Economic Analysis Objective of chapter: to discuss two levels of economic analysis in a market study. the local economic base analysis the macro base analysis the product characteristics

Expected study results: ▪ understand the elements of local economic base that must be analysed in a market study; ▪ understand how the macro base variables could possibly influence the development of a particular site, particularly, in terms of property supply and demand; ▪ understand how product characteristics influence demand; ▪ incorporate the analyses into the market study. Economic Analysis (contd.)

Microeconomic Base Analysis sometimes called the local economic base analysis widely used to generate primary data for the real estate market study local industries and economic activities that generate employment and income in the area General population growth and decline in an area may be considered a function of employment opportunities.

Why economic base analysis? to gain an understanding of the economic strengths and weaknesses of the community => comparative economic advantage

How EBA is conducted? identify the resources and productive capacity of an area => what it can produce Identify employment in the area generate of income that will be spent on real property Create market segmentation translate the local economic base data into a demand projection for the subject site => housing, office, retail, recreational, and industrial space

Local Sources of Employment Circular Flow of Local Economy

The Local Economy Local economy is divided into households and businesses Households => production resources Busineses => basic or non-basic goods/ services Basic goods/services: those exported to outside area Non-basic goods/services: those sold to and consumed by the local community

Basic employment industries: export industries that make money flowing into the local economy E.g. agriculture and/or manufacturing Non-basic employment industries: those consuming goods/services from the “basic” The Local Economy (cont.)

Employment Multiplier Analysis T = B + NB k = T/B m = NB/B

Location Quotient LQi = (LEi / LEt ) x (NEt / NEi) where LQi = location quotient for industry i; LEi = local employment in industry i; LEt = total local employment in all industries; NEt = total national employment; NEi = national employment in industry i.

A location quotient > 1.0: local industry is producing export goods. A location quotient < 1.0: local economy probably imports goods that are produced outside the area and that non-basic employment accounts for more local jobs than basic employment. A location quotient = 1.0: the community produces an amount equal to what is locally consumed. Location Quotient