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Factors Affecting Value: Environment, Economy, and Infrastructure.
Environmental Factors:
- Climate affects the habitability and maintenance costs.
- Topography influences value; scenic views and water proximity increase value, but flood and landslide risks must be considered.
- natural disasters❓ (earthquakes, floods, hurricanes) negatively impact property value; Expected Loss (EL) can be calculated as EL = P * LGD * EAD, where P is the probability of the event, LGD is the Loss Given Default, and EAD is the Exposure at Default.
- Natural resources (oil, gas, minerals) can increase property value.
- Environmental regulations and restrictions can have positive (limiting development, increasing value) or negative (restricting land use) impacts.
Economic Characteristics:
- A strong economic base (industries attracting income) increases property values; evaluation involves analyzing industries, growth rates, employment, wages, and diversification.
- Employment and unemployment rates correlate with purchasing power and property demand.
- Inflation and price levels affect construction and living costs, impacting affordability.
- Interest rates influence borrowing costs for property purchases.
- Construction activity reflects confidence in the real estate market.
- Government regulations and taxes impact investment cost and risk.
Infrastructure:
- Public transportation (airports, trains, buses) accessibility increases property value.
- Highways improve accessibility and attractiveness.
- Reliable energy and water supplies are essential for property value.
- Sanitation facilities (sewage treatment, solid waste disposal) are necessary for health and safety.
Housing Supply and Demand:
- Supply data includes housing inventory, land availability, construction activity, building permits, construction costs, vacancy rates, and property selling time.
- Demand data includes population characteristics (growth, age, income, education, family size).
Social Attitudes:
- Demographic data like age, income, and family size are indicators.
- Young families and retirees have different housing preferences.
- high development fees❓❓ or taxes indicate an anti-growth attitude.
Chapter Summary
The chapter discusses three main factors influencing real estate❓ value❓: the natural❓ environment, economic characteristics, and infrastructure.
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Natural Environmental Factors: These include climate, topography (landforms and water bodies), potential hazards (earthquakes, floods, hurricanes), and the availability of natural resources. Government regulations and restrictions on development can increase the value of already developed properties by limiting land supply and improving quality of life. Conversely, these restrictions can negatively impact vacant land value.
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Economic Characteristics: The area’s economic base (economic activities supporting the population) is key. Strong economic bases attract income, increasing wealth and property values. A weak economic base negatively affects values. Data is gathered on the area’s major industries (growth, stability, or decline), number of employees, wage and skill levels, economic diversification, and forces affecting the economic base. Other factors include employment/unemployment rates, price levels, interest rates, construction activity, and government regulations/taxes.
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Infrastructure: Infrastructure refers to public improvements supporting basic needs like transportation and utilities. Infrastructure contributes to quality of life and regional growth. Data includes public transportation (air, rail, bus), highways, power and water supplies, and sanitation (wastewater treatment, solid waste disposal). Evaluators must be aware of the availability, quality, costs, benefits, and capacity of these services to support new growth. Irrigation systems can transform “worthless desert” into valuable agricultural land.
These three factors (environment, economy, and infrastructure) highlight the interrelationship between a property’s surroundings and its value. Understanding these factors allows for predicting future value changes based on potential changes in the natural environment, economy, or infrastructure. Understanding supply and demand dynamics and social indicators are also crucial for market analysis.
