Lec-1 Urban Economics and Real Estate

1. Lec-1 Urban Economics and Real Estate Engr. Dr. Attaullah Shah

2. 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

3. 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

4. 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

5. Size of Global Construction Industry (2005)

6. Global Construction spending 2011-12

7. 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 middle-income 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?

8. 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

9. Global Construction Industry forecast.Share of spending by region: 2015-20

10. Global Construction Industry forecast-Cont’d. • In the short term: Degree of stagnation • More sustained growth not expected until 2015 • Developing countries are expected to lead in 2012-13. • 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

11. 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

12. Construction Industry Challenges Ten major causes of cost and time overruns • Fluctuation in prices of raw materials and Unstable cost of manufactured materials • 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

13. 2. Course outline and assessment system

14. Course outlines

15. 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.

16. Individual Project (10%) • The student will take the projects based on following list as per last digit of their Roll/Reg No:

17. 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.

18. 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 approval on or before the 3rd class of the session.

19. 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?

20. 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.

21. Urban Economics and its determinates Central place Theory (CPT) and city systems Centripetal forces Economics based and city growth

22. 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.

23. 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?

24. 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.

25. 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.

26. 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……….

27. 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: • Market forces in the development of cities • land use within cities, iii. urban transportation, • urban problems and public policy, v. Housing and public policy vi. local government expenditures and taxes.

28. 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.

29. 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

30. 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

31. 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?

32. 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

33. 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.

34. 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.

35. 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?…

36. Two Fundamental Characteristics of Cities: • Size • Location Consider the pattern in the sizes of cities…

37. 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 real-estate 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.

38. 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