Market capacity modeling does not take into account all factors
Market capacity is the aggregate effective demand of buyers for a particular product at the current price level. Market capacity depends on the market demand for a given product or service, as well as other factors. These factors include: the degree of development of this market; appearance on the market of similar or other products with similar characteristics elasticity of demand and price level; changes in macroeconomic indicators; product quality; the effectiveness of market promotion and advertising costs. The general formula is proposed (1):
E = MxC (1),
where M is the amount of goods sold per year (units) and C is the cost of the goods. This formula can be modified by adding rate or frequency of purchase of goods per year or period.
Especially difficult is the determination of the capacity of the residential real estate market due to the lack of methods for calculating this indicator adapted to this market. It should be noted that in relation to the residential real estate market, the market capacity can be both in physical terms (square meters) and in monetary terms. The capacity of the residential real estate market can be calculated using the following formula (2):
E = E0xK1xK2xK3 (2),
where E0 is the capacity of the residential real estate market per year;
К1, К2, К3 - the coefficients of reduction (adaptation), conditioned by the main factors influencing the demand in the residential real estate market.
The following factors were identified as the reduction factors, which, in the opinion of most analysts, have the maximum impact on the demand in the Russian residential real estate market: population of cities, average per capita money income (per month); average prices for 1 sq. m of living space. The population of the city shows the potential level of demand, the average per capita money income (per month) reflects the purchasing power of the population and the average price for 1 sq. m of living space characterizes the value of residential property in a particular municipality. So, as K1, K2, K3 can be taken according to the ratio of the population of the region to the population of the country; the second coefficient of reduction, equal to the ratio of the average per capita money income of the population (per month) of the region to the average per capita money income (per month) in country and etc.
The problem I see is that there is usually no unique formula. Each market capacity formula for each region or city should be unique. Hence the need for capacity modeling in particular case. It is also important to take into account the share of household expenditures on housing and utility payments, average per capita cash income, GRP per capita, investment in fixed assets per capita; debt on loans in rubles provided by credit institutions to individuals under the mortgage, the total area of residential premises.
One of Russian real estate elements (average prices for 1 sq. meters) we can describe as following (3):
y=27900,54+0,5×x1+5×10^(-9)×x5+11785,56×z1 (3),
where y — average prices for 1 sq. meters of housing in the primary housing market; x1 — average per capita cash income (rubles); x5 —debt on loans in rubles provided by credit institutions to individuals on a mortgage (rubles); z1 —whether the regions are in the top 15 most economically developed regions of Russia (RIA rating) — if yes, then 1, otherwise — 0.
For Russian real estate market it is also known that the average price level of 1 sq. meters of the total area of apartments in the primary housing market positively linearly above all depends on the average per capita income, on the status of the region being in the top 15 most economically developed regions of Russia and mortgage debt. With an increase in average per capita income by 1 %, the average price level of 1 sq. meters of the total area of apartments in the primary housing market is increased by 0.5 rubles. When the region enters the top 15 most developed regions, the average price level of 1 sq. meters of the total area of apartments in the primary housing market increases by 11786 rubles for each place.
Today Russian housing market fueled by very low interest rates, continues to strengthen. An active Central Bank interest rate policy to counter the economic impact of the COVID-19 pandemic is driving the housing market to grow.
