We talk about sustainability, livability, and land use to describe a project, but we often avoid the profitability, capital gains, and externalities that go along with them simply because we don’t know how to use the terms. Architecture doesn’t exist outside of the economy and in fact, how we build each building directly affects the economy of our cities.
As a profession, architecture acts as the mediator between different specialties, and it is very important to speak the official language of each of them. This article will help you easily understand some basic economic concepts that relate to architecture.
Real Estate
Goods that have a fixed position in space and cannot move. So land, buildings, farms or other types of constructions (basically, architecture).
Community Space
Property whose enjoyment is not unique to an individual. Parks and public spaces fall under this category.
Housing Bubble
Excessive and unjustified increase in real estate values, usually caused by speculation. The housing bubble of 2008 was caused by speculation as a result of fictitious mortgage payments (people paid their credit with more credit) making it seem as though market demand continued to grow.
Opportunity Cost
The maximum profit that could have been obtained from investing in other options aside from what you did invest in.
Economic Cycle
The stages of expansion and contraction in economic activity experienced by industry, a fact that occurs at certain periods of time.
Mortgage Loan
A loan in which the payment of interest and principal is guaranteed by the property registration. Most construction is financed in this way.
Commodities
Primary goods traded internationally. For example: grains, metals, energy products (oil, coal, etc.) coffee, cotton, etc. Construction depends mostly on these goods and a rise in price of these will directly affect the price of a work we are building.
Savings and Loan Corporations
Financial institution whose function is to promote private savings and helps to drive the construction industry through mortgage loans. Profits are earned through savings accounts, ordinary deposits and term deposit certificates.
Externality
Benefits or social costs arising as a result of a private activity for parties not included in this activity. An example of a negative externality is traffic produced by a building with a lot of parking, where damage is suffered by the neighborhood, but is not an expense that the private producer paid accordingly.
A positive externality was the increase in tourism generated by the construction of the Guggenheim Museum in Bilbao, which meant an increase in hotels, sales, restaurants, etc.
Demand
The quantity of goods or services which are desired by a market. For example how many people are looking for housing at one time.
Depreciation
Loss of value of an asset (house, car, household appliances, etc.) due to use and function, which can not be compensated for by repairs, maintenance or even by replacement of all components.
Economies of Scale
Any production situation in which the cost per unit produced decreases as the number of units produced increases.
Architecture often fails in this area as in many cases mass production reduces quality.
Investment Expenditure
Public spending with the intent of improving public capital; public infrastructure such as schools, national roads, and parks.
Investment
Placing funds in a project (operational, financial, real estate, etc.) with the intention of making a profit in the future.
Supply
The quantity of goods or services that are available to be sold in a market. For example the number of apartments for sale in a city.
Mortgage-backed Security
Participation by a third party in a certain percentage of a mortgage. Often used in the construction of large infrastructure works, construction or acquisition of high-value buildings.
Capital Gain
The increase in the value of an object for reasons extrinsic to them.
The existence of a park brings increased value of property next to it, since most people prefer to live near a public space.
Cost Effectiveness
The relationship between the utility provided and invested capital (income - expenses).
Economics tells us that higher habitability means higher returns (the more I build more I can sell). However this creates cities without design criteria and little habitable value.
Appraisal
Report or document to determine the value of property on the market in relation to supply and demand at any given time.
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