Real Estate Market & Cycles

Question 1

Who determines market price for housing?

Answer 1

Buyers and Sellers

Question 2

Who count as real estate market actors?

Answer 2

users/investors/developers/planners/finance sector actors/real estate agencies/solicitors

Question 3

Who and what does the real estate market comprise?

Answer 3

Developers and investors
Agents in the planning sector and the planning system
Structures that shape the nature of exchange

Question 4

What is the estimated value of residential real estate in the UK at the end of 2023

Answer 4

£8.3 trillion

Question 5

Why is property important to the economy?

Answer 5

It provides the location for economic activities - housing both the service and manufacturing sectors

Question 6

What does freehold rights mean?

Answer 6

Entitled to the use of land without restriction, can develop, sell, transfer the land etc without consent

however statutory restrictions and planning permission requirements still apply

Question 7

What does leasehold rights mean?

Answer 7

Leased for a stated period of time

Landlord (freeholder) lets tenant have possession of land/property for a specific time period usually in return for payment (rent)

Landlord and tenant have different rights

Tenants can usually sublet via “underlease” which can result in a chain of subleases each having value

Question 8

What is the real estate market comprised of?

Answer 8

property + institution + geography

Question 9

What are the main real estate sectors? (6)

Answer 9

Residential
Retail
Office
Industrial
Logistics
Agriculture

Question 10

What are the economic characteristics of real estate? (5)

Answer 10

Property is:

• spatially imobile
• durable
• a dual commodity (land and buildings)
• a consumption and investment
• difficult to produce
• multiple uses

Question 11

Why do we need real estate?

Answer 11

To shelter people and to run a business

Question 12

What is capital?

Answer 12

The amount of money you use to invest in order to make more money

Question 13

What is security of capital?

Answer 13

How likely is the investor going to be able to get their money back when they choose to sell

Question 14

Why do planners need to understand the linkages between the macroeconomy and real estate?

Answer 14

To effectively monitor and manage the housing market and design policies for local and regional economic development.

To understand problems specific to the housing market

Question 15

What two real estate sectors are closely tied to the wider economy?

Answer 15

Commercial and housing/residential real estate

Question 16

How does ownership in commercial real estate differ from housing?

Answer 16

Commercial real estate typically has separate users (occupiers) and owners.

Question 17

Who dominates ownership in commercial real estate?

Answer 17

Major institutional investors who treat property as a financial asset

Question 18

What two markets is commercial real estate conceptualized as linking?

Answer 18

The user market and the investor market.

Question 19

Where are business rents (rental values) determined?

Answer 19

In the user (occupier) market

Question 20

Where are capital values determined in commercial real estate?

Answer 20

The investor market

Question 21

Who is real estate occupied by?

Answer 21

Commercial users

Question 22

What are properties in addition to shelter?

Answer 22

Financial assets

Question 23

What is homeownership mostly dominated by?

Answer 23

Investors and major financial institutions

Question 24

What do investors do in the development market?

Answer 24

They own but do not directly supply property

Question 25

Who creates new property/space?

Answer 25

Developers and construction companies

Question 26

What are the three sectors of the property market?

Answer 26

Use, Investment and Development

Question 27

Who are demanders in the built environment?

Answer 27

Suppliers of goods and services (M&S, Ikea etc)

Question 28

Where is demand for real estate derived from?

Answer 28

The wider economy

Question 29

What does economic growth do?

Answer 29

Produce changes in the demand of commercial space

Question 30

What does office demand relate to?

Answer 30

Office employment

Question 31

What does industrial demand relate to?

Answer 31

Manufacturing output

Question 32

What does retail demand relate to?

Answer 32

Consumer expenditure and retail sales

Question 33

What are property markets?

Answer 33

Highly cyclical/volitile

Question 34

What are volitility factors in housing markets?

Answer 34

Business/economic cycle (macro economic conditions Behaviour of investors Behaviour of developers

Question 35

What initiates a real estate cycle?

Answer 35

Macroeconomic change; strong economic/business cycle leads to increased employment

Question 36

What are interest rates used to do?

Answer 36

Encourage saving over spending

Question 37

What happens when the prices of development rises?

Answer 37

New buildings are started but only arrive on the market with a lag (this coincides with economic downturn)

Question 38

What is argued about the planning system?

Answer 38

It exasterbates problems with supply and demand as it stops market adjustment and contrubutes to the mismatch between supply and demand

Question 39

What does market failure mean? (2)

Answer 39

Inefficient resource allocation Loss of social welfare - inability to limit externalities

Question 40

What influences temporal fluctutuations in demand for housing? (4)

Answer 40

Income growth Current house prices and expected price inflation Loan to income and loan to price ratio Mortgage interest rates

Question 41

What causes temporal fluctuations in the supply of housing?

Answer 41

- price levels in the recent past which informs builders' expectations of profits - Interest rates (more development requires debt finance) - Land available for housing with planning permission - Construction costs: including wages, land values, materials etc

Question 42

How much wealth are 200,000 estimated to have?

Answer 42

$140 million per person

Question 43

What are the main drivers of the investment decision making process? (6)

Answer 43

- Influence of global wealth holders and their advisors - The role of offshore financial centres which produce legal vehcles to circumvent taxation - Having an investment to sell in the future - Having a safe haven for their funds - Diversifying their portfolio - Having a new place to live

Question 44

What is the real estate market?

Answer 44

a set of rules, regulations, norms, network

Question 45

How volitile are retail markets?

Answer 45

Highly

Question 46

What does market inefficiency mean for planning?

Answer 46

There is a clear case for intervention

Question 47

What does it mean for a market to be volitile?

Answer 47

Prices fall and rise sharply, creating uncertainty for investors

Question 48

Who said the housing crisis was due to allocative ineffeciency?

Answer 48

Dorling (2014)

Question 49

Who said we haven't been building enough houses for 30 years?

Answer 49

Cheshire (2014)