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ECONOMICS OF REAL ESTATE DEVELOPMENT.
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Examines relationships among growth management policy, new home construction, market conditions, equilibrium, scarcity & urban-rural distinctions.... More...
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Paper Abstract:
Examines relationships among growth management policy, new home construction, market conditions, equilibrium, scarcity & urban-rural distinctions.

Paper Introduction:
ECONOMIC IMPACT OF NEW HOME CONSTRUCTION Although Staten Island (the Borough of Richmond in New York City) often is called the borough of homeowners, recent changes in the interpretation of zoning regulations and the application of growth management (control) policy has had the effect of retarding new home construction on the island (Lee, 1994, p. S7). Controls on the development of waterfront property on the Island have been particularly damaging to homebuilding activity (Kowaloff, 1992, pp. 3B-4B). Any significant property development proposed for Staten Island faces long delays (sometimes years) in the approval (or disapproval) process (Muss, 1993, p. A7). Proponents of increased residential development contend that the favorable economic impact of such activity would outweigh th

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17). One of the principles upon which free market economics is based is theconcept of scarcity (Tuccillo, 1995, pp. (1992, 2 December). R. Regional vice presidents round up. (1995). Englewood Cliffs, New Jersey: Prentice-Hall, Inc. RealEstate Weekly, 38(46), D11. Should such persuasion fail, realestate can always fall back on the tried and true strategy of bribingpublic officials to decide in favor of a developer's proposed action-not associally acceptable as presenting a developer's version of the issue in apublic forum, perhaps, but usually more effective. Many people feel that the "higher and better" use concept considersthe value of land only in terms of the its potential economic returns,while overlooking the significance of green-space, the preservation ofagricultural lands, and the importance to the people who must live and workin it of an integrated and diverse community. The blurring of the urban-rural distinction alsolikely will result in an increase in both the number and complexity ofgrowth management legislation applied on regional and state levels.Regional and statewide growth management will make it more difficult forreal estate developers to gain approval for their proposed projects. Real Estate Weekly, 39(17), 3B-4B. Housing in the long term: Trends andprospects. Another theoretical concept associated with the use of prices in afree market economy is equilibrium (Tuccillo, 1995, pp. zoning minefield blockshousing. Proponents of growth and development control legislation contendfurther that the absence of such control provides a boon for the speculator(Lee, 1992, p. It is assumed thatinsufficient resources exist with an economy to satisfy fully all demands.The price system within a free market economy is expected to addressproblems of scarcity, by restricting the ability to purchase. S7). Read NIMBY's lips: No new housing. Muss, J. Political issues affecting the activities or proposed activities ofreal estate developers are frequently of a character that engenders strongemotions of both sides of questions dealing with environmental protection,growth management, resource use, and other relevant factors (Regional,1996, pp. Boyce, B. (1996, January-February). Real Estate Weekly, 41(2), S7. Once having reaped the benefits ofthis once in a lifetime financial opportunity, these rural dwellers will bein a position to move to Montana to get away from the increasing congestionand unpleasantness. Whileadditional housing construction on Staten Island will produce economicbenefits, whether those benefits will outweigh the associated social costsremains an open question. Controls on the developmentof waterfront property on the Island have been particularly damaging tohomebuilding activity (Kowaloff, 1992, pp. Real Estate Weekly, 39(25), A7. D11). (1994, 17 August). D11). It is important to note that market value in real estate is based, inlarge part, on the highest and best use doctrine. Higher market values pressure owners into placing land into so-called"higher and better" uses. To produce goods at minimum costmeans that both waste and technological inefficiency must be avoided.Prices are used to find the cost-minimizing production processes. The use of this term indicates that the mainstreameconomists of the day consider such positions to be rational on the basisof the limited information either available to or employed by theparticipants in reaching their positions, but nevertheless positions thatwould not be established if the participants either possessed or used allof the economic information relevant to the situation. Thus, these proponents contendthat growth control moratoriums and restrictive zoning practices should beended. Market value isconcerned with the present worth of future benefits, and is predicated onthe assumption that the market value is the highest money price for whichthe property is likely to sell in a competitive market. (1995, April). Inthis same vein, it is contended that an absence of land use controllegislation will lead to an unrestricted application of the highest andbest use concept, wherein (1) the supply of rental housing will decline,and (2) the cost of rental housing will increase. Nobel prize-winning economist John Kenneth Galbraith once saidthat advocates of near unlimited development along with the rest of us willone day be consumed by the fumes of automobile emissions as we sit installed, bumper-to-bumper traffic on an urban freeway. Any significantproperty development proposed for Staten Island faces long delays(sometimes years) in the approval (or disapproval) process (Muss, 1993, p.A7). To achieve thisequilibrium, prices must be set at a level such that the total demand forany good is equal to the amount of it initially available, plus the amountof it produced. 51-54). (1992, 24 June). Taking such actions will likely persuade therationally ignorant that it is a far wiser course to place one's fate andtrust in the hands of real estate developers and free-choice economists asopposed to biologists and physicians. 39-48). The most acceptable actions that may be taken by realestate developers to accomplish the goal of assuring that decisionsaffecting themselves are not make from positions of rational ignorance isto gather all of the data relative to the costs and benefits of a proposedaction, with an emphasis placed on available substitutions (such as gasmasks included as standard equipment on automobiles as substitute for thebenefits of fresh air). One of the theoretical economicconcepts associated with the use of prices is that of economic efficiency,which is a part of welfare economics. (1993, 27 January). Surge in development in Boroughs ...really. There is adistinction between absolute scarcity and relative scarcity. (1994). (5th ed.).Cambridge, Massachusetts: Ballinger Publishing Company. Growth and development control legislation would have the effect ofartificially distorting the market pricing mechanism with respect to realproperty (Tuccillo, 1995, pp. "Alternatively, that use, from among reasonablyprobable and legal alternative uses, found to be physically possible,appropriately supported, financially feasible, and which results in thehighest value" (Boyce, 1995, p. While actions basedon rational ignorance might save us from such a fate, real estatedevelopers, in pursuit of the flawed highest and best use doctrine, mustfind ways to make the correctness of their views known, to assure that oneday all of us will have an opportunity to be overcome by fumes as we sit infreeway traffic. Economic efficiency demands that anygiven output be produced at minimum cost. Such economists,however, have never been known to oppose any proposed action that promiseseconomic growth regardless of any other consequences that may derive from asituation. Proponents of increased residential development contend that thefavorable economic impact of such activity would outweigh the social costsof such development (Lee, 1992, p. Business Economics, 3 (2), 51-54. Relativescarcity is the type most often encountered. D11). As strange as it may appearat first blush, the increased resistance will come mostly from urbandwellers who have become aware of what they have lost, and who are eager topreserve some of the remaining environmental resources. Proponents of growth anddevelopment control legislation do not view such an outcome in negativeterms. 51-54). 11 ). R. Thus, pricesare an informal form of rationing in a free market economy. A. Many ruraldwellers, by contrast, will support the proposed actions of real estatedevelopers in the rural areas because these rural dwellers will sniff achance to make a quick financial killing through the sale of theirproperties to real estate developers. 3B-4B). Lee, R. Restrictions on the capability of real propertyowners (through growth control legislation, as an example) to place land inhigher and better uses would have the effect of reducing the value of theasset to its owners (Lee, 1992, p. Proponents of growth and development controllegislation also contend that such legislation enhances the prospects fordiverse property ownership. (6th ed.). ECONOMIC IMPACT OF NEW HOME CONSTRUCTION Although Staten Island (the Borough of Richmond in New York City)often is called the borough of homeowners, recent changes in theinterpretation of zoning regulations and the application of growthmanagement (control) policy has had the effect of retarding new homeconstruction on the island (Lee, 1994, p. Journalof Property Management, 61(1), 39-48. 51-54). F., & Brown, R. Staten Is. Some economists term the positions of many participantsin the debates over such issues as being derived from a position ofrational ignorance. In the absence of such control, it iscontended that only the very wealthy will be able to own real property. Real estate accounts for a greater proportion of the total value ofall assets in the United States than does any other single assetclassification. In theallocation of economic resources, economic efficiency demands that it mustnot be possible to change existing resource allocations in such a way thatsomeone is made better off and no one worse off. Lee, R. A freemarket economy is said to be in equilibrium when the independently takendecisions of households and firms are compatible. Real estate appraisal terminology. L. This doctrine isinterpreted to mean the reasonable and probable use that will support thehighest present value. Kowaloff, S. It is relatively easily comprehended that growth control legislationdistorts several economic processes related to land values and land uses.Although it is somewhat less clear, it is equally true that the absence ofgrowth control regulation may result in the occurrence of activities thatcreate enormous social costs. Implicit in the concept of equilibrium is anothertheoretical function of prices in a free market economy: the current pricelevels in a free market economy are those which will clear current markets. Encyclopedia of real estateappraising. References Allison, N. Waterfront plan: What does it mean toyou? Tuccillo, J. Value in real estate is an objective factor; that is, itrefers to market value (Allison, & Brown, 1994, p. N. As urban-rural distinctions become increasingly blurred by continuedmetropolitan dispersion, real estate developers must be prepared forincreased resistance to development proposals. In this context, the contention is that manydiversions of land to so-called higher and better uses would not occur inthe absence of speculation.

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