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

Economic Analysis (contd.)

• 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.

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

The Local Economy (cont.)

• 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”

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.

Location Quotient

• 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.