Value-Price Drivers - Labor, Material, and Conditions Effecting Them Are Value Drivers

Like any product or service, real estate's value is a function of demand. However, unlike pure service products a portion of real estate's value is driven by new construction cost and replacement cost. Construction cost has a labor component and a land component. Depreciation however is strictly labor and materials. So, when we consider how this component of value will unfold over the coming years we have to consider labor influences and material influences. That is to say we have to focus on how direct labor demand and supply, automation, and commodity material demand and supply will be impacting by the evolving local and global demand factors.

Focusing first on labor, some major trends stand out. First, immigration pressure easing because of falling birth rates globally in developing nations and increasing labor demands in emerging economies appears to be the overriding "megatrend". Because of this, the government projects falling immigration. Second, U.S. population trends point to reduced construction needs for all building types. Offsetting this somewhat, alternative energy, new power grid demands, an aging transportation infrastructure, and growing commodity export demands appears poised to drive new infrastructure development.

Also, an increasingly more affluent global market place portends the resurgence of manufacturing gradually over the coming decades. In net, this probably offers labor demand for 2005 level work and the U.S. labor force continues to grow. In net, labor price pressures as a function of real estate values appears muted tracking inflation rates or trailing those rates slightly with automation, better material solutions, and more renovation / rehabilitation placing some premium on skills in the area over the course of time.

Global commodity demand pressure appears headed consistently higher for the next decade or more as emerging economy and developing economy growth expands. Muting this impact, U.S. demand which historically provided demand momentum remains at a new lower set level as an impact of the post recession consumer, business, and demographic trends and factors. Few consider that the U.S. development stage as an economy fundamentally reached a different point around 1998. Expect flat U.S. consumption demand for the remainder of the decade and perhaps as a consistent condition for much longer. This new event offers the likelihood of commodity price growth above the inflation rate, but not sharply so for the foreseeable future.

In total, the combined commodity and labor price trends suggest near to slightly above inflation driven price increases. With construction costs down sharply from the boom, this combined trend suggests only slowly reaching pre-crisis prices near the end of the decade for new real estate construction.

Blake Ratcliff recommends buying The Warrior's Guide to Rental Investing and Management. Get great investment info here!

Visit http://www.wordclay.com/BookStore/BookStoreBookDetails.aspx?bookid=61268 to buy your copy or you can get the ebook format at http://www.smashwords.com/books/view/19866

Use promo code NQ37G for a 20% discount.