Housing markets remain uncertain

House Feb11.pngThe blog’s special series this week has focused on housing in 3 key markets – the USA, UK and China.

Housing is a core sector for chemical and polymer demand, and it has been particularly important over the past 30 years:

• The Western BabyBoomers (those born between 1946-70) have been in the 25 – 54 age group, when people typically marry, settle down and have children. Thus their demand for housing has been at its highest.
• Each new house uses a wide range of polymers, coatings, fibres and adhesives. In the US, this adds up to a total value of $16k per new house. And, of course, the Boomers have often replaced kitchens, bathrooms etc when moving into older homes.
• Equally, the rise in house prices has enabled Boomers to extract equity. They have often spent this on auto and other purchases, creating a multiplier effect for chemical and polymer demand.
• More recently, emerging economies have followed the Western lead. China is now investing 6% of GDP in the residential property area, equal to recent peaks in the USA. Unsurprisingly, this has led chemical and polymer demand to boom.

The question is whether China can be a ‘special case’ and avoid the problems that followed on from this high level of investment in Japan and the USA?

There are a number of warning signs, not least the pervasive belief amongst ordinary Chinese that ‘the government would never let prices fall’. This belief has been proven false in both Japan and the USA, as well as in European countries such as Spain and Ireland.

It therefore seems important for companies to develop a Scenario approach to sector developments. And it also reinforces the blog’s belief that Prof Michael Porter may very well be right with his new Harvard Business Review article.

His ‘Shared Value’ approach may well help business managers to sidestep problems in the housing sector, and instead “unleash the next wave of global growth” for their company.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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