c o n s t r u c t i o n — r e s u m e d b u i l d i n g ( + ) o r work s t o p p a g e s (-). The s e c o n d s t e p i n v o l v e s e s t i m a t i n g f o r e a c h p r o v i n c i a l p o r t i o n o f t h e s t u d y a r e a and f o r e a c h h o u s i n g t y p e ( s i n g l e f a m i l y o r row) t h e p e r i o d i c r e l a t i o n s h i p between t h e number o f u n i t s u n d e r c o n s t r u c t i o n a t t h e end o f e a c h month and t h e number o f t h e most r e c e n t h o u s i n g s t a r t s . T h i s model has been s p e c i f i e d as shown i n e x p r e s s i o n A.2: j P,c S T " p , c IUCF = Z__ STSF + t i=0 t - j N o t a t i o n : S u p e r s c r i p t s (p) and (c) r e s p e c t i v e l y r e f e r t o t h e s p e -c i f i c p r o v i n c i a l p o r t i o n s o f t h e s t u d y a r e a , and t h e h o u s i n g c l a s s ( s i n g l e f a m i l y o r row) p , c p , c b . STSF t t - j - 1 A.2 190 IUCF = (as above) t j _ STSF = t h e sum o f g r o u n d - o r i e n t e d h o u s i n g s t a r t s t - j f r o m t h e c u r r e n t p e r i o d (t) t o t h e p r e -i=o c e d i n g p e r i o d ( t - j ) b t = t h e p r o p o r t i o n o f t h e g r o u n d - o r i e n t e d h o u s i n g s t a r t s i n t h e l a s t p e r i o d ( t - j - 1 ) r e q u i r e d t o f o r m a sum e q u a l t o t h e v a l u e o f g r o u n d o r i e n t e d h o u s i n g u n i t s u n d e r c o n s t r u c t i o n i n t h e c u r r e n t p e r i o d (t) STSF = number o f g r o u n d - o r i e n t e d h o u s i n g s t a r t s i n t - j - 1 t h e l a s t p r e c e d i n g p e r i o d ( t - j - 1 ) r e q u i r e d t o c o m p l e t e t h e r e l a t i o n s h i p The t h i r d s t e p a t t e m p t s t o e s t i m a t e t h e p e r i o d i c a d j u s t -ment t o t h e number o f u n i t s u n d e r c o n s t r u c t i o n t h a t w o u l d n o t be a t t r i b u t e d t o t h e number o f c u r r e n t s t a r t s and c o m p l e t i o n s and t h e number o f u n i t s u n d e r c o n s t r u c t i o n i n t h e p r e v i o u s p e r i o d . I t has b e en assumed t h a t t h e a d j u s t m e n t f o r n o n - p r o f i t h o u s i n g , and f o r h o u s i n g i n t h e added s u b u r b a n m u n i c i p a l i t i e s was compar-a b l e t o o t h e r h o u s i n g d e v e l o p m e n t s i n t h e s t u d y a r e a and may be e s t i m a t e d as a p r o p o r t i o n o f t h e c hange i n t h e number o f h o u s i n g u n i t s u n d e r c o n s t r u c t i o n n o t a t t r i b u t e d t o c u r r e n t h o u s i n g s t a r t s . To e s t i m a t e t h e p e r i o d i c p r o p o r t i o n , t h e m o d e l has b e en s p e c i f i e d as shown i n e x p r e s s i o n A.3: p , c p , c p , c p , c p , c K = ADJF f (IUCF - IUCF + STSF ) A.3 t t t - 1 t t N o t a t i o n : S u p e r s c r i p t s (p) and (c) r e s p e c t i v e l y r e f e r t o t h e s p e c i -f i c p r o v i n c i a l p o r t i o n o f t h e s t u d y a r e a and t h e h o u s i n g c l a s s ( s i n g l e f a m i l y o r row) 191 K, ADJF t IUCF t STSF t = p r o p o r t i o n o f t h e change i n t h e number o f g r o u n d o r i e n t e d h o u s i n g u n i t s u n d e r c o n -s t r u c t i o n n o t a t t r i b u t e d t o c u r r e n t h o u s i n g s t a r t s i n t h e c u r r e n t p e r i o d ( t ) . = (as above) = (as above) = (as above) The f i n a l s t e p o f t h e p r o c e d u r e has been t o u s e t h e r e l a -t i o n s h i p o f l a g g e d t i m e p e r i o d s and t h e p e r i o d i c p r o p o r t i o n s t o e s t i m a t e t h e p e r i o d i c number o f u n i t s u n d e r c o n s t r u c t i o n f o r non-p r o f i t h o u s i n g and f o r h o u s i n g i n t h e added s u b u r b a n m u n i c i p a l i -t i e s b a s e d on t h e h o u s i n g s t a r t s i n f o r m a t i o n . U s i n g t h e s e e s t i m a t e s , and t h e e s t i m a t e o f t h e ch a n g e s i n t h e number o f u n i t s u n d e r c o n s t r u c t i o n a t t r i b u t e d t o work s t o p p a g e s and resumed c o n -s t r u c t i o n , c o m p l e t i o n s were e s t i m a t e d u s i n g t h e r e l a t i o n s h i p a s shown i n e x p r e s s i o n A.4: p , c COMPF t p , c (1-K) t p , c (IUCF t - 1 p , c IUCF + t p , c STSF ) t A.4 N o t a t i o n : S u p e r s c r i p t s (p) and (c) r e s p e c t i v e l y r e f e r t o t h e s p e c i -f i c p r o v i n c i a l p o r t i o n s o f t h e s t u d y a r e a and t h e h o u s i n g c l a s s ( s i n g l e f a m i l y and row) COMPF = t h e number o f g r o u n d - o r i e n t e d h o u s i n g c o m p l e -t t i o n s i n t h e c u r r e n t p e r i o d (t) K. IUCF t = (as above) = (as above) STSF t = (as above) APPENDIX IX ESTIMATE OF THE QUANTITY OF EMPLOYMENT O b j e c t i v e To e s t i m a t e t h e q u a n t i t y o f t h e employed l a b o u r f o r c e an a t t e m p t has b een made t o e s t i m a t e t h e number o f e m p l o y e e s o f t h e c o m m e r c i a l s e c t o r o f t h e economy, t h e F e d e r a l Government, l o c a l g o v e r n m e n t s , t h e p u b l i c and p r i v a t e s c h o o l s , t h e c o l l e g e s and u n i v e r s i t i e s , as w e l l as t h e h o s p i t a l s . The C o m m e r c i a l S e c t o r The number o f e m p l o y e e s o f t h e c o m m e r c i a l s e c t o r i n t h e h o u s i n g m a r k e t a r e a was e s t i m a t e d u s i n g a s e a s o n a l l y a d j u s t e d measure o f t h e number o f e m p l o y e e s i n l a r g e f i r m s . The number o f e m p l o y e e s was m e a s u r e d u s i n g t h e i n d u s t r i a l c o m p o s i t e employment i n d e x o f t h e O t t a w a - H u l l M e t r o p o l i t a n A r e a and an e s t i m a t e o f t h e a c t u a l number o f e m p l o y e e s r e l a t i v e t o t h e employment index."*" The i n d u s t r i a l c o m p o s i t e i n d e x c o v e r s a l l c o m m e r c i a l i n d u s -t r i e s e x c e p t some p r i m a r y i n d u s t r i e s s u c h as a g r i c u l t u r e and e x c l u d e s by d e f i n i t i o n n o n - c o m m e r c i a l a c t i v i t i e s as e d u c a t i o n , h e a l t h , and p u b l i c a d m i n i s t r a t i o n . The i n d e x , b a s e d on a s u r v e y o f t h e number o f e m p l o y e e s i n f i r m s o f t w e n t y e m p l o y e e s o r more w i t h i n t h e 1961 b o u n d a r i e s o f t h e M e t r o p o l i t a n A r e a , w o u l d a p p e a r t o p r o v i d e a v a l i d and c o n s i s t e n t measure o f t h e number o f n o n -government and i n s t i t u t i o n a l employment. The a c t u a l number o f em-192 193 p l o y e e s r e l a t i v e t o t h e i n d e x (631.692 t o 1.0) was e s t i m a t e d u s -i n g t h e a v e r a g e m o n t h l y v a l u e s f o r t h e f i r s t s i x months o f 1978. F e d e r a l Government Employment The m o n t h l y number o f emp l o y e e s o f t h e F e d e r a l Government i n t h e h o u s i n g m a r k e t a r e a has been e s t i m a t e d by i n t e r p o l a t i n g between t h e a n n u a l p u b l i s h e d number o f F e d e r a l e m p l o y e e s i n t h e 3 M e t r o p o l i t a n A r e a . The p u b l i s h e d number o f emp l o y e e s f o r Sep-tember i n e a c h y e a r does n o t p r o v i d e d a t a on a l l e mployees b e -c a u s e c e r t a i n c a t e g o r i e s were s e l e c t i v e l y d e l e t e d ; however, an a t t e m p t was made t o e s t i m a t e t h e t o t a l number o f e m p l o y e e s t h a t w o u l d be v a l i d and c o n s i s t e n t t h r o u g h o u t t h e s t u d y p e r i o d . The method, t h e r e f o r e , u s e d t o e s t i m a t e t h e m o n t h l y number 1. A d j u s t t h e p u b l i s h e d d a t a o f F e d e r a l e m p l o y e e s i n t h e Ottawa M e t r o p o l i t a n A r e a t o d e l e t e t h o s e c a t e g o r i e s o f employment added i n t h e y e a r s 1975 t o 1978. 2. E s t i m a t e t h e number o f F e d e r a l e m p l o y e e s i n September o f 1969 on t h e b a s i s o f t h e p r o d u c t o f t h e a v e r a g e o f t h e 1968 and 1970 v a l u e s o f t h e r a t i o and t h e a v e r a g e m o n t h l y t o t a l number o f F e d e r a l employ-e e s i n Canada f o r 1969. 3. E s t i m a t e t h e r a t i o o f t h e t o t a l number o f F e d e r a l em-p l o y e e s i n t h e M e t r o p o l i t a n A r e a t o t h e number o f F e d e r a l e m p l o y e e s i n t h e a d j u s t e d s e r i e s , t h e compute t h e a n n u a l t o t a l number o f F e d e r a l e m p l o y e e s b a s e d on t h e p r o d u c t o f t h e v a l u e o f t h e r a t i o (1.2 t o 1.) and t h e a n n u a l e s t i m a t e s made i n S t e p s (1) and (2).6 4. E s t i m a t e t h e t o t a l number o f F e d e r a l e m p l o y e e s i n t h e M e t r o p o l i t a n A r e a i n e a c h month o f t h e s t u d y p e r i o d by t h e a v e r a g e r a t e o f i n c r e a s e between e s t i m a t e s f o r September i n e a c h y e a r . o f F e d e r a l e m p l o y e e s was as f o l l o w s : A n n u a l Number of F e d e r a l Employees i n t h e Ottawa-H u l l M e t r o p o l i t a n A r e a 194 L o c a l Government Employment The number o f e m p l o y e e s o f m u n i c i p a l i t i e s i n t h e h o u s i n g m a r k e t a r e a has b e en e s t i m a t e d by t h e s e a s o n a l l y a d j u s t e d number o f e m p l o y e e s o f m u n i c i p a l i t i e s i n t h e M e t r o p o l i t a n A r e a . The S t a t i s t i c s Canada e s t i m a t e o f t h e number o f e m p l o y e e s o f l o c a l g o v e r n m e n t s i n m u n i c i p a l i t i e s h a v i n g p o p u l a t i o n s g r e a t e r t h a n 10,000 w o u l d a p p e a r t o be a c o m p r e h e n s i v e and c o n s i s t e n t measure 7 o f t h e number o f e m p l o y e e s . A l t h o u g h m u n i c i p a l i t i e s w o u l d e n t e r and l e a v e t h e s e r i e s , as t h e b o u n d a r y o f t h e M e t r o p o l i t a n A r e a c h a n g e d o r when t h e p o p u l a t i o n o f t h e m u n i c i p a l i t y became t h e n e c e s s a r y s i z e , t h e s e r i e s w o u l d a p p e a r t o be a v a l i d measure o f l o c a l g o v e rnment employment b e c a u s e t h e e f f e c t o f s u c h c h a n g es w o u l d a p p e a r t o be m i n o r and t h e d i f f e r e n c e s between t h e t o t a l number o f e m p l o y e e s f o r a l l m u n i c i p a l i t i e s i n t h e M e t r o -p o l i t a n A r e a and t h e s e l e c t e d s e r i e s w o u l d a p p e a r t o be s m a l l b a s e d on q u a r t e r l y d a t a a v a i l a b l e f r o m 1967