UNIVERSITA’ DEGLI STUDI DI CAGLIARI

Dipartimento di Ingegneria Civile, Ambientale ed Architettura.

ARGIOLAS M. – COPPOLA K. – CRUCCAS A.

Seventh International Conference on Informatics and Urban and Regional Planning (INPUT 2012)

10-12 May 2012 Cagliari

INTRODUCTION

This paper proposes the last implementation of a new approach to

evaluate property’s acquisition risk that does not rely on a

standardize appraisal indices analysis.

The proposed Geographical Information System is able to

investigate the historical variation of some real estate marketinvestigate the historical variation of some real estate market

indicators and to let the final user appraise the general level of

real estate investment risk, by converting and extending classical

R.E. market monitoring parameter into user-friendly spatial maps.

INTRODUCTION

Despite the heavy impact of the real estate market crisis that hit both

the U.S. and a part of European market, public real estate market

monitoring systems did not show a substantial evolution.

In addition, before the sub-prime scandal and the related fall of real

estate values, buying an home has always been considered a low riskestate values, buying an home has always been considered a low risk

investment. Today this conviction has been at least scratched by the

actual property market condition: the medium US house price is 40%

less than five years ago .

INTRODUCTION

In 2004 R. J. Schiller, surprised by the fact that did not exist an index able to

represent the historical trend of property values in the United States, has

developed an index of average market prices for the most representative

contexts U.S. cities covering the period from 1890 to nowadays . The index

has been acquired by Standard and Poor's which is currently in charge of it.

INTRODUCTION

Many economists have identified the main cause of recent global real

estate market crisis in the poor diffusion of systems capable of

monitoring the historical property values and in the lack of public

awareness about the risks of real estate investments crisis (Ref. Rocca

Bardhan).

INTRODUCTION

In 2010 a study made by TIME magazine regarding homeownership over

the world shows that homeownership is not necessarily a synonym for

economic wealth. In Switzerland, one of the world richest nations, the rate

of homes that are owner-occupied is about 34,6%. Italy and Spain have one

of the highest European rate of homeownership, but they have just the,

half of Switzerland’s GDP per capita.

In 2008, J.R. Munch et al. studying the relation between home ownership,In 2008, J.R. Munch et al. studying the relation between home ownership,

job duration, and wages claims that “positive externalities associated with

home ownership has been used to argue for favorable tax treatments of

home owners, our results suggest that there are also significant labor

market gains associated with home ownership”.

METHODOLOGY

In the last few years, it was possible to learn that, nowadays, real estate

market fluctuations associated with global variables can lead to an

immediate change in in the housing market: the risks associated with

the variable "local" is more predictable and generally tends to affect the

market with less intensity.

For these reasons, the methodology for measuring the risk connected to

property investment is multifaceted and still not consolidated. This lack

is significant, especially for housing market, because it often leads

common people to do an investment without knowing what can arise

from an accurate market analysis. (Shiller, 2008)

METHODOLOGY

An housing market bubble consists essentially in a growth of property

values far beyond the threshold of local population economic

sustainability.

Even through a simple study of the historical relationship between the

average price of a house and the median household income, it wasaverage price of a house and the median household income, it was

possible in 2006 to identify the presence of a speculative bubble in

some US metropolitan areas (Marchi, Argiolas, 2006). From this point of

view, the solid and always valid parameter of the Housing Affordability

Index (HAI) can be an absolute reference point to identify real estate

bubbles.

METHODOLOGY

The Annual Demographia International Housing Affordability Survey

(2008) identifies five different categories of purchase accessibility in

house property market. Obviously, an high ratio between the price of a

property and the average income of an household is a symptom of a

general economic unsustainability in property acquisition and,

consequently, it will be higher the possibility of a real estate housingconsequently, it will be higher the possibility of a real estate housing

market bubble. This ratio is often measured taking in account the

mortgage payment rate.

METHODOLOGY

The innovative aspect we want to analyze in this paper, concerns the

study of the ratio between different Housing Affordability Index that can

be found in the same urban environment. To achieve this target we

must assign a spatial component to HAI indicators associated with the

current market supply or to recent market sales.

By a practical perspective, this goal can be reached through the use of

GIS applications directed to the study of the real estate market. In this

case, we started from a historical study of property values in Cagliari

(Italy) during the decade between 1999 and 2009.

VALUE GIS

METHODOLOGY

Why VALUE GIS ?

-Low-cost (google fusion tables)

-User friendly interface

CASE OF STUDY

The main purpose of this application is to make a spatial analysis of

housing market property affordability over the last ten years, in the

town of Cagliari, Italy (circa 400,000 inhabitants considering the

metropolitan area).

As noted previously, the analytical method used in this work is the result

of a continuous development. The last one, described in this paper, hasof a continuous development. The last one, described in this paper, has

extended the area under study by adding more data related to the

neighboring municipalities of Cagliari.

This extension has made it possible to check the levels of residential

properties’ purchase affordability both in the intermediate and

peripheral zones of the metropolitan context. This goal was achieved

analyzing the correlation between the buying power of the richest

municipalities inhabitants and the market values of the most prestigious

areas in the whole metropolitan context.

CASE OF STUDY

QuartucciuQuartucciu

SelargiusSelargius

MonserratoMonserrato

PirriPirri

CagliariCagliari

Quartu S.ElenaQuartu S.Elena

CASE OF STUDY - REAL ESTATE MARKET VALUES

CASE OF STUDY - REAL ESTATE MARKET VALUES

CASE OF STUDY - REAL ESTATE MARKET VALUES

1.100,00

1.300,00

1.500,00

1.700,00

1.900,00

2.100,00

2.300,00

Cagliari

Monserrato

Pirri

Quartu

Quartucciu

Selargius

500,00

700,00

900,00

1.100,00

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Selargius

Sources:

-Data published from public official sources like “Agenzia del Territorio”

and Cagliari’s Chamber of Commerce

-Data processed by Laboratorio di Estimo Facoltà di Ingegneria di

Cagliari

CASE OF STUDY

To calculate Spatial Housing Affordability is therefore necessary to know

both the average property market values that the medium family

income. The last dataset was built using various sources:

- Data from Italian Department of Economy and Finance, processed by Il

Sole 24 Ore (http://www.ilsole24ore.com/)

- Data published by the website site-www.comuni italiani.it and Centro - Data published by the website site-www.comuni italiani.it and Centro

Studi L'Unione Sarda

Starting from the average gross revenues it is possible to obtain the

average net income by applying the corresponding rate tax.

SOCIAL CATEGORIES AVERAGE INCOME AND RELATIVE PROPERTY TARGET

young single

worker who buys a 60 sqm

apartment

male single

worker (low-

income) with a wife and 1 child who buys an 80 sqmapartment

bi-income young couple with 1

child who buys an

apartment of 90 sqm

Male single

worker (medium-income)

with a wife and 2 sons who buys

an apartment of 90 sqm

Bi-income and

wealthy couple

that buy an

apartment of 90 sqm

CASE OF STUDY - AVERAGE INCOME

18.000,00

20.000,00

22.000,00

Cagliari/Pirri

10.000,00

12.000,00

14.000,00

16.000,00

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Monserrato

Quartucciu

Quartu

Selargius

RESULTS

The results show that the Housing Affordability Index express a

considerable difficulty of the local community in the acquisition of an

suitable housing unit. This feature is due to the fact that during the

period from 1999 to 2010 property prices rose by about 109,4% while

the average income (+34%), population (-6,8%) and construction

costs(+37,7%).

RESULTS

RESULTS

RESULTS

RESULTS

CONCLUSIONS (1/4)

From a market appraisal point of view, results show that the

analyzed housing market is slowed down and its future will depend

from the short/medium-term economic trend: if the economic crisis

will be resolved quickly the market will slowly take a breath and

settle down to values sustainable by the local community,

otherwise it will be a significant decline in average selling pricesotherwise it will be a significant decline in average selling prices

that could lead to a local real estate market crisis, absolutely

unimaginable until few years ago.

If we consider the 1999 HAI as the normal ratio between median

income and house price, market price need to drop by almost a 40

percent.

CONCLUSIONS (2/4)

With the introduction of IMU, the new italian real estate tax,

it is possible to expect a 20% average property market price

fall , with picks up to 50%.

This quite alarming synthesis, obtained from a recent issue ofThis quite alarming synthesis, obtained from a recent issue of

the magazine ”Outlook sui Consumi”, a pubblication of a

mayor italian institute of statistic (Censis Confcommercio),

from a sample of 1200 households.

CONCLUSIONS (3/4)

From a methodological point of view, the proposed system allows to

access to the created information in an easy and quick way and to

perceive the real estate market conditions and risk. However, future

developments will allow to improve the quality of the information

collected.

In particular, among the future goals, it plays a crucial role the study of

the spatial dimensions of the Housing Affordability Index. In fact, it will

be possible to study not only the specific value of HAI reported to each

homogeneous area, but it will be possible to quantify the risk

considering the whole urban center, analyzing the historical variation of

the quota of "affordable" areas by adding a space component to the

Housing Affordability Index.

CONCLUSIONS (4/4)

In this way, the final user will be able to understand how much of the

urban area is available for purchase depending to the social category

considered. This implementation will allow an easy comparison between

different municipalities’ inhabitants and may therefore be perceived

level of "openness" in buying properties offered by various cities.

The next step in this study will permit a study of the market offer by a

web related application that allows to extract, in a semi-automated way

digital data banks containing the market values of items offered on the

market. This system will let the final user to be aware of the actual

market situation of an urban center in real time.