The real estate sector represents a substantial share of the economy. Analysing such a sector provides it's own unique challenges. For example, it is important to variables such as population forecasts, proximity to CBD, rental rates among others.

What are the main tools, metrics and considerations used in property market analysis?

  • $\begingroup$ I'm voting to close this question as off-topic because it appears to be a homework question. $\endgroup$ – Lumi Jul 26 '15 at 16:33
  • $\begingroup$ @Lumi it may be prejudice but based on Jamzy's score and other questions I don't think this is a homework question. $\endgroup$ – Giskard Jul 26 '15 at 17:51
  • $\begingroup$ @denesp Perhaps it's about to be one? It did read to me as homeworkish, I think the first question was what did it. $\endgroup$ – Lumi Jul 26 '15 at 19:46
  • $\begingroup$ @Lumi Nah, not homework. If I were to vote to close on this one I would say it is too broad. I think I do need to narrow the scope of it a bit. $\endgroup$ – Jamzy Jul 26 '15 at 22:38

There are many different models used in this field, depending on the question being asked. For example, commercial and residential properties have very different needs. That said, there is a key model which can be the framework for a broad analysis:

The key model in urban economics is the monocentric model, which is a derivation of the rural land price theory and has industry concentrated in the central business district (CBD). Start with closed model (a city in isolation). Then look at the open model (allow for movement between cities) and competition between cities (inter - regional equilibrium). Density and distribution of population and sectors. Interaction with the labour market – why wages are higher in larger ‘skilled’ cities but real wages are not.

This model has extensions which can help explain why some industries choose to operate outside of the CBD.

There are some special considerations often used for analysis of property:

  • Spacial externalities

Cities offer advantages and disadvantages. Amenities are more available (both publicly and privately provided) but there are also negative externalities such as congestion, pollution and cost of living.

  • Development and speculation

Speculation has a large role in the property market. There are many external factors which encourage such speculation. For example, zoning limits supply of available land very quickly. With good population growth forecasts, it is very easy to anticipate demand growth for land.

  • Public policy and government intervention.

In many economies, it is a highly regulated industry for a few reasons. Often times it is highly politicised (housing affordability is very important for many voters), policy decisions in this sector have direct and salient impacts in the day to day lives of residents. Think: rent control, public housing, zoning.

Wikipedia on real-estate is pretty well resourced. Included in there (among others) is information on:

  • Demand for housing
  • Supply of housing
  • Real estate financing

In such a diverse field, there are many other factors to consider. The importance these variables are vary dependent on the type of analysis required.

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    $\begingroup$ I don't know much about the literature, but here are a couple of other things I see in the Financial Times: (1) greenfield vs brownfield – land is scarce and it can be obtained either by developing an undeveloped site or by demolishing old structured and replacing them with new ones. (2) production lags – from acquiring a site to having finished structures takes a substantial amount of time. Developers are aware that a market downturn during this period can render the entire project unprofitable. $\endgroup$ – Ubiquitous Aug 2 '15 at 8:25
  • $\begingroup$ Thanks, good points @Ubiquitous. A question like this is pretty general and doesn't have a yes or no answer. Do you think it should be a community wiki? $\endgroup$ – Jamzy Aug 3 '15 at 1:25

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