intro economics of built environment Flashcards
define scarcity
the gap between limited resources and theoretically limitless wants
define exchange
a marketplace where securities, commodities, derivatives and other financial instruments are traded. The core function of an exchange is to ensure fair and orderly trading and the efficient dissemination of price information for any securities trading on that exchange
define choice
when an individual makes a decision based on subjective preferences. People make choices based on what they think will provide them with the most satisfaction
Micro economics
individual behaviour, looking at individuals or individual businesses. Looks at supply and demand, pricing, elasticity, consumer behaviour and market structures
Macro economics
looking at the bigger economy e.g. inflation, economic growth (GDP), unemployment. the whole economy
positive economics
The study of economics based on objective analysis of WHAT IS, and what has been occurring in an economy. Relies on data and facts and its is testable.
Examples – a decrease in interest rates leads to an increase in spending
normative economics
normative economics involves subjective, opinions and value judgements about what ought to be
Example – government should increase minimum wage to decrease poverty
what are the two idealised economic systems?
Centrally planned model
Free market model
*No market will be 100% either, usually a mix
define GDP
Gross Domestic Product
The sum of the values of all the products and services in a given period
UK currently around 3.1 trillion USD
define GDP per capita
An average. Total GDP divided by the population
UK currenlty around 46,100 USD
why is the property market imperfect?
*Due to information not always being available
*Uneducated buyers
*THE MARKET IS VERY SLOW AS BUILDING TAKE A LONG TIME TO BUILD
*Difference in product quality
*a housing transaction typically involves several parties. More importantly, each party may have conflicting interests.
typical duration of a housing investment
A house is typically consumed over decades and a housing investment is made over an average of 20–30 years.
what are the four sections (sub markets) of the property market?
1.The owner-occupied sector – made up of households that own their properties either outright or once they have paid off a related mortgage.
2.The private rented sector – comprising privately owned property that is let out at a market rent.
3.The housing association sector – made up of property managed by non-profit making organisations that use a mix of public and private funds to provide accommodation at a ‘fair ’ rent.
4.The local authority rented sector – comprising housing stock made available by local authorities (councils ) that is let out at rents subsidised from public funds.
what is the basic law of demand
The law of demand, as price goes up, demand goes down
roughly how many commercial buildings are there in the uk
There are approximately 2 million commercial buildings in the UK and the majority of these are rented.
what is ceteris paribus
“all other things being equal” latin
*Economists isolate the relationship between two variables by assuming ceteris paribus – ie all other influencing factors are held constant.
*“If the price of milk falls, ceteris paribus, the quantity of milk demanded will rise.
*^^^^^^^^ This means that, if other factors, such as deflation, pricing objectives, utility, and marketing methods, do not change, the decrease in the price of milk will lead to an increase in demand for it
what does a product demand curve tell us
how many units consumers are willing and able to buy at each price
what does a product supply curve tell us
how many units producers are willing and able to sell at each price
in a demand curve, what does a line going down represent
a negative relationship between price and quantity demanded.
as price goes up, the quantity demanded is less
in a supply curve, what does a line going up represent
a positive relationship between the price of a good or service and the quantity supplied of that good or service.
an increase of the price of a good leads to an increase in the supply of that good
what does WTP stand for
willingness to pay
what is the point of equilibrium
At the point of equilibrium, supply perfectly meet demand. Equilibrium price is also called market clearing price because at this price the exact quantity that producers take to market will be bought by consumers, and there will be ‘no left over’.
what is elasticity
The elasticity of supply measures how responsive the quantity supplied of a good is to changes in its price.
what two words can describe the property market
imperfect and ubiquitous
what are characteristics of physical property
fixed location and dual components
why is choice necessary in economics
resources are scarce
does the supply curve go up or down
up
does a demand curve go up or down
down
in a demand curve, will a change in price cause the line to move or shift
a movement along the demand curve
in a demand curve, will a change in a non price factor cause the line to move or shift
a shift in the demand curve
define substitute goods
two products that can provide the same level of satisfaction so they can replace eachother.
does a typical supply curve go up or down?
Up
does a typical demand curve go up or down?
Down
when is demand considered to be inelastic
Demand is considered inelastic if the demand for a good or service remains unchanged, even when the price changes
examples are insulin or other medicines, tabacco
what are normal and inferior goods
*A normal good is a good that experiences an increase in its demand due to a rise in income.
*If there’s an increase in wages, demand for normal goods increases while conversely, a decline in income or unemployment will lead to a reduction in demand.
*Inferior goods are the opposite of normal goods
*If your income increases, you reduce your consumption of the product as they are low quality product
*When you income increase you will shift towards high quality products
*E.g. second hand clothes or frozen vegetables
what is a mixed economy
a mix of free market economy and command economy
more than half is carried out by private enterprise while the rest the government is directly responsible for
what is an oligopoly
a state of limited competition where few companies hold the majority of the market share
what are causes of inflation
Causes of high inflation
⁃ COVID-19, rises in energy prices a post-pandemic drop in the labour force.
⁃ The UK faced unique challenges, having both the US-like tight labour market and the European-style energy market.
⁃ Concerns over wage growth potentially causing further inflation
what is derived demand
A term in economics that describes the demand for a good or service that is a result of the demand for another related good or service:
e.g. When we buy retail property, the initial demand is for the profit of selling goods.
how do you determine the value of a property in terms of rent and yield
Rent divided by yied = value of the property
what are the stages of development
initial concept
implementation
construction
disposal (letting and/or sale)
what risks must a developer consider
project
- physical
- legal
- market
- planning
financial
- appraisal
- funding
what is the split between residential and commercial property in the UK
Commercial property represents around 13% with around 55% of this being ‘investable’. The residential market accounts for the other 87% and 63% of which is owner-occupied.
what is liquidity in real estate
Liquidity is a characteristic of assets that determines how quickly they can be sold at close to market price. The less time it takes to sell, the higher the liquidity
what are business fluctuations
Business fluctuations in the context of real estate refer to the periodic up-and-down movements in economic activity that affect the demand, supply, and prices of real estate properties. These fluctuations are typically driven by changes in the broader economy and are often referred to as economic cycles or business cycles, which consist of periods of expansion (growth) and contraction (recession).
does a higher GDP typically coincide with a higher or lower quality of living
higher
what is financial policy
the means by which the government adjusts its spending
levels and tax rates to monitor and influence a nation’s economy
what is monetary policy
is used to determine the size and rate of growth of the
money supply using interest rates and open market operations (bonds)
what is financial tightening
the process by which central banks increase interest
rates or take other measures to reduce the supply of money
what rough percentage does tax revenue contribute to the GDP in the UK
33%
what is the defenition of yield
Yield is a financial term that refers to the income generated from an investment relative to its price. It’s usually expressed as a percentage and focuses on regular payments like dividends or interest
what does BREEAM stand for
Building Research Establishment Environmental Assessment Method
what does LEED stand for
Leadership in Energy and Environmental Design
what percentage do buildings contribute to global carbon emissions
40%
what is PESTLE (formerly PESTEL)
PESTEL stands for:
P – Political
E – Economic
S – Social
T – Technological
E – Environmental
L – Legal
E - Ethical (NEW)
why must banks be cautious when cutting interest rates
Inflation Risks: Lowering interest rates can encourage borrowing and spending, which can stimulate the economy. However, if the economy is already at or near full capacity, this can lead to excessive demand for goods and services, which may drive up prices, resulting in inflation. If inflation rises too quickly, it can erode the purchasing power of consumers and destabilize the economy.
what is perpetual ownership
the property can be passed down to heirs indefinitely unless the owner chooses to sell or transfer it.
what happens to an elastic product if the price increases
When a product is elastic, a price increase results in a decrease in the quantity demanded.
what happens to an inelastic product if the price increases
When a product is inelastic, a price increase results in little change to the quantity demanded. likely to be only a slight decrease
what is the difference between normal and inferior goods
A normal good is a good that experiences an increase in its
demand due to a rise in income. If there’s an increase in wages, demand for normal goods
increases while conversely, a decline in income or
unemployment will lead to a reduction in demand.
Inferior goods are the opposite of normal goods, i.e., their
demand drop as consumers’ incomes rise. Often inferior
goods are low-cost substitutes for normal goods. (e.g., frozen
foodstuffs and second-hand clothes).
what is a complimentary good
A complementary good or service is an item used in
conjunction with another good or service.
The complementary good has little to no value when
consumed alone
e.g. phone and sim card
what does IPMS stand for
International Property Measurement Standards
