Lecture 3(user markets) .docVIP

BU5014 Lecture 3 USER MARKETS IN PROPERTY The use (or potential use) of a property gives rise to property and investment values. The cost of space or the outlay necessary of obtain the use of real estate is termed RENT 2 perspectives: Demand: rent is an input cost Supply: rent is return on capital invested The intersection of D and S determines rental values  DEMAND FOR USER RIGHTS Space is one of many factors of production The maximum rent offer that will be made for the use of land and property will depend on the contribution that the property makes to utility or revenue. Rent offered will be determined as a surplus after other factors have been rewarded RENT is a residual Start by assuming the quantity of land/property is fixed……. Theory of Factor combination Use to answer Why rent is paid How much rent is paid Why real property is used in most profitable use by most efficient users The concept of land rent as a surplus 1. Law of diminishing returns 2. Rental value as a surplus over cost of using property  The effect of changes in MRP The effect of changes in costs of variable factors Recap 1: Factors affecting rental value The market for the goods and services being produced in the property (value of output). Demand for property is DERIVED DEMAND Changes in the productivity of variable inputs Changes in the cost of variable inputs What if quantity of land is not fixed? The optimal combination of factors of production (Harvey) Isoquant analysis The effect on the demand for land of an increase in its productivity Recap 2: Other factors affecting demand for land The price of land/property relative to other inputs The productivity of land/property Rental values also affected by … Patterns and terms of user rights a) Lease length Differences in lease length will affect the max rent that will be offered by a user. Tenants/ potential users need to compare th