Employment is the primary driver of real estate demand. Basic employment firms primarily export goods and services. Their activities create employment, and their employees in turn demand goods and services, which creates more employment. Thus, basic employment has a multiplier effect with which additional employment is created in non-basic employment firms that produce goods and provide services for the local economy. Economic base analysis evaluates different sectors/industries in a specific city/area/region to determine what proportion of employment in each sector is basic versus non-basic. Dividing total employment by basic employment, the economic base multiplier is derived. This can be achieved using the location quotient method.
Suppose that your client, a REIT company, has asked you for advice concerning the real estate market in your home town/county/region. Specifically, they would like to gain knowledge in the local economy and its potential effect on the real estate market. Your task is to analyse the general market by performing an economic base analysis, using the location quotient method, to better advise your client of the advantages and risks of investing in the residential market in your home town/county/region.
Perform economic base analysis for your client for their ventures in the town/county/region.
Suppose that the town/county/region is expected to see an increase of 5% basic employment jobs in the near future. Assess the impact of the increase on the demand for real estate and estimate the new demand for housing.