It’s pretty obvious that when a country’s population rises, demand for housing
goes up. If you’re a financial-market type like Paul McCulley
of Pimco, you can see the rise in demand as a short-covering
rally: "you are born short a roof over your head," he writes,
"and must cover, either by renting or buying".
I hasten to add that McCulley is by no means a housing-market bull, and that
he reckons that the recent rally in house prices is speculative, rather than
short-covering. But it makes me wonder why we’ve seen enormous house-price spikes
in places like Spain, where population growth is negative, and that in general
there seems to be almost no correlation between population growth and house-price
Part of this is because countries with fast-growing populations, like Mexico
and Brazil, also have supercharged construction sectors. The total value of
housing is going up, but that’s because the number of houses is going up, rather
than the price of houses.
The US is no outlier. It has moderately positive population growth; it has
also had a housing-price spike which while big in absolute terms is small by
the standards of other countries such as the UK and Ireland. The difference
can be explained, in part, by the fact that the US has had a massive construction
But I still like the idea of housing as short-covering, even if I’m not sure
how useful it is.