Housing and Housing Markets

Neighborhoods

Neighborhood can be defined in various ways. A neighborhood can be an area where the housing units are similar in design or type, a geographical area with a distinguishable character or physical feature, or a relatively homogeneous social unit formed by religious, ethnic, or socioeconomic ties. Thus, a neighborhood might share various characteristics throughout a determined geographical area that might delineate a specific type of subdivision of the housing market or submarket. Therefore, housing is strongly influenced by neighborhood characteristics that might influence its value.

Housing Configuration

The housing market consists of available housing units for sale, known as housing stock, and families willing to buy those housing units. Housing stock can be distinguished by attributes such as design, type of structure, geographical area, and physical characteristics. These attributes vary across space and can form a specific housing [Page 1445]submarket. Families base their decision on acquiring a housing unit according to what is a desirable standard of living and according to its socioeconomic characteristics. Therefore, the final price is the product of the interaction between these two agents: available housing units and families, or sellers and buyers.

Real estate sign reflecting the drastic rise in foreclosures in the residential home market industry

Source: Pamela Moore/iStockphoto.

Housing is both a consumer good and an investment, and it is subject to the basic economic law of supply and demand. Housing demand has two origins: families and investors. As consumers of housing, families are interested in housing primarily as a commodity. They focus on the internal and external characteristics of the physical housing unit, such as the number of bedrooms and bathrooms, the internal and external dimensions of the structure, the neighborhood characteristics, the geographical location, and public service provision. Families as buyers generate variations across the housing market in which some neighborhoods might, for example, suit a young urban professional, a double-income couple without kids, or a single parent with children better than others. Speculators and landlords are primarily interested in housing investment opportunities as in any other investment opportunity.

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