New Economic Thinking and Real Estate

Danny Myers is an economist who has taught built environment students at undergraduate and post-graduate levels in the UK and abroad. He is an experienced lecturer and author from the Department of Construction and Property at the University of the West of England, and the Department of Architecture and Civil Engineering at the University of Bath. His recent research supported Kalle Lasne, the founder of the Occupy movement.

Foreword viii

Introduction: Setting the Scene 1

The storyline 3

Hindsight is a wonderful thing 5

The writing on the wall 7

PART A RESOURCE CHOICES 11

1 Basic Economic Principles 13

Definition of economics 14

Resources (or factors of production) 15

Income and wealth 19

Investment 20

Property in a resource context 22

History of economic thought 25

Food for thought: The problems of inequality 29

2 The Language of Profit 32

It’s all about profit 33

The residential developer’s dilemma 34

It’s all about yields 37

Timing is everything 38

Socially responsible investment 41

Costs and price 42

The circle of blame 45

Food for thought: Is profit the measure of everything? 45

3 Real Estate Markets 49

Common sense price signals 50

The Marshallian Cross 52

The concept of equilibrium 54

Property markets 56

The basics of demand 60

Demand for housing 61

Demand for commercial property 64

Demand for government property 65

The basics of supply 66

The stock of housing 67

Stock of commercial property 70

Stock of government buildings 72

Supply and non]price determinants 73

Know your markets 75

The unethical market? 77

Food for thought: Behavioural real estate economics 79

PART B FINANCIAL SYSTEMS 83

4 The Macroeconomy and Financial Flows 85

The circular flow model 86

The modern flow of funds model 88

The perils of debt 91

Food for thought: Flow of funds – what goes around comes around 93

5 Central Banks and Monetary Policy 99

Ideology: In whose interests? 101

What goes on in the traditional banking sector? 102

The fairytale story of banking 103

The market for derivatives: Weapons of mass destruction 107

Alphabet soup 108

Specialised real estate funding options 111

Central banks 113

Monetary policy before 2008: The conventional approach 113

Monetary policy since 2008: The unconventional approach 118

Food for thought: Cosmetic accounting 124

6 The Financial Recession 127

The language of recessions and recovery 128

A new world 129

Herman Minsky (1919–1996) – ahead of his time? 131

Why did no one see it coming? 134

Let the facts speak for themselves 134

Central bank: Lender of last resort 137

Where to look in the future 138

Food for thought: Where is the next crisis coming from? 140

PART C MEASURING AND FORECASTING 143

7 Central Government and Fiscal Policy 145

Macroeconomic targets 146

Central government 152

Fiscal policy 154

Austerity economics 159

Food for thought: An ageing population 161

8 Measuring and Forecasting Economic Activity 165

Some general principles to watch out for 166

Measuring economic growth 168

Measuring income per head 170

Measuring income distribution 172

Measuring inflation 174

Measuring unemployment 179

Measuring international transactions 183

Measuring business fluctuations 186

Forecasting the economy 189

Forecasting property markets 191

Food for thought: The new (High Street) economy 194

Afterword 199

Glossary 202

Webnotes 210

References and Recommendations 215

Index 222