Real estate development industry structure: Is it competitive and why?

21 Feb 2007

Although the real estate development industry is a very large industry and a major shaper of the built environment, planning, the discipline concerned with regulating development, has shown remarkably little interest in matters of development industry structure, little is known about the industry’s structure and little exists of a quantitative nature to describe that structure. Based largely on a review of existing literature and a case study, this paper investigates the nature of development industry structure and suggests that it is not necessarily a competitive industry and, in some instances, can be highly oligopolistic. The paper discusses factors that may shape industry structure including how regulation (planning) can be an important influence. In the conclusion the paper briefly points out that development industry structure should be an important issue for planning and that it has implications, worthy of investigation, for the form and structure of cities, for sustainability and for power relations with industry regulators Introduction Industrial economics deals with issues of market structure; how, why and to what effect industries range from competitive to monopolistic. The structure-conduct-performance framework within industrial economics posits a relationship, no longer considered unidirectional, between its elements (Martin, 1994; Shepherd, 1997). Industry structure (the number and size distribution of firms) affects industry conduct (strategic behaviour including advertising, ability to influence supply and collusion) which affects industry performance (e.g. efficiency, price, quality of product, innovation). Concern with market structure predates modern economies and is ongoing. Aristotle cited instances of monopoly power in 347 B.C. (Aristotle, 1921, Book 1 Chapter 11) while officials in ancient Rome, pre-classical Greece and the early middle eastern cities had to deal with monopolies (Shepherd, 1997, 22). Last year the Australian Federal Government proposed changes to the Trade Practices Act to apply criminal penalties to leaders of firms found guilty of serious cartel conduct and to afford protection to whistleblowers (Butterly, 2005). Policy and industrial economics scholarship have focused on some sectors like media, agriculture (agribusiness), transport (particularly airlines) and retail food outlets (Shepherd, 1997) but very rarely on real estate development. This suggests that development is considered a competitive industry and that the supply of buildings and land is unproblematic. This oversight is of concern given that development is a high value industry


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