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.