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Jeremy Sheppard Blog post by Jeremy Sheppard

Ripple Effect Potential: What is it and how does it measure future growth?

Hi I’m Jeremy Shepherd and I’m talking about Ripple Effect Potential. This is one of the indicators we use in our research to help uncover top growth locations for our clients to invest in.

Capital growth usually starts at city centers, and then it flows out to the middle rings, before eventually out to the fringe suburbs, much like ripples on a pond flow out from where the stone was dropped.

In the middle of the pond, the concept is based on affordability. It goes something like this: when prices become too expensive, people look for the next nearest suburb, and it may be much more appealing because it’s so much cheaper, and that’s how the growth starts to ripple outwards.

That’s why at the end of a boom cycle you’ll find outer areas still experiencing good growth, while the city centers are much more subdued.

Rather than try to guess where the Ripple Effect is going to take place, or subjectively analyse it, we try to objectively score it.

For example: let’s say neighboring markets have had average growth over the last 12 months, around 10%, and our subject market has only had 3% over the same period — there’s a 7% growth differential there, and that is approximately what the Ripple Effect Potential would be.

We would expect 7% growth to occur in order to balance these markets out.

Now, it’s not exactly like that — there are few more complications.

For example: we use a weighted average of the distance between these suburbs and our target suburb — but that’s just the basic concept of the Ripple Effect Potential. We use this in our analysis, but it’s not the only indicator we use.

 

If you’re interested in learning more about our indicators, you can check out our research page. Thanks very much for watching and as always feel free to leave comments below:

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