Lec-1
Urban Economics and
Real Estate
Engr. Dr. Attaullah Shah
UET-Pesh-UIP-5818-Urban Economics and Real Estate-Dr. Attaullah Shah-Lec-1
Bio details of the Speaker
• Engr.Dr. Attaullah Shah
– Director ( Planning and Projects AIOU)
» pdaiou@yahoo.com. pd@aiou.edu.pk, www.drshahpak.weebly.com
» +92-333-5729809, +92-51-9057212
• Qualification
• PhD Civil Engineering ,M.Phil Eco ,MSc Structural Engg
• MBA, MA Eco, MSc Envir Design,BSc Civil Engg (Gold Medal), Post Grad Dip Comp (Gold Medal)
• 25 Years Experience of Teaching research and practice in Civil
Engineering and Construction Management
• :Research Publications in refereed journals and conferences:
– 26 Journals publications+40 Conference publications
• Areas of interests
» Construction project Management
» Structural Engineering
» Sustainable built Environment
UET-Pesh-UIP-5818-Urban Economics and Real Estate-Dr. Attaullah Shah-Lec-1
Layout of presentation
•
•
•
•
•
•
•
Global Construction Industry
Course outline
Assessment system
Urban Economics and its subject matter
Determinants of Urban Eco
City Systems and Eco theories
Case study of Urban Eco
UET-Pesh-UIP-5818-Urban Economics and Real Estate-Dr. Attaullah Shah-Lec-1
The tale of construction, in one way or the other,
begins with the beginning of human beings.
Development of infrastructure such as roads,
water supply, power supply, sanitation etc have
always been considered vital for leading a
decent standard of life. The Express Tribune
UET-Pesh-UIP-5818-Urban Economics and Real Estate-Dr. Attaullah Shah-Lec-1
Size of Global Construction Industry (2005)
UET-Pesh-UIP-5818-Urban Economics and Real Estate-Dr. Attaullah Shah-Lec-1
Global Construction spending
2011-12
UET-Pesh-UIP-5818-Urban Economics and Real Estate-Dr. Attaullah Shah-Lec-1
Role of Construction sector in Global
Economy
• Annual global construction output U.S $ 4.6 trillion
(2005)
• Output is heavily concentrated (77 per cent) in the high
income countries (Western Europe, North America,
Japan and Australasia).
• The high-income countries produce 77 per cent of global
construction output with 26 per cent of total employment.
• The rest of the world (comprising low- and middleincome countries) produces only 23 per cent of output
but has 74 per cent of employment ……….
• The Labor productivity in the developing countries is
low…… What can be the major reasons in your mind?
UET-Pesh-UIP-5818-Urban Economics and Real Estate-Dr. Attaullah Shah-Lec-1
Global Construction market in 2011-12
• Construction spending growth has stalled and 2011 was
the fourth consecutive year with little or no growth (since
2007) .
• Overall, world construction spending grew by just 0.5% to
$4.6 trillion and is still below the levels achieved in 2007.
• However, on a positive note, 2011 saw the first increases
in world construction spending since the start of the
recession.
• Asia and Latin America were the fastest growing regions
in 2011 by a wide margin.
• For the second year running China was the largest
market in 2011, and is forecast to be the fastest growing
market in 2012-13 and onwards
UET-Pesh-UIP-5818-Urban Economics and Real Estate-Dr. Attaullah Shah-Lec-1
Global Construction Industry forecast.
Share of spending by region: 2015-20
UET-Pesh-UIP-5818-Urban Economics and Real Estate-Dr. Attaullah Shah-Lec-1
Global Construction Industry forecastCont’d.
In the short term: Degree of stagnation
•
• More sustained growth not expected until 2015
• Developing countries are expected to lead in 201213.
• Asian market to develop from 31% to 46%
• The strongest construction spending growth will
again be in China, followed by India and Indonesia
• Reconstruction in Japan and New Zealand will
provide temporary stimulus
• In Americas, Brazil and Panama expected high
growth rate
UET-Pesh-UIP-5818-Urban Economics and Real Estate-Dr. Attaullah Shah-Lec-1
The future outlook
• For developing “megacities,” construction in emerging
markets is expected to double within a decade and will
become a $6.7 trillion business by 2020
• Access to capital, for both public and private sponsors, is
becoming more challenging.
• They will need to promote and finance infrastructure and/or
building alliances with investment banks and infrastructure
funds.
• Already, Chinese companies, leveraging huge internal
demand, are becoming a force to be reckoned with in global
construction markets.
• Construction companies based in Brazil and India may soon
follow suit and join the new class of powerful emerging
market multinationals
UET-Pesh-UIP-5818-Urban Economics and Real Estate-Dr. Attaullah Shah-Lec-1
Construction Industry Challenges
Ten major causes of cost and time overruns
1. Fluctuation in prices of raw materials and Unstable cost
of manufactured materials
2. High cost of machineries
3. Lowest bidding procurement method
4. Business and Regulatory Environment
5. Poor project (site) management/ Poor cost control
6. Long period between design and time of bidding/tendering
7. Wrong method of cost estimation
8. Additional work
9. Improper planning
10. Inappropriate government policies
UET-Pesh-UIP-5818-Urban Economics and Real Estate-Dr. Attaullah Shah-Lec-1
2. COURSE OUTLINE AND
ASSESSMENT SYSTEM
Course outlines
Week
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Concepts
Urban Economics
Principles involved in the land development and planning
Case Study in Urban Planning and Discussion
Factors determining the land values and land uses and
Real Estate
The Urban Housing markets structures and density
Case Study in Urban Housing and Discussion
Firm Site Selection and Industrial land Use.
Case study/Mid Term Test
Employment Decentralization, “edge” cities.
Retail Location and Market Competition.
Case Study in Market competitions
Public
Goods,
Externalities,
Development
and
regulations.
Commercial Markets
Case study in Commercial Marketing and discussion
Real Estate and Regional Economic Growth
End Semester Exam
Assessment
Assignemnt1
Class Quiz-1
Assigment-2
Class Quiz-2
Assignemnt3
Class Quiz-3
Assigment-4
Class Quiz-4
O'Sullivan, Arthur. Urban Economics 6th Edition. McGraw-Hill Irwin: 2007.
Urban Economics and Real Estate - Theory and Policy, 2nd Edition- John F. McDonald, Daniel P.
McMillen
Urban Economics UET-Pesh-UIP-5818-Urban
and Real Estate Markets Denise
DiPasquale
William
C. Wheaton
Economics
and Real
Estate-Dr.
Attaullah(Shah-Lec-1
Assignments and quizzes
(10%+10%)
• 4 Home assignments-
– 2 before mid semester and 2 after mid
semester
• 4 Class Quizzes
– After every two classes, there will be a class quiz
of 30 minutes to cover the previous lectures.
UET-Pesh-UIP-5818-Urban Economics and Real Estate-Dr. Attaullah Shah-Lec-1
Individual Project (10%)
• The student will take the projects based on following list as per last digit
of their Roll/Reg No:
0
1
2
Urban Economics
Principles involved in the land development and planning
Factors determining the land values and land uses and Real Estate
3
The Urban Housing markets structures and density
4
Firm Site Selection and Industrial land Use.
5
Employment Decentralization, “edge” cities.
6
Retail Location and Market Competition.
7
Public Goods, Externalities, Development and regulations.
8
Commercial Markets
9
Real Estate and Regional Economic Growth
UET-Pesh-UIP-5818-Urban Economics and Real Estate-Dr. Attaullah Shah-Lec-1
Format of Project report
•
•
•
•
•
•
•
•
Title Page
Acknowledgments (if any)
Table of Contents
Executive Summary (total 1000 words or less, 3 paragraphs)
– Brief introduction of the chosen topic
– Advantages and disadvantages
– Possible Applications
Main Body of the Report (10-15 pages including tables and pictures)
– Introduction (1-2 pages)
– History (if any)
– Possible applications in construction with special reference to Pakistan (1-2 pages)
– Case Study
The actual application of the proposed topic in the construction site for ,medium or large
projects and check the compliance and deviations in real cases.
References
– At least 5 for undergraduate students
– At least 10 for graduate students
All references must be properly cited in the report using numbers or last name of the
authors with year of publication. ( [1] or (Shah, 2005) ). Use APA referencing style.
UET-Pesh-UIP-5818-Urban Economics and Real Estate-Dr. Attaullah Shah-Lec-1
Group Project 10%
• This activity is aimed at developing better coordination and
integration amongst the students.
• The class will be divided into 3-4 groups and they will select
the group leader.
• The group will select a project, where they can visit in
group, study the site etc, collect some first hand data and
present their group study to the class. The evaluation of the
group project will be done on the basis of the following
parameters
– Research Activity: 35%
– Group Reprt: 35%
– Final group presentation: 30%
• After formation of the group and selection of the group
leader, the group will give the selected project/site for
approvalUET-Pesh-UIP-5818-Urban
on or before Economics
the 3rdandclass
of the
session.
Real Estate-Dr.
Attaullah
Shah-Lec-1
THOUGHTS ON ENVIRONMENTAL AND
URBAN ISSUES FROM AN ECONOMICS
PERSPECTIVE- NY TIMES
•
•
•
•
•
•
Case Study in Rising Health Care Costs
A man who had trachea cancer who has had a new surgery
The procedure cost roughly $500,000.
The recipient is young and works as an electrical engineer.
A cold hearted economist estimates his earnings stream
He may conclude that this was a good investment to keep
him going.
• But what if he had been 84 and senile? Are you a
supporter of the "Death Panels"?
• Without such technocrats how will the medical system's
costs be reigned in as our great surgeons continue to make
progress and innovation gives them the tools to do their
thing? UET-Pesh-UIP-5818-Urban Economics and Real Estate-Dr. Attaullah Shah-Lec-1
• Once this procedure becomes more routine how much
will it contribute to rising health care costs? Have we
over-innovated?
• A cold hearted libertarian would say that individuals
should be given the option to purchase catastrophic
health insurance and if they fail to buy it and then get sick
that they should make a strong You Tube video to raise
the private funds they will need for the procedure.
• Implicit in such an argument is a rejection of behavioral
economic logic that people are myopic and not forming
"rational expectations" of possible future events and
planning for such scenarios.
UET-Pesh-UIP-5818-Urban Economics and Real Estate-Dr. Attaullah Shah-Lec-1
1. Urban Economics and its determinates
2. Central place Theory (CPT) and city
systems
3. Centripetal forces
4. Economics based and city growth
Definition of Economics
• Mankiw’s definition
– How Society manages its scarce resources
• Hedrick’s definition
– How society chooses to allocate its scarce resources
among competing demands to best satisfy human
wants
• Alternative definitions
– Economics is the study of choice.
– Economics is what economist do.
UET-Pesh-UIP-5818-Urban Economics and Real Estate-Dr. Attaullah Shah-Lec-1
Scarcity and the Fundamental
Questions of Economics
• Scarcity : Unlimited wants versus limited
resources
• Choices and tradeoffs
• Opportunity Costs
• All societies must answer the WHFM questions
– What is to be produced?
– How is to be produced?
– For whom will it be produced?
UET-Pesh-UIP-5818-Urban Economics and Real Estate-Dr. Attaullah Shah-Lec-1
Urban Planning
A city can be called a collection of buildings for an economic
purpose or a dense human settlement.
Urban planning (urban, city, and town planning)
• Is a technical and political process concerned with:
– the use of land and design of the urban environment,
– Including transportation networks,
– To guide and ensure the orderly development
of settlements and communities.
– It concerns itself with research and analysis, strategic
thinking, architecture, urban design, public consultation,
policy recommendations, implementation and
management
The modern origins of urban planning lie in the movement
for urban reform that arose as a reaction against the
disorder of the industrial city in the mid-19th century.
UET-Pesh-UIP-5818-Urban Economics and Real Estate-Dr. Attaullah Shah-Lec-1
Urban planning designs settlements, from the smallest towns to the largest cities. Shown here is Hong
Kong from Western District overlooking Kowloon, across Victoria Harbor.
What is Urban Economics?
• Definition: Urban Economics is the study of the location
choices of firms and households, and the consequences
of these choices.
• Urban economics examines the question of where of
economic activity:
1) Households choose where to work
2) Households choose where to live
3) Firms choose where to locate its
factory, office or store……….
UET-Pesh-UIP-5818-Urban Economics and Real Estate-Dr. Attaullah Shah-Lec-1
Urban Economics
• Economics is the study of the allocation of scarce resources,
and as all economic phenomena take place within a
geographical space, urban economics focuses of the
allocation of resources across space in relation to urban areas
• Urban economics is broadly the economic study of urban
areas; as such, it involves using the tools of economics to
analyze urban issues such as crime, education, public transit,
housing, and local government finance. More narrowly, it is a
branch of microeconomics that studies urban spatial structure
and the location of households and firms
• Arthur O’Sullivan believes urban economics is divided into six
related themes:
i. Market forces in the development of cities
ii. land use within cities, iii. urban transportation,
iv. urban problems and public policy, v. Housing and public policy
vi. local government expenditures and taxes.
UET-Pesh-UIP-5818-Urban Economics and Real Estate-Dr. Attaullah Shah-Lec-1
Why are cities interesting to
Economists:
• Creation and Innovation: People share ideas and develop
new products and production techniques.
• Learning in Cities: Contacts in a city facilitate the exchange
of knowledge.
• Trade and Production in Cities(1): Cities provide economies
of scale that make the production of goods and services
more efficient.
• Trade and Production in Cities(2): Cities are a gathering
place for buyers and sellers: they facilitate trade.
• Consumption in Cities: Since there are more consumers in
cities, there will be demand for many goods and services.
UET-Pesh-UIP-5818-Urban Economics and Real Estate-Dr. Attaullah Shah-Lec-1
Components of Urban Eco
1.Market forces in the development of cities
• Market forces in the development of cities relates to how the
location decision of firms and households causes the
development of cities
• The location decisions of both firms and households create
cities that differ in size and economic structure.
• When industries cluster, like in the Silicon Valley in
California, they create urban areas with dominant firms and
distinct economies.
• Because urban economics is concerned with asking
questions about the nature and workings of the economy of
a city, models and techniques developed within the field are
primarily designed to analyze phenomena that are confined
within the limits of a single city
UET-Pesh-UIP-5818-Urban Economics and Real Estate-Dr. Attaullah Shah-Lec-1
Components of Urban Eco
2. Land Use
• Looking at land use within metropolitan areas, the urban
economist seeks to analyze the spatial organization of
activities within cities.
• In attempts to explain observed patterns of land use, the
urban economist examines the intra-city location choices
of firms and households.
• Considering the spatial organization of activities within
cities, urban economics addresses questions in terms of
what determines the price of land and why those prices
vary across space, the economic forces that caused the
spread of employment from the central core of cities
outward, identifying land-use controls, such as zoning,
and interpreting how such controls affect the urban
economy
UET-Pesh-UIP-5818-Urban Economics and Real Estate-Dr. Attaullah Shah-Lec-1
Components of Urban Eco
3. Economic policy
• Economic policy is often implemented at the urban
level thus economic policy is often tied to urban
policy
• Urban problems and public policy tie into urban
economics as the theme relates urban problems,
such as poverty or crime, to economics by seeking
to answer questions with economic guidance.
• For example, does the tendency for the poor to live
close to one another make them even poorer?
UET-Pesh-UIP-5818-Urban Economics and Real Estate-Dr. Attaullah Shah-Lec-1
Components of Urban Eco
4. Transportation and economics
• Urban transportation is a theme of urban
economics because it affects land-use
patterns as transportation affects the
relative accessibility of different sites.
• Issues that tie urban transportation to
urban economics include the deficit that
most transit authorities have, and efficiency
questions about proposed transportation
developments such as light-rail , monorail,
metro buses etc
UET-Pesh-UIP-5818-Urban Economics and Real Estate-Dr. Attaullah Shah-Lec-1
Components of Urban Eco
5. Housing and public policy
• Housing and public policy relate to urban economics as
housing is a unique type of commodity.
• Because housing is immobile, when a household chooses a
dwelling, it is also choosing a location.
• Urban economists analyze the location choices of
households in conjunction with the market effects of housing
policies
• In analyzing housing policies, we make use of market
structures e.g., perfect market structure. There are however
problems encountered in making this analysis such as
funding, uncertainty, space, etc.
UET-Pesh-UIP-5818-Urban Economics and Real Estate-Dr. Attaullah Shah-Lec-1
Urban Economics & Real
Estate Market Analysis
Financial Economics  Knowledge about the R.E.
Asset Market.
Urban Economics  Knowledge about the R.E.
Space Market.
5% of U.S. land is in urban areas, but 90% of real
estate value is in urban areas.
Real estate is an urban phenomenon
To understand real estate, you need to
understand cities.
UET-Pesh-UIP-5818-Urban Economics and Real Estate-Dr. Attaullah Shah-Lec-1
Urban Economics &
Geography:
• Why/how do some cities grow faster than
others?…
• What determines locations of different types
of activities?…
• What determines location value (& land
value)?…
• How does location value change over time in
different parts of a city?…
• How can we analyze the market for different
types of space usage in different types of
locations?…
UET-Pesh-UIP-5818-Urban Economics and Real Estate-Dr. Attaullah Shah-Lec-1
Two Fundamental
Characteristics of Cities:
•
Size
•
Location
Consider the pattern in the sizes of cities…
UET-Pesh-UIP-5818-Urban Economics and Real Estate-Dr. Attaullah Shah-Lec-1
Real estate market dynamics and urban structure:
case study of high-income area in Porto Alegre-RS, Brazil
http://www.proarq.fau.ufrj.br/revista/public/docs/Proarq19_RealEstateMarket_MaraschinCamposPiccinini.pdf
• This article discusses some aspects of the relation between the realestate market dynamics and the socio-spatial urban structure, using the
appropriation of the city of Porto Alegre eastern-central axis by higher
income groups as a case study.
• The study evidences, in the case of Porto Alegre, the geographic site’s
important role in the initial attraction for high-income groups, given by the
presence of topographically elevated areas with interesting views and
good environmental quality. The occupation process develops and gets
more consistent after public and private actions reinforced their initial
qualities. Therefore, these quality areas are valorized both for their
concrete aspects (natural agreeability, Distance and equipment), and for
the cultural and symbolic aspects (prestige elements and social status
symbols)……
• This situation reveals the complexity of the urban dynamics and the
formation of its socio-spatial patterns, and at the same time, also poses
challenges both for the comprehension and for the planning and
controlling of those processes.
UET-Pesh-UIP-5818-Urban Economics and Real Estate-Dr. Attaullah Shah-Lec-1
Assignment No. 1
• Please identify the high income area of your
city and relate the real estate dynamics and
socio-spatial urban structuring of the city.
• Follow the study pattern given in the
research paper or develop your own
arguments for the same
UET-Pesh-UIP-5818-Urban Economics and Real Estate-Dr. Attaullah Shah-Lec-1