Investigating Property Purchase Power Parity to Explain Economic Behavior

Douw Gert Brand Boshoff

ERES from European Real Estate Society (ERES)

Abstract: Various literature explains the relationship between consumer behavior on property, with specific reference to housing, and the expected wealth effects associated with property investment. This is also shown to affect other consumption expenditure. Real estate is also shown to be the largest single investment of households, with specific reference to housing expenditure. It is expected that this also holds truth for commercial property, with real estate being a critical part of the production process, from manufacturing and corporate services up to marketing and sales. Due to the magnitude of property in the economy, and with the level of labour associated with the production (construction) thereof, it is expected that income level disparity largely influences the cost of property and that the same level of disparity could be seen in property itself. But with the associated wealth effects, the influence of property on other consumption by households, or production by firms, would be different for markets with different levels of income disparity. This study investigates the relationship between property consumption behavior and the equilibrium level with other consumption, differentiated by levels of income disparity. In order to investigate this, a property purchase power parity (PPPP) index will be created, whereby a residential PPPP index will be evaluated against different economic variables in household expenditure patterns, and the commercial PPPP index will be evaluated against the differences in input/output tables for the production sectors in the economy. The equilibrium expenditure level, as well as the production input/output equilibrium, is expected to be related to the property purchase power parity in any country.

JEL-codes: R3 (search for similar items in EconPapers)
Date: 2013-01-01
New Economics Papers: this item is included in nep-ure
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