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CHAPTER IV. ECONOMY OF THE HOUSING MARKET AREA The analysis of local housing market conditions and prospective demand for additional housing is dependent, basically, on an analysis of the economy of the market area. Before any analytical work can be done on other facets of the market analysis, therefore, the economy of the area must be analyzed with the objective of projecting economic prospects in terms of employment. This dependence is inherent in the simplified relationship of the major quantitative forces leading to demand for additional increments of housing; i. e., employ- ment opportunities are the principal determinants of population growth; popu- lation growth; population is translated into households; and households are the units of demand for housing. VWnether additional housing is economically feasible to meet this demand depends, of course, on the quantitative and qualitative adequacy of the existing supply of housing and the capacity of the households to pay for the increments required. Housing market analysis may be described briefly as a process of determini~g present and prospective housing demand-supply relationships in a local housing market, subject to change because of unforseen developments. Its principal objective is the estimation of housing demand in quantitative and qualitative terms for the housing market as a whole or for major geographical subrnarkets. It entails an evaluation of the ascertainable current and pro- spective dynamic forces affecting economic, demographic, and housialg con- ditions and inventory trends. It proceeds in a systematic fashion, embracing thc collection, recordation, processing, analysis, and interpretation of data and inforllnation pertinent to, and the presentation in a documented report of findings and conclusions concerning, past and prospective economic, population, and housing conditions and trends in the local market; and it requires the derivation of current estimates of employment, family incomes, population, households, residential construction, and vacancies. The estimates of demand derived by the study are not to be construed as forecasts of building activity. Itl addition to these local factors, external influences--state, regional, national and international--also affect the economic life of a community and must be taken into account. Furthermore, short-term variations between estimated demand and actual production can always be accommodated within a housing market, especially in larger communities, by adjustment of holding or absorption, periods causing a variation of existing vacancy ratios. Sustained differences between demand and production must eventually lead to significant changes in vacancy levels (either up or down) and corresponding impact on rents and prices, on employment, and on housing production and marketing. In broad terms, housing market analysis is concerned with the following subject matter: