How many have ever wondered why homes in one region are more than others, or why communities go through cycles? Well, real estate economics explains this phenomenon, but what is RE econ? RE econ utilizes macro and microeconomic analysis to help determine a property’s best uses which affect its value. The reason for this is because of the laws of scarcity which are rooted in the supply and demand within a market. For instance, in New York City, the density of the region causes increased housing, commercial, and development prices because of the lack of space. However, thanks to the unique aspect of real property, three rights are typically bestowed with them; they are air, land, and sub-surface rights. What this means is that a property owner can lever the minerals on their land and still maintain ownership of the air and land rights, or a landowner can sell air rights and retain sub-surface and land ownership. As a result, in NYC, some may purchase sub-surface or air rights to build down or up, rather than out.
As mentioned supply and demand are unavoidable facts in RE econ. As a result, changes occur in markets as demand increases and decreases.
Real Estate Markets Cycle When Demand Increases:
Real Estate Markets when supply decrease:
In closing, when the supply increases or decreases the results are dependent on numerous factors too. For instance, when supply increases due to increased population and demand from business growth a market may maintain equilibrium should they maintain production levels or units as it relates to growth. However, the issue is that construction permitting and completing a building is not straight-forward. Therefore, changes in demand are a result of shifts in income, populations, availability of credit, lifestyle, government, and economic. In contrast, changes in supply are due to rates of construction, conversion to other use, demolition, and how the government treats these three options.
Mark Lester has over 5- years of experience in the real estate industry and is an active employing broker in the state of Colorado that specializes with investment and business real property sales. Prior to a career in real estate, Mark worked over 10-years in the restaurant industry. Recently, he has consulted business owners and real estate investors with helping them solve issues ranging from marketing, operational, financial, or portfolio strategies. Finally, educationally, the author holds a BA in real estate from Ashford University, in addition to an MS in finance and economics, and MBA from West Texas A&M University.