Some work on the problem using computer simulation techniques is currently under way at UCLA, but it is too early to judge how successful this project will be.
2.
I was influenced by a number of Maisel's works, but the one drawn on most heavily is “The Relationship of Residential Financing and Expenditures on Residential Construction,”Conference on Savings and Residential Financing, U.S. Savings and Loan League, 1965.
3.
The original work on the model was done while I was a consultant to the California Savings and Loan League's Mortgage Projection Committee in early 1966. Subsequently, results were refined and presented to numerous groups and individuals for comments and suggestions. Since some of the data cannot possibly be measured and must be estimated on the basis of judgment—e.g., the “normal level of vacant units”—this polling of experts is mandatory if the model is to be taken from the conceptual to the applied stages.
4.
Any number of factors could explain why the housing market leaves the equilibrium position where starts equal basic demand and normal and actual inventories are in balance. Builders may judge demand incorrectly; lenders may have a surplus of money that they make available to the construction industry; demand may suddenly fall off because of a decline in migration; and so on. Granted that these things are true, one might still ask why the adjustment process is not more rapid—why does it seemingly take several years to regain equilibrium once we are knocked away from it? The principal reason for this is the long production time in the construction industry—initial planning, subdividing raw land for tracts or demolishing old units to make way for apartments, the actual construction, and finally the sale of single family homes or the renting of new apartment units. If the industry as a whole makes an incorrect forecast of demand, it can take a long time for this incorrect forecast to be recognized and corrected. Also, the fact that the construction industry is characterized by a large number of competing builders means that the different units do not necessarily know how much new construction is under way by their competitors. In other words, each builder could accurately judge the level of total demand but, at the same time, not judge correctly the amount of new construction taking place. One might contrast the situation in residential construction with that of automobile production, where three producers manufacture well over 90 per cent of all autos; automobile producers are able to gear production to demand quite accurately and, thus, avoid building up large excess inventories of new cars.
5.
Technical information on data sources and estimates is omitted here; anyone interested in this material can obtain it on request.
