The Market Context of Development Activity

This paper exarnines property development from an institutional economics perspective. The main focus is the property market as an institution, i.e. as a set of formal and informal rules goveming the behavior of diverse property market actors. Based on previous work by the authors, development is explored in the context of an institutional hierarchy in which three main levels can be identified. In this frarnework, property development is a property market activity involving the participation of a variety of property market actors ( eg landowners, developers, planners, construction companies, financial institutions, etc). Using the British office market as a case study, the chapter examines the changing institutional context of office development over the last 50 years. During that period the broad institutional environment has changed significantly in terms of the prevailing economic, social and political conditions, and the behavioral assumptions they give rise to. Reflecting those changes, the property market, including the supply of new property through the development process, has also been transformed. The way in which the property market delivers and transacts new property has changed, for example as development activity has become more or less speculative. The nature of the actors involved in development has changed, for exarnple as financial institutions have become more or less involved in direct development, or as property companies have switched between development for investment clients and development for their own portfolio purposes. This paper attempts to explain these institutional changes and their impact on development activity, addressing directly the 'institutional factors', which are largely unexplained in conventional quantitative models of property development. The result is an explicit treatment of 'property market process' as a mediator of economic change.