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A Random Access Database!
• Name• Name spelled phonetically (if applicable)• Phone number (optional)• Email• Your home town.• Your favorite U.S. city• Your favorite country/international city
Welcome to Real Estate 720
Urban EconomicsMorris Davis and Stephen Malpezzi
Objectives of Today's Discussion
• Introduction, to the course, the instructor, and the program.
• Review syllabus.• Introduce “The Wisconsin Tradition” and its sources. Innovation. Values.
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Respect Your Fellow Students
• Keep Grainger clean.• Please arrive on time, prepared.
– Class starts at 1:00. Be ready to roll.• Cellphones and PDAs off.• Please keep laptops closed.• No texting. Don’t even think about it.
Respect your fellow students. Get a flu shot.
Announcements
• Real Estate Club meeting this Thursday – Brad Olsen!• http://wisconsinviewpoint.blogspot.com/2011/01/friday‐speaker‐series‐brad‐olsen.html
• March 30, Real Estate Career Fair
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Course assignments and grading
• Group project (20 points)– Peer ratings are an important part of your project grade!
• Presentation of group project (5 points)– Peer rating matters here, too.
• Individual midterm (30 points)• Individual final exam (35 points)• Individual class participation (10 points)
– Includes occasional “show and tell” assignments
Group Project
• We’ll form small teams (chosen by the instructors).• Each team will choose a country.• Each team will prepare a “country buy report” for some kind of real estate.– Written report (circa 30 pages).– Presentation to the class, with supporting materials.
• We’ll start discussing this in detail next week.
Innovations• Classes and basic material will be “front loaded.” We’ll complete lectures by March 12.– We will hold several Friday meetings as needed, 1:30 to 3:30.
– We’ll also post selected lectures online for self‐study.
• PRELIMINARY schedule:– First exam: February 17– Final exam: March 19– Draft “buy report” due: March 26– Presentations: April 9– Final buy report due: April 16
Classrooms, etc.
• Monday, Wednesday, we meet 1 to 2:15 PM, in 3560 Grainger.
• Friday, when we meet, 1:30 to 3:30 PM in 2510 Grainger.
• We willmeet this Friday.• Several lectures will be posted online, and we will not meet for those. You’ll be apprised of this well in advance.
• Davis and Malpezzi are available to meet by appointment. Email or see us in class.
Education and training:Is there a distinction?
Education• Underlying principles• Context• Knowledge‐focused• Concept‐oriented• Often heuristic• Teaches how to arrive at
the right answers
Training• Professional practice• Applications• Skills‐focused• Task‐oriented• Often algorithmic• Teaches the right answers
“Animals can be trained. Only people can be educated.”Nevertheless, perhaps the line between education and trainingis not as bright as this slide may suggest?
Real Estate Education: A Stylized Life‐long Learning Portfolio?
Underlyingprinciples &context;education
Professional practice;applications; training
RE 720 Urban Economics
RE 750 Development
RE 710 Finance
RE 715 Valuation
RE 712 Law
MIPIM
NYT & WSJ
The Economist
Excel &VBAworkshops
ULI, NAIOPpublications &conferences
ARGUS seminars
Case studycompetitions
“Reading for Life”
“Buy Report” &other writing
WI RE Viewpoint blog
WREAA meetings
REC meetings & field trips
CCIM courses
“Database for Life”
PREA
AFIREBe a mentor
Internships
Getmentored
Where would youput these elements?What would you add
Some of the Instructors’ Objectives for the Course
• A better understanding about cities and spatial markets, esp. the market for land.
• Appreciation of the Wisconsin Tradition in Urban Land Economics
• How to think like an economist.– How to use ceteris paribus effectively.– The central place of cost‐benefit in our thinking.– Don't be a sap. Don't take what you see in the papers or on CNN at face value.
• The importance of public policy to market participants. Conversely, the problems that governments encounter when they set policies without understanding how markets work. 17
Some of the Instructors’ Objectives for the Course, Cont’d.
• A philosophy of research and of modeling ‐‐ start simple, build it up piece by piece. Whenever possible use a simple model instead of a complicated one.
• Better research skills, especially from your work on the country buy report.– Improved writing and organizational skills– Data sources– Empirical skills
• Preparation for other courses.• Enthusiasm for the material ‐‐ a desire to learn more.
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What are your objectivesfor this course?
A few of the great ideas of economics
• Opportunity cost.• Thinking on the margin. Set marginal something equal to
marginal something else.• Diminishing marginal this‐that‐and‐the‐other‐thing.• Substitution in response to a change in relative prices.• Expectations!• When do markets fail? What can we do about it?• When do governments fail? What can we do about it?
Some of the great questions of urban economics
• Why do cities exist?– Trade; economies of scale; agglomeration.
• Why do some (countries, regions, cities, people) prosper, others not so much? What determines productivity?
• What do we know about the location of activity, and real estate, within cities? What form does/should the built environment take?
• What do we know about real estate rents and prices?• How can we better think about urban environmental
problems?• What roles do/should governments play in urban
development?
Some other things we’ll discuss
• Economists talk a lot about efficiency. Can we say anything useful about distribution or equity?
• “Thinking about thinking.”– Are we “scientific?” Should we be?– Interplay between economics and psychology.– Are you a Bayesian?– How not to be a sap. Logic, evaluation of sources.
• How to analyze data.• How to tell a story.• How to write good. (And represent).• Lifelong learning. “Reading for Life.”• Everybody must be socialized…
Syllabus online. You’ll be sent the URL.
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Three kinds of readings
• Required. Core reading. I ask questions from reading as well as class discussion.– Read it. Know it. Live it.
• Background. Significant source of classroom discussion. Skim.
• Recommended. For your library and long‐term reading.– Reading for Life.
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Current Assignments
• Review your basic calculus, micro, and regression analysis from previous courses.
• Malpezzi on Wisconsin Tradition & Innovation (Required)
• James Graaskamp, Fundamentals of Real Estate Development (Urban Land Institute, 1981). (Required, pp. 1‐13).
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Real Estate at Wisconsin:Tradition and Innovation
Stephen MalpezziJames A. Graaskamp Center for Real Estate
Some discussion questions for today’s class
• What is the “Wisconsin Tradition?”• Where does the Tradition come from?
– Innovation– Values
• Who were…– Richard Ely– Richard Ratcliff– Richard Andrews– James Graaskamp– And why do we care?
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The UW Real Estate Program
Department of Real Estateand Urban Land Economics
GraaskampCenter
Real EstateClub/Student Body
Wisconsin Real EstateAlumni Association
Four Key Institutions Comprise the Program
• Department of Real Estate and Urban Land Economics– (what the heck happened to our website???)
• James A. Graaskamp Center for Real Estate– http://bus.wisc.edu/centers/james‐a‐graaskamp‐center‐for‐real‐estate
• Wisconsin Real Estate Alumni Organization– http://www.wreaa.org
• Real Estate Club– http://realestateclub.org
• See also the University and the School of Business websites.
What's Different About This Course? (Topics)
• Urban Economics is economics which explicitly considers the location of economic activity within the city. Urban economics is both theoretical (deductive) and empirical (inductive).
• Urban Land Economics is an important subset of urban economics which focuses on patterns of land use. ULE is primarily empirical.
• Regional Economics is economics which explicitly considers location across cities or regions.
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The Wisconsin Tradition in Real Estate and Urban Land Economics
• Richard Ely (taught 1892‐1925)• Richard Ratcliff (taught 1944‐71)• Richard Andrews (taught 1950s to 1970s; remained
active until his recent death)• James Graaskamp (taught 1960s to 1988)
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The Wisconsin Tradition in Real Estate and Urban Land Economics
Not.
The Wisconsin Tradition in Real Estate and Urban Land Economics
• Richard Ely (taught 1892‐1925)• Richard Ratcliff (taught 1944‐71)• Richard Andrews (taught 1950s to 1970s; remained
active until his recent death)• James Graaskamp (taught 1960s to 1988)
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A “stylized” R
ichard T. Ely
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Ricard T. Ely
• (Thanks to Wisconsin Historical Society for some of the photos!)
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Ely on Urbanization and Urban Land
• Richard Ely established the urban land program in 1920, the real estate program in 1932. (He also found time to help found the American Economics Association, and be accused ‐‐and acquitted ‐‐ of “sedition”).
• “Under all, the land.”• His chapter on "Urbanization and Urban Land," from his
textbook with George Wehrwein, discusses historical vs. economic approaches to urbanization, urbanization and economic development, alternative land uses, public regulation of land.
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“The Ely trial was dramatized on "Profiles in Courage," the 1960s television series based on the book by John F. Kennedy. Here, as captioned by NBC, "Dan O'Herlihy as Prof. Richard T. Ely and Marsha Hunt as his wife, await the decision of a committee that will affect his future career." Playing Oliver E. Wells in the episode was Edward Asner, later television's "Lou Grant." Leonard Nimoy of "Star Trek" fame was also in the cast.” (Source: Harry Miller, Sifting and Winnowing, Academic Freedom and the Ely Trial, Wisconsin Public Television)
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Richard R
atcliff
Ratcliff on Urban Land Economics
• Richard Ratcliff built up the program from 1946 to 1964. Wrote the classic text, Urban Land Economics, among others.
• His "Foreword" to Goldberg and Chinloy's Urban Land Economics emphasized "land as a joint product:" productivity requires the application of other factors of production. Analyzing land for particular uses is quite different than analyzing land in the abstract. This is where urban land economics departs from the earlier classical tradition.
• Ratcliff, and those who follow, also emphasize dynamics of land markets, and the related institutions society develops. Their approach is heavily inductive.
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Richard A
ndrews
Andrews on the Place of Urban Land Economics
• Richard Andrews taught 1948 to 1981. Student of Ratcliff, pioneered economic base analysis, public policy analysis, refined and extended concepts of land use succession and situs.
• How does "urban land economics," as the tradition has evolved at Wisconsin, fit in to a broader view of related disciplines?
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Economics
Urban Economics(Economics of
Location)
Urban LandEconomics
Real EstateEconomics
Finance & Investment(Applied
Microeconomics)
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Graaskamp on Real Estate Economics and the Urban Environment
• James Graaskamp taught 1964‐1988, Chair and "Chief" after 1970.
• His class notes on "Real Estate Economics ‐‐ the Next 25 Years" discuss how real estate markets are affected by urbanization, population changes, technological change, fiscal constraints.
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The Real Estate ProcessInfrastructure,direct provision, taxation,subsidy, regulation, define and enforce property rights.
Original source: James A. Graaskamp, Fundamentals of Real Estate DevelopmentGraphic from Shilling, “Real Estate”
Basic Real Estate Relationships, according to Graaskamp
• “Space Consumer Group”– Consumers. Demand.
• “Space Production Group”– Suppliers.
• “Public Infrastructure Group”– Government. In addition to infrastructure provision, govt. taxes, subsidizes, and regulates. Govt. also defines property rights.
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0 200 400 600 800 1,000 1,200 1,400 1,600 Million TL
Economy
Developer
Consumer (Fin.)
Consumer (Econ.)
Government
Cost Benefit
Summary Cost-BenefitAnkara, Case 1 (Prelim.)
Gap between economic &financial consumer benefitsdue to poorly designed in-kind transfer
Project roughly breakseven, to developer,and socially.
A property taxmight help!
Source: Baharoglu et al.
“Someone rolled a rock to the entrance of a cave and created an enclosed space for his family – a warmer, more defensible shelter, distinct from the surrounding environment. This can be called the first real estate development. Since then, real estate activity has evolved and taken many forms to meet the needs of man and his society. Once based on need and custom, real estate is now based on social economics and statute.” James A. Graaskamp, Fundamentals of Real Estate Development.
Links between Tradition and Innovation: Discuss.
Where does a Tradition come from?
Urban Economics:Reading for Life
• Peter Drucker, Innovation and Entrepreneurship. Harper Business, 1985.
Drucker on Innovation and Entrepreneurship
• The unexpected. Shocks. E.g. collapse of subprime markets.• Incongruity. Conventional wisdom confronts reality, forcing a
rethink. E.g. 1987 stock market crash. The Great Financial Crisis.
• Process needs. RTC => CMBS, for example.• Change in market structure. Death of distance?• Demographics. Boomers, Busters, Millennials?• Change in perception. Expectations. Rational? Myopic?
Adaptive?• New knowledge. Well, here we are.
Innovation
• The First Real Estate Curriculum
• Urban Land Economics as the basis for curriculum
• Highest and best use/most probable use
• Front door, back door• “Mr. Cap”• WREAA• Real Estate Club
• Social cost‐benefit• Field trips• Communications• International real estate• Today’s IT: Excel, VBA,
ARGUS• Measuring the markets• AREIT• Regulatory reform
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Values
• Ethical Dealing• Multidisciplinary
Approach• Examine Investments
from Alternative Points of View
• Holistic Decisions• Development and
Finance are Connected
• Sustainability• Prudent, Informed Risk‐
Taking• Outward and Forward‐
looking Orientation• Lifetime Learning• Sifting and Winnowing• Giving Back• Passion
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Reciprocity – a universal value?
• May I do to others as I would that they should do unto me. Plato• What is hateful to you, do not to your fellow man. This is the law: all the
rest is commentary. Talmud, Shabbat 31a• None of you [truly] believes until he wishes for his brother what he wishes
for himself. Number 13 of Imam Al‐Nawawi's Forty Hadiths• Do not do to others what you do not want them to do to you Analects
15:23• And as ye would that men should do to you, do ye also to them likewise.
Luke 6:31• This is the sum of duty: do not do to others what would cause pain if done
to you. Mahabharata 5:1517
Other values?
• Is the “golden rule” the only ethical norm?– What are its shortcomings?– Other ethical principles?
• What else is there?• Which values speak to you?• What have I forgotten?• What, if anything, should be omitted/revised?