Real Estate Economics
Augusto B. Agosto, EnP, REA, REB
Faculty, University of San Carlos
PARCS Continuing Education for
Real Estate Practitioners
St. Mark Hotel, Cebu City
Origin of the word Economics
Derived from the Greek word Ο?κονομία
(oikonomia) from οiκοs (oikos, "house")
and νόμος (nomos, "custom" or "law"),
hence "rules of the house (hold for good
What is Economics?
The study of allocating SCARCE
Using those scarce resources to
produce, distribute and consume
goods and services.
Two Main Categories of
Macroeconomics is the study of the national
economy and its various segments, such as national
income, output, employment and growth.
Microeconomics is concerned with the
individual units within the general economy such as
business firms and households.
are statistics that indicate the
current status of the economy of the
state depending on a particular area
of the economy (e.g. industry, labor
What is Real Estate?
Land and attachments
That which is immovable
REAL ESTATE ECONOMICS
a study that uses economic principles,
both macro and micro, to analyze the
impact that national, regional, community
and neighborhood trends have on real
It is the link between general economic
theory and applied real estate practice.
Why study REAL ESTATE
Real estate economics helps people understand
what causes fluctuations in real estate activity and
how these changes can affect real estate markets.
Investors and licensed agents make real estate
decisions that influence that shape, form, and
value property in a given community.
Real estate decisions made today will be reflected
in real estate values in the cities and
neighborhoods of tomorrow.
The main participants in real
Owner/user: These people are both owners and tenants.
They purchase houses or commercial property as an
investment and also to live in or utilize as a business.
Owner: These people are pure investors. They do not
consume the real estate that they purchase. Typically they
rent out or lease the property to someone else.
Renter: These people are pure consumers.
Developers: These people prepare raw land for building,
which results in new products for the market.
Renovators: These people supply refurbished buildings to
Facilitators: This group includes banks, real estate
brokers, lawyers, and others that facilitate the purchase and
sale of real estate.
Real Estate Market
ZONES(DISTRICTS) - A zone or district
is a group of homogenous land uses.
NEIGHBORHOODS - is a group of
complementary land uses.
Real Estate Market
Law of Supply - Producers will offer more
products and services for sale as prices increase
and fewer as prices decrease.
Market –any structure, institution or system
whereby buyers and sellers meet and exchange
goods and services with value at negotiated prices.
It facilitates the trade and enables the distribution
and allocation of resources in a society.
Perfect Market – when there are many
sellers and buyers competing against each other
Imperfect Market – when there are more
sellers and few buyers or more buyers and few
Peculiarities of the Real
Immovability of the product
Durability of the product
High Transaction costs
Supply-Demand Time Gap
Investment or consumption
Demand for housing
The main determinants of the
demand for housing are
demographic. But other factors,
like income, price of housing,
cost and availability of credit,
consumer preferences, investor
preferences, price of
substitutes, and price of
complements, all play a role.
Agents of Production
Land and Natural Resources - the real estate
component, the “raw material” needed to produce new
products like residential homes, industrial factories,
commercial spaces, etc. It is compensated by rent/lease,
mortgage and taxes.
Labor - the human physical work required to convert a
parcel of land into a property with improvements. It is
compensated by wages and direct/indirect costs (benefits,
Capital - Any man-made instrument that increases
production of goods (e.g. machineries, tools, mechanical
lifts). It can also mean the cost of borrowing money in order
to forego production. It is compensated by interest.
Entrepreneurship – The process of orchestrating land,
labor, and capital to produce an item. It is a type of
coordination or management. It is motivated by profit.
Real Estate Life Cycle
Types of Imperfect Markets:
Monopoly – Market in which there is only one seller
Oligopoly – Market in which there are only few sellers
Monopsony – Market in which there is only one buyer
Oligopsony – Market in which there are only few buyers
Seller’s Market and Buyer’s Market
Seller’s market – there are more
buyers and few sellers
Buyer’s market – there are more
sellers and few buyers