Walulel’s guide to London’s real estate market. Part 3: Equilibrium.
Sadly, our series of articles on the real estate market reaches its end dealing with the equilibrium. In case you haven’t read the previous articles here they are:
Equilibrium is the notion that prices, as reflections of values, within the real estate market arise from a balance between the Asset Market and the Space Market. Equilibrium between the Asset Market and the Space Market in turn requires equilibrium between the various macroeconomic factors/submarkets that affect perceptions of worth in the Asset Market and the Space Market.
Let’s break it down. As the Space Market is where real estate space is demanded, demand for space is always a “derived demand”. In other words, if the demand for the attributes associated with a real estate space increases, such space will increase in value. Similarly, the Asset Market is where the value of space is expressed in terms of its worth. Those who buy and/or sell real estate for their own use or for income, producing or speculation, all compete. It is a result of this competition that allows prices to be set. If the Asset Market and the Space Market are in equilibrium then controlling for purchasing power parity, real estate prices, shouldn’t change. If the Asset Market and the Space Market were in equilibrium, your house would not be worth any more than it was when you bought it.
What the heck does that mean? Let’s put it another way. Disequilibrium between the Asset Market and the Space Market is what causes prices to rise or fall. The Asset Market, as previously mentioned, is heavily influenced by capital markets which if overcapitalised allows the worth placed on certain values to increase. Alternatively, if the Space Market is underproviding real estate with attributes that are in demand, such as sufficient property near places of work, then that would also cause prices to rise as the worth placed on certain values increase.
So now we can finally announce it. The reason your house earns more than you do is because there isn’t equilibrium between the Asset Market and the Space Market. Simple. So where should the public turn to find out whether there is equilibrium between the Asset Market and the Space Market? That’s where we come in. We at Walulel spend our days working out the attributes associated with every square centimetre of real estate in London. This allows us to value every attribute within the Spacemarket such as crime rates, school performance and air quality and then see what price participants in the Asset Market deem those attributes to be worth so that we can tell you if you’re overpaying or whether you could find those attributes elsewhere. Since no property is portable, our analysis of real estate location attributes can help you to make your real estate choices really work for you.