Anybody who has taken Econ 101 (I am sure most universities have so many classes that this name is outdated but you probably know what I mean-An Introductory Microeconomics class) is familiar with the model that stipulates that there are three distinct, but related, markets for inferior, normal and superior goods. I would even guess that the KD/steak/lobster example has been given.
But lets refresh ourselves with the idea. lets assume we have 3 groups of people; the lower, middle and upper class each with their own unique demand curve to meet the competitive (for simplicity only - branding has given KD a market dominating position, beef is only competitive at the wholesale level and unless you live near an ocean I am sure the importing companies set their own price for higher rents) supply curves.
What we see is lower class people demand mostly inferior good (like KD), some normal goods (like steak) and almost no superior goods. Middle income afford themselves the luxury of superior goods often and also partake in the inferior goods on occasion but generally stick to the normal goods. Finally the upper class do not touch inferior goods, normal goods make up a portion of their basket but generally they eat the superior goods. I think rump roast/sirloin/tenderloin would be a better example but we have come too far.
Anyways if we see the wages people earn, in real dollars, increases the markets shift upwards. The upper class rid themselves of normal goods and only purchase the superior goods; lower class people treat themselves to a slightly less rare degree to superior goods, buy many normal products and less inferior goods; middle class people tend to stop buying inferior goods and start purchasing more superior goods while their demand for normal products stays relatively neutral - or increases a little.
Now I wonder if a study exists to discuss land and property. For example, low income rental properties tend to have higher rent the closer to a supermarket; middle income, detached units, tend to be more expensive when closer to employment hubs and high income properties tend to be more expensive when closer to amenities - be that the fresh air of cottage country, good road access to airports, the theatre, etc.
I came up with those groupings with a thought in mind but they are definitely open to debate. I am just getting at the fact that land value is not necessarily tied to the Central Business District (CBD) in all cases. A friend and I spent a long time in an Urban Economics class mapping out our towns land value with that idea in mind, stipulating there were three major pulls on prices in the town.
But I think if we had more data available and broke it down into the wage classes of each type of housing unit it is most likely to be occupied by, we might find that instead of three locations (the CBD, Commercial District and our University) affecting each group that perhaps the different classes would be affected most by different locations.
I'd say the poor want to be close to a grocery store since they are going to be schlepping it back to their house (even if they own a car, they do not own two and probably want to conserve fuel). For that reason I suppose that being close to the shopping area (commercial district) may make for the most expensive shitty apartments. Also it is possible that they work retail in that area.
The middle class are most likely to be tied to their desk in the CBD so those middle class, detached houses, especially the old victorians or the double wides in newer subdivisions are likely most expensive when it is close to the CBD.
Finally I suppose that, although the university may be a poor example, the superior homes are probably more expensive when near the university because it would be the centre of society there. It would have the fund raising events, the plays, the concerts, the library, the highest paid jobs (or most of them) and also the nostalgia of the university days that undoubtedly helped lead to their relative affluence.
Well that last part is just my wishful thinking but most of it is a reasonable hypothesis in my 'humble' opinion
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6 comments:
In my opinion, real estate pricing and the economic incentives that exist in a particular area, which will be completely different depending on the socioeconomic and cultural circumstance of a particular urban centre.
In particular, middle managers (i.e. middle class) have experienced an exodus from the office as of late due to the interconnectedness of computer networks. Ergo, there may be a deviation in model you have presented.
Consumer preference of a particular segment needs to be considered as well. For example, many upper class (i.e. rich, ignore "culture classes" for now) will prefer private areas in rural settings to escape the prying eyes of the curious lower and middle classes.
Just some food for thought!
Noah
I think that the further up the economic scale you go, the more options people have and thus the more difficult it would be to judge where the higher land values in this segment would be.
So I gave many examples, like the airport or cottage country. But I am sure there are a lot of possibilities.
I suppose the middle class are moving to home offices. Would you think this would mean they would be more likely to live near necessities or amenities? who would they mimic?
with more data, we could both have PhDs. the fact that she gave us a poor grade because, to be quite honest, neither of us actually read the assignment is in the past - and hilarious.
scurv, the one problem with what you said, is that you compared rent to purchase. and i know - house value is the present value of rent in perpetuity, ya ya. you have to compare actual property values though.
does the rent drive the value (as per the theory), or does the value drive the rent? its somewhat inherent and esoteric.
id like to ask you something though. given the extensive subway system in japan, do you find that the property values are a little bit less variant. if you look at toronto and put a gradient from the subway and out, its pretty clear that proximity to transportation (and CBD) is the big driver. i would suggest that we have a higher variance in property values due to our transportation inadequacy.
do some looking for me... its an interesting scenario.
well if we go by rent as Japans market for purchase is quite different, there is a very large differences. Within an area the number of minutes it takes to walk to the station; amount of local commerce makes a big difference (taking a train to buy groceries is fucking annoying).
But also the number of trains that go through your town.
If your station has one local line its likely to be cheap. If it is an express stop a little bit more. If the train runs every 30 minutes it is very cheap but if it runs every 2 minutes it will be more expensive.
If you live near a major train station (like shinjuku with about 16 trains stopping there) it will be hugely expensive. But even the difference between living on just and east-west line or having an east-west and north-south line or something like that adds a tonne of convenience.
I think it would be tough to compare prices between cultures since different cultures will place different priorities on what people are willing to pay for. Relative values of subway access will differ if supply is greater, quality of the system is different, or perhaps due to the sprawled out nature of Canada we see a higher value placed on home ownership.
In regard to whether or not the middle class will value necessities or amenities greater, it would likely be determined on their culture. Middle classes raised as middle class or upper class will possibly focus on amenities more, such that they can keep up with friends and family in what they have access to (a good example being a public golf course). While middle classes who have broken out of the lower class may focus on necessities (CBD) still, since that is what they know, and that is where many of their friends and family live or hang out around.
Noah brings up a good point about class mobility or really class enertia. Living where you know could be a great pull unto itself.
In Japan ownership of a house is almost out of reach for those people that will not inherit their ancestral homes (lower birth order siblings or the children of the lower class).
For purchasing a condo or something like that in many cases they are not available.
When Japan experienced the same kind of credit crunch the west is now back in the 1980s what happened was all the individually managed apartment buildings were bought by huge consortiums. The result is about 100 companies control the rental market and block out a lot of condo construction. It also means that you often need to pay 6+ months of rent for a security deposit (and another 2 months as a gift) meaning people are sometimes immobile even as renters. Of course the deposit you will get back but it still means rent is relatively higher the more often you move.
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