Transcript Document
Chapter 3 Central Cities and Regional Market Analysis “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner Major Topics Why do cities exist? Why do cities of different sizes exist? What is a metropolitan statistical area? What are the primary causes of city growth, stability or decline? Possible prototypes for cities of the future “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner Why is city growth and decline important? Understanding the causes will lead to better decisions of all types > 90% of the value of US real estate is in urban and urbanizing areas In the U.S., urban centers are very spread out “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner Key Terms Central Cities M.S.A.: “Metropolitan Statistical Area” >50,000 people C.M.S.A.: “Consolidated M.S.A.” “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner Urbanized Land U.S. Census Bureau (www.census.gov) recognizes, as of 1998: 340 MSAs in U.S.A., some of which are constituents of the 19 recognized CMSAs Almost 80% of all U.S. residents reside in urbanized MSAs MSAs constitute nearly 18% of total U.S. land area “Urbanized” Land actually makes up less than 5% of the land area of U.S. “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner Essence of a “City” 1. A dense collection of inhabitants of relatively large population 2. Where none of the citizens make their living directly from agricultural activity 3. Where the social and economic relationships are relatively complex and hierarchical “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner “City-causing” phenomena 1. Economies of Scale 2. Economies of Agglomeration 3. Positive Locational Externalities 4. Fixed “break bulk” points and distribution centers - Centripetal Forces - Cumulative Causation “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner City Size: Rank/Size Rule City Population = Largest City’s Population Rank of City Cities of similar size tend to be located apart from each other geographically “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner Central Place Theory Developed by German geographer August Losch Problem of location on a Homogeneous “featureless plain” The greater the economies of scale in industrial production, the fewer and further apart will be the optimal location pattern for the cities, all things being equal The greater the transportation costs, the more numerous and closer together will be the cities “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner Central Place Theory The city (service area) assumes hexagonal shape on a hexagonal plane (like a honeycomb) Even spacing of cities – minimizes transportation costs City A “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner Theory of Urban Hierarchy Developed by German geographer Walter Christaller: The optimal configuration of cities on the featureless plain includes an hierarchy in which “higher-order” cities are fewer and further apart than “lower-order” ones. “Higher-order” cities: those containing functions which require more centralization “Lower-order” cities: those containing functions which require less centralization “Threshold Market”: minimum requirement to support an efficient production process “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner Theory of Urban Hierarchy Traditional theory identifies seven “orders” of cities Cities like New York, London, Tokyo, Hong Kong, Bangkok, Mexico City and a few others are seventh-order ones Real estate terminology – “tiers” instead of “orders” “Location theory” “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner Dynamics of City Growth The following factors influence the dynamics of city growth: - Natural resources - Industrial production - Transportation facilities (land, water, air) - Government offices - Financial services - Cultural and Social factors (entrepreneurial talent) - Telecommunications - Technological developments “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner Projecting Growth Economic Base “Export Sector” Jobs “Service Sector” Jobs Export Base theory: Economic growth of the city or region is dependent entirely on growth in the export sector of the local economy “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner Projecting Growth: Location Quotient “Location Quotient”: - The LQ helps in figuring out what jobs are part of the export sector. - The LQ is defined as the proportion of total local employment in a given industry, divided by the proportion of total national employment in that same industry - Only when the LQ significantly exceeds 1.0 is the industry part of the export sector. “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner Projecting Growth: Multiplier Effect The number of jobs in the service sector greatly exceeds the number of jobs in the export sector. As a result, expansion in the export sector creates a “multiplier effect” on total local employment Employment Multiplier: = Net Total Employment Increase Export Employment Increase Population Multiplier: Net Total Population Increase = Export Employment Increase “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner Projecting Growth: Multiplier Effect Typical Employment Multiplier ratios are in the range of 2.0 to 4.0 Typical Population Multiplier ratios range from 2.5 to 9.0 It is important to note that the multiplier effect goes both ways To use the export based approach to economic analysis: 1. Analyze location quotients on SIC classified location quotients in an area 2. Forecast future employment prospects in each of these groups “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner Economic Base analysis Common trends among all MSAs The large employer approach Classification of cities Relation between growth and returns for real-estate Local investment as a catalyst of growth - Local government role in local investment - Social Infrastructure investment, especially EDUCATION Local demographics factor Policies to limit growth or increase growth “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner Future Master Planned Community Models Emphasis on mixed-use where retail and residential and office and open spaces coexist such that transportation cost is minimized and convenience maximized Examples: - Columbia, Maryland - Celebration, Orlando - Stapleton, Denver - City Place, West Palm Beach “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner END “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner