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Without jobs, wage earners have no financial ability to make rent or mortgage payments. Thus, the unemployed cannot occupy any type of residential property. Without jobs to provide work, businessmen have no need to occupy and use commercial space, office buildings, warehouses for inventory and distribution, or industrial buildings for production.

The demand for all types of improved real estate rises as the number of local jobs increases (as during a boom). Additions to the local labor force initially drive up rents and prices of properties in the vicinity. On the other hand, a decline in the number of local jobs reduces the need for all types of real estate (as during a recession). Reductions in local employment lower rents and prices paid by tenants and owners for the occupancy and use of real estate.

The current trend of individuals employed in a region sets the direction for:

• the volume of rentals and sales in the local real estate market during the following 12 to 18 months; and

• the movement of rents and prices paid for the use and occupancy of all types of real estate during the next 24 to 30 months.

Other jobs issues which affect the level of rents and prices paid for property include:

• quantity of employed individuals;

• quality of jobs available; and

• type of jobs existing and developing in the local market.

Quantity of employed individuals: Historically, jobs in California create homeowners and tenants on a 50:50 basis, with half of all households owning the residence they occupy and the other half renting it. The appreciation or depreciation in property values is triggered by increases or decreases in local population density and the economics of the jobs held by the local population.. The unemployed, the under-employed, and the rate of unemployment is of no concern to the real estate market as these populations do not rent or buy real estate as do job holders and their employers.

Quality of jobs: Pay rates for employees, permanence of employment, and travel time from residence to place of work affect the level of all local property values, be they amount of rent or purchase price.

Types of jobs: A diverse group of employers gives a community buffers against fluctuations in employment in any one sector of the local economy. Likewise, a wide variety of small local businesses favorably affect the value of local property by increasing the amount of rent and the price paid for that property. In contrast, the community beholden to the “company store” environment of few types of jobs provided by a couple of large employers or a single segment of industry have reduced levels of rents and prices for comparable improvements in communities with a more diversified base of employers.

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Copyright © 2012 by first tuesday Realty Publications, Inc. Readers are encouraged to reprint or distribute this information with credit given to the first tuesday Journal Online — P.O. Box 5707, Riverside, CA 92517.

Tagged as: mortgage, residential property, tenant