When determining whether there is a demand for new real estate development, we look for unmet needs. in other words does the demand for a particular real estate use far exceed the supply. A good indication is: no vacant apartments, , no empty offices, no vacant stores or no unsold inventory of homes. Lack of demand is shown by a surplus of supply: some examples are high vacancy rates in apartments, offices, retail spaces, and large inventory of unsold homes. When we examine supply, we must differentiate by types of apartments, offices, retail, and homes. For example- We know that all apartments are not the same. It makes no sense to compare a high rise penthouse of 5 bedrooms in a great location that rents for $10,000 per month to a two bedroom in a less desirable area that rents for $400 per month. These are two very different markets. How? The size of the households may be different, the incomes may be very different, and what each household thinks is important in choosing a place to live may be very different. This applies to all type real estate. Another example is a hotel suite in the Savoy in London can not be compared to a hotel room without room service and whose the only amenity is a room with a clean bed and a window air conditioner.
What causes shortages in supply? Increased demand for the use. The multi-family apartments we developed five years ago has had difficulty filling the units for two years. Suddenly, we are 100% occupied with a waiting list. Why? There are a great many more users for our apartments. There can be many factors causing the increase in this demand. We may have unique features that the competition does not provide. This advantage can be short lived because the competition may add these features where possible. If they do not add these features when most apartments have these amenities, there units will be considered obsolete and non- competitive. Their rents will drop significantly. Then their value will topple,
The one factor that most causes increased demand is more people needing this use. What brings more people to a community? Jobs. For every new job that is hired by a local business- a barber, doctor, etc., there is one more job created by this new job. For every job that sends its product out of town, there are two more jobs created in the community by this one new job.. So if an new auto plant comes to town and creates 5,000 new jobs. The impact on the community is 15,000 new jobs. 5,000 new jobs at the auto plant and 10,000 other new jobs created in the community as a result of the auto plant. If the average wage of these new jobs is $70,000 per year, suddenly the local economy has $1,050,000,000 annually added to its economy. What new demands will over a billion dollars in additional annual income create?
This is saying the community gross domestic product has increases by over $1 billion. what is the gross domestic product? The gross domestic product (GDP) is the market value of all total goods and services made within the area in a year. The gross domestic product for a country is called the gross national product(GNP).
If the local area. population was 15,000 before the auto plant came to town, the new population will exceed 52,500. This assumes that the average household size of the 15,000 new job holders is 2.5 people. The demand for everything after the auto plant is operating will at least triple. This community will need additional places to live, to shop , to obtain services, for both public and private new recreation, , new places to worship , new schools, and more. Many local government use taxes on retail sales to fund their gover the out side staffs assemdeveloper dreams about.
Now let’s look a on the dark side. The auto company’s automobile car production is cut back because the locally produced cars are not selling. The automobile company is losing huge sums. Their management needs to take drastic action. The new auto plant is closed- 5,000 plant jobs are lost overnight. Many of the other 10,000 new jobs created to service the auto plant slowly vanish. We suddenly have thousands of households without regular income. They obtain temporary unemployment benefits that are far less than their recent wages. These households had been extended credit based on their employment. Now do not have sufficient income to meet all of their financial obligations they have recently incurred. The demand for government services increases by the thousands recently laid off. A few government jobs are created by this much increased demand for government services. Houses are being foreclosed. The families in these houses stop making ordinary repairs to the houses. Many houses are now on the market with few buyers. Home prices drop because of the over supply and the run down condition of many homes. Certain newly developed subdivisions are hardest hit.
This town that has expanded based on the assumption that the auto plant would prosper has a problem. There is no way the “old” residents can handle the devastation caused by the closure of the auto plant. What can be done to save the town? First, it is not only the problem of the laid off auto workers. It is the problem of the whole town. If the laid off auto workers families leave the town. The new schools will close. The towns bonds were issued to pay for the school. These bonds must be paid off regardless if the school is operating or not.
On the asset side, the opening of the auto plant brought to the town many very skilled specialists. The auto manufacturer had to search far and wide to assemble the staff of skilled people to immediately start to manufacture a new product. This also applies to staffs assembled by the suppliers, etc, of the auto plant. This an asset the town did not have before. Who else needs these specialists? After analyzing and cataloging the skills of those unemployed, the town must raise enough funds needed to market this pool of talented workers. Any foreign vehicle manufacturer is an obvious choice. Or for that matter any manufacturer of machinery is a good choice. Some company will show up. This will begin another need for unmeet needs.