Real Estate Economics

Real estate economics is the application of economic techniques to real estate markets. It tries to describe, explain, and predict patterns of prices, supply, and demand. The closely related field of housing economics is narrower in scope, concentrating on residential real estate markets, while the research on real estate trends focuses on the business and structural changes affecting the industry. Both draw on partial equilibrium analysis (supply and demand), urban economics, spatial economics, basic and extensive research, surveys, and finance.

The main participants in real estate markets are:

Users: These people are both owners and tenants. They purchase houses or commercial property as an investment and also to live in or utilize as a business. Businesses may or may not require buildings to use land. 

The land can be used in other ways, such as for agriculture, forestry or mining.

Owners: These people are pure investors. They do not occupy the real estate that they purchase. Typically, they rent out or lease the property to other parties.

Renters: These people are pure consumers.

Developers: These people are involved in developing land for buildings for sale in the market.

Renovators: These people supply refurbished properties to the market.

Facilitators: This group includes banks, real estate brokers, lawyers, government regulators, and others that facilitate the purchase and sale of real estate.

The choices of users, owners, and renters form the demand side of the market, while the choices of owners, developers and renovators form the supply side. In order to apply simple supply and demand analysis to real estate markets, a number of modifications need to be made to standard microeconomic assumptions and procedures.