The Determinants of Metropolitan Growth

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The Determinants of Metropolitan Growth

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Real Estate and Regional Economic Growth

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Nội dung Text: The Determinants of Metropolitan Growth

  1. MIT Center for Real Estate Week 12: Real Estate and Regional Economic Growth • Exports, transfers, investments and the determinants of regional growth: demand. • Population growth and migration: supply • 3-Q model of regional response. Factor supply elasticity and the role of real estate. • Wages, productivity and real estate costs – across MSAs.
  2. MIT Center for Real Estate Income and Product Accounts in States Summary of Output and Income Accounts for Florida and Pennsylvania, 1991 Florida ($ billions) Pennsylvania ($ billions) Income Accounts* Income (Y) 262 242 Wages (w) 126 127 Other Income (y + G) 136 115 Consumption (C) 260 193 Private 214 161 Government 46 32 Federal Taxes (T) 38 41 Savings (S) -36 8 Output Accounts** Output (Q) 219 211 Wages (w) 126 127 Profits and Rents (π) 93 84 Consumption (C) 260 193 Investment (I) 44 27 Imports (M) 175 153 Exports (X) 92 144 INCOME (Y) - OUTPUT (Q) 43 31
  3. MIT Center for Real Estate Regional Accounts: Flow of Funds • Regions do not have to have individually balanced accounts. Surpluses in goods can be balanced by deficits in capital or government flows: the following cross border flows however must sum to zero. Trade surplus: X-M [exports - imports] Gov. surplus (Federal): G-T [spending – taxes] Capital surplus: I – S [investment - savings] Profits surplus: y - π [received - earned] • Notice the in Florida, huge trade deficit is made up with huge negative savings.
  4. MIT Center for Real Estate Sources of Regional Demand . • Some variables are determined directly by the size of a state’s economy (Income or Output) : imports (M), Federal Taxes (T), consumption or savings (S) and profits earned in the state (π). • Other variables are determined by forces largely outside of the region and serve to bring money into the state, generating growth and ultimately determining state size (level of income or output): - Exports (X) - Investment (I) - Federal spending (G) - Unearned income: SS, retirement…(y)
  5. MIT Center for Real Estate Characterizing Export growth and Investment? ∑eini = ∑eiN + ∑ei(Ni-N) + ∑ei(ni-Ni) i i i i Share | Mix Competitive | Shift (i): industry n,e: regional growth in activity, level of activity N: national growth of activity • Share: a matter of timing • Mix: Historic industrial structure • Competitive: “our” companies versus “theirs” [innovation –vs- production costs: “product cycle]
  6. MIT Center for Real Estate Study of impact of each Demand factor on the Boston Area Economy over time (Coulson) Impact on Region Competitive effect Share effect Mix effect 0 1 2 3 4 years since start 8 9 10 11
  7. MIT Center for Real Estate Regional Supply shifts are as important • Migration into a region that results from factors in the origin and not destination. [US history 1820-1920]. • Birth rates in the state – 20 years earlier! (Mass –vs- California Net Reproduction Rates). • Recent immigration from Mexico and Asia.
  8. MIT Center for Real Estate P Simultaneous Output Equilibrium in a Market region’s product, labor C=αKR + αLW and structures QD markets. Q 1. Product Demand=production W/P LD=αLQ Labor LS costs. Market 2. Costs = average of W wages and rents. 3. Wages equilibrate labor supply with L labor demand KD=αKQ R (proportional to KS Real Estate output). Market R 4. Rents do the same in structures market. K
  9. MIT Center for Real Estate P Output C’=αKR’ + αLW’ Changes in Regional output, prices, wages Market C=αKR + αLW Q’D and rents in reaction to shift in product demand QD Qd to Qd’. Q 1). Prices (and costs) W/P LD=αLQ must rise. Ditto output. LS Labor 2). Wages and W’/P’ Market employment rise. 3). Likewise for rents and stock of structures. L 4). Reverse for downward demand R KD=αKQ KS shifts Real Estate R’ 5). Supply Elasticity Market and the Magnitude of price versus quantity K changes?
  10. MIT Center for Real Estate Changes to Regional P Output product, wages and C=αKR + αLW Market rents from shift in C=αKR’ + αLW’ labor supply to L’S. QD 1). Wages must fall Q as employment rises. 2). Costs must fall W/P LD=αLQ and output expand. Labor LS 3). Rents, however, Market W’ L’S rise as the stock expands. 4). What % of the L labor shift is KD=αKQ absorbed? R KS 5). Product demand Real Estate R’ elasticity determines Market Price, wage versus quantity changes. K
  11. MIT Center for Real Estate Recent Examples of Demand and Supply induced growth Regional Differences in Labor and Wage Growth, 1960-1990 Employment Population (% Total (% Manufacturing ( % Wages** (% Metropolitan Area* Change) Change) Change) Change) Atlanta 179 312.0 109.0 19 Chicago 18 54.0 -21.0 3 Dallas 136 241 140.0 19 Detroit 16 71.0 -9.0 18 Miami 107 191.0 109.0 -8 Pittsburgh -7 31.0 -52.0 -8 San Diego 142 275.0 103.0 -3 St. Louis 19 64.0 -12.0 18 * 1960 figures based on 1960 Census Bureau MSA definitions; 1990 figures based on 1990 Census Bureau definitions **Real average hourly earnings of production workers in manufacturing, 1990 dollars adapted from DiPasquale and Wheaton (1996)
  12. MIT Center for Real Estate In the Long run: e ag Regional Wage 1). If regions vary in W al l Re a productivity (supply Ev Equ en shifts): wages and Pr od rents will be negatively uc tio n Co correlated across areas. sts 2). If they vary because of amenities Preferred (demand shifts): then Life Style Greater Productivity wages and rents are positively correlated across areas. Regional Land Rents
  13. MIT Center for Real Estate Median House Over many years, Metropolitan Area Anaheim Actual Wage** 11.22 Skill-Adjusted Wage** 11.09 Value*** 237,184.00 Cost of living index‫٭‬ 132.30 in many countries, Birmingham 9.27 9.08 79,662.00 98.50 there are Boston 11.88 11.31 200,000.00 164.10 Buffalo 9.34 9.50 78,614.00 107.20 persistent positive Cincinnati 10.19 10.00 78,745.00 102.40 correlations Cleveland 10.36 10.16 83,855.00 109.50 Dallas 10.62 10.44 85,000.00 103.80 between wages Denver 10.89 10.35 86,335.00 101.50 Ft. Worth 10.33 9.96 80,000.00 103.20 and housing rents. Indianapolis 9.62 9.61 78,614.00 99.30 Kansas City 10.69 10.22 71,155.00 95.10 *1989 dollars. Los Angeles 10.90 10.83 225,000.00 126.50 **calculated by multiplying wage Miami 9.43 9.75 94,874.00 110.10 differential indices by Dec. 1989 seasonally adjusted afg hourly earnings Milwaukee 10.11 9.91 92,240.00 102.00 of production or nonsupervisory workers Minneapolis 11.22 11.10 95,000.00 99.80 on private, nonaagricultural payrolls. New Orleans 9.42 9.45 68,309.00 97.80 ***From American Housing Survey Philadelphia 10.98 10.72 139,000.00 127.20 median house values for 1988, 1989, or Pittsburgh 9.84 9.56 71,155.00 102.50 1990, converted to real 1989 dollars Portland, OR 10.34 10.19 80,643.00 103.00 ‫٭‬From 3Q 1989, except Boston (3Q88), San Francisco 12.62 11.94 250,000.00 144.50 Cincinatti and San Jose (4Q89), and San Jose 13.06 11.83 251,564.00 129.90 Tampa (1Q90) Tampa 9.07 8.97 85,000.00 100.70 adapted from DiPasquale and Wheaton Washington, DC 11.97 11.22 170,000.00 128.40 (1996) Average 10.58 10.31 120,954.00 112.60

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