UGBA 180 Chapter Notes - Chapter 7: Comparative Advantage, Income Approach
22 May 2018
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Course
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Chapter 7: Sigle Fail Housig – Pricig,
Ivestet, ad Ta Cosideratios
• Homeownership is important for personal wealth accumulation, some thinking of housing as a consumption good
(shelter) and an investment
• Economic influences on housing demand
o Population growth (+)
o Household formations (+)
o Employment (+)
o Household income (+)
o Interest rates (-): raises the cost of borrowed capital
o Federal income tax rates (-)
o Cost of renting housing (+)
• Homeownership has advantages because of house appreciation rates and capital gains exclusion under the tax law
• Benefits of renting: need for flexibility, lack of funds for down payment, credit quality of resident, to avoid volatility,
and desire to shift maintenance/security to others
• Expected rate of appreciation in house prices (EAHP):
• Expected appreciation rate on hoe equity (EAHE): provides more perspective for investors
• Unrealized equity gains: method in which the owner has the option of realizing by selling the residence or
refinancing (no income taxes)
• Making an investment in a specific real estate cannot be separated from making an investment on the economic
region because the real estate is permanently located in that region
• Some geographic regions have a comparative advantage over other regions and can produce more profitably and
efficiently in that region because of natural advantages, employee characteristics, or proximity to major consumer
markets
• Base, driver industries: businesses that produce the greatest profits
o Hard to find from companies because it is private information, but can look up employment data
o To identify driver industries in a region you need to find the economic base (location quotients)
o Location quotients: if the ratio is greater than 1, then the region would be identified as a base or driver
industry because that region has a greater than proportionate number of workers in that industry than in
the US; less than 1 means that it is a supporting industry (ie: accounting, advertising firms)
o Employment multipliers: how total employment in a region is affected by changes in base employment
because there are supporting employment roles
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