The most simple and aggregate model of demand is: more people in a urban area (as residents and workers) create more demand for built space, which creates a derived demand for land (a place to put the buildings).
Aggregate forecast provides a good starting point, but is not sufficient by itself to forecast the demand for real estate products. There are many types of products, consumers, and locations:
• Product differentiation. There is not one product called “urban land.” Rather, there is a demand for many types of real estate products (e.g., residential and commercial; within residential, single-family or multi-family units; within single-family units, different lot and housing sizes; for a given size, different quality and price).
• Market segmentation. Consumers of residential, commercial, and industrial land have different characteristics that cause them to have different preferences for real estate products and, by extension, land.
• Location. The characteristics of a lot may allow the construction of a building, but the characteristics of the neighbourhood and larger sub-area contribute to value and demand. Location matters.
other aspects of demand are :
• Individual preferences and constraints.
• Sub-markets.
• Durability of real estate products.
• Public policy.
• Demand and supply interaction.
• Individual preferences and constraints. The idea of “market segmentation” introduced above deals with differences among large groups. But in urban those groups comprise tens of thousands of individual decision makers who are not homogeneous and have different tendency to accept different real estate products.
• Sub-markets. The variability of products, consumers, and locations creates sub-markets that are more or less substitutable.
• Durability of real estate products. In the residential market in particular, the long-life of buildings means mobility and filtering must be taken into account when forecasting demand.
• Public policy. Policy can affect all aspects of market demand and supply relationships. Future absorption cannot be predicted without assumption—if not explicit than implicit—about future public policy: will it be about the same, and if not, how will it differ.
• Demand and supply interaction. What people often refer to as “historical demand” is, technically, the intersection of demand and supply factors at some price. In other words, a forecast housing absorption must result not only from a consideration of demand-side factors (e.g., demographics, income), but also supply-side factors: if geography or public policy strongly limit buildable land, then land prices rise and the amount of land (and, by correlation, housing) changes as demand and supply factors get into equilibrium with the new prices.
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Urban Development Management Study notes for M. plan Sem-III
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