A market analysis helps the developer determine whether there is a demand for their housing project and what the range of achievable sale price is. A market analysis can be defined as a study of the general housing market conditions in a specific area. The market analysis is not only an effective planning tool. It tests and verifies certain assumptions about the development project and quantifies such existing market conditions as:
 Local economy and demand for housing |
|
| Real estate activity for both sale and rental units |
|
| Commercial market activity |
|
| Social and quality of life issues that may impact property values and market activity |
Many lenders and public sector funders require a market analysis for larger or more complex housing projects.
What does a market analysis contain?
The lender will be interested in the following types of information in the finished report:
| Real estate and housing market |
|
| Economic conditions |
|
| Neighborhood conditions |
|
| Demographics for the area |
|
| Competition and comparables |
|
| Local political climate |
A full market analysis can be completed by hiring a professional consulting firm that specializes in this type of study (usually at a cost of between $3,000 and $10,000). If the requirements are scaled back for the scope of the market analysis, it can be done in-house for considerably less.
A full market analysis is performed when:
| It is required by the lender and or government funder
|
|
| Twelve or more houses are being developed (i.e. more financial risk associated with the project)
|
|
| The project budget can support the expense as a development cost
|
An "in-house" market analysis is completed by Community Development Corporation (CDC) staff (who coordinate the required market information obtained from local professionals) and is performed when:
| Information included in the full market analysis can be obtained by realtors, appraisers and local sources such as studies from universities, Chambers of Commerce and city planning departments |
|
| Detailed construction documents, drawings and specifications have already been obtained to describe the completed housing units down to the finest details |
|
| Detailed market information such as development costs, sales prices and absorption rates is readily obtained |
The following is a list that should be included in any housing market analysis:
| Real
Estate Housing Market Analysis - This section of the marketing analysis
addresses the current housing conditions of the area.
|
|
| Economic Conditions - This analysis of economic conditions should include County or City information followed by the specific census tracts of the target neighborhood. |
|
| Neighborhood Conditions - What is the physical infrastructure of the neighborhood? |
|
| Demographics of the Area - Who lives in your community? |
|
| Local Political Climate - Affordable housing production is contingent on support from local government. The local government serves as defacto gatekeeper for access to subsidy and facilitation through zoning and building approvals. |
| Referrals from other private or non-profit developers who develop affordable housing |
|
| Referrals from real estate lenders |
|
| Local government subsidy sources |
|
| Financial
intermediates such as Ohio Capital Corporation for Housing, Local Initiatives
Support Corporation (LISC) and the Enterprise Foundation
|
|
| Lists of approved firms providing market analyses from funding sources such as Local Initiatives Support Corporation (LISC), the Enterprise Foundation and government agencies |
Scope of Services for the Market Analysis
The CDC should request a scope of services from any professional hired to provide a market analysis. The CDC should be prepared to provide the professional with specific boundaries of the proposed Target Area including a description of what the CDC seeks to develop and a profile of the target market.
For a list of items to be included in a scope of services see A3. Scope of Services
What a lender looks for in a market analysis:
| Who performed the analysis and what experience they have had with similar projects |
|
| How recently was the analysis conducted (within 6-12 months is acceptable) |
|
| The scope of analysis |
|
| The methodology of how the analysis was conducted |
|
| Is the developer proceeding with a project that is in accordance with the conclusions of the market analysis? Is it enhancing the original development concept with the findings contained in the analysis? |
Helpful tips for the non-profit community developer
1. Do the market analysis! The community developer often considers eliminating this activity to save money, but without a sound plan, the success of the entire project could be at stake. This is particularly true of inexperienced developers. It is better to have spent money to determine that the project is not feasible, than to spend time and money on a project that fails to sell.
2. Ask other developers similar to your organization for referrals. This helps reduce the risk of selecting an inappropriate firm and provides you with a list of market research firms that may have specific experience in Homeownership/Community Development.
3. Exercise caution when the consultant performing the market analysis asks you for too much of the information. If you can obtain this information, it is likely that an "in-house" analysis with the cooperation of an appraiser and realtor can be done at much less cost.
OHIO CAPITAL CORPORATION FOR HOUSING