636 Real Estate
the structure of demand. The model implies the
REAL ESTATE
Real estate is a physical and a financial asset. As a
physical asset, it is fixed in a given place, thereby
grounding the economic, political, and social rela-
tions that create real estate. As a financial asset, it
is mobile and tradable: A real estate project might
be sold on completion with additional transactions
(e.g., sales) likely. Real estate is an important sec-
tor of the economy as large amounts of private and
corporate capital are invested in it. The financial
nature of real estate and its economic importance
make it a theme explored largely by economists
and financial analysts who are interested in ana-
lyzing and understanding real estate performance.
Nonetheless, real estate has major physical or spa-
tial dimensions that are best exemplified by the
mantra used to describe the source of real estate’s
value: location, location, location.
Theoretical Approaches
Research on real estate has relied on quite different
approaches: neoclassical, structural, and institu-
tional. The neoclassical approach focuses on the
demand–supply aspects of real estate development
and was dominant until about 1970. Beginning in
the late 1960s and the early 1970s, another set of
approaches emerged. Scholars, drawing on the
writings of Karl Marx, became interested in the
logic of capitalist accumulation as a major factor
in the production of real properties. The forces of
capitalism and its monolithic nature were unpacked
in the 1980s by political economy analyses and
institutional approaches that dealt with the actors
who produce and sustain real estate markets.
Researchers relying on neoclassical approaches
have studied real estate by focusing on market
forces. According to this perspective, in a market
economy, the exchange of products takes place on
the basis of prices determined by the interaction of
supply and demand. In the case of real estate, rent
is the price a tenant pays for occupying a particular
space. The interaction of demand for real estate
and the supply of rental properties determines the
level of rentals. Price is determined by demand, and
supply follows rather than influences demand.
Agents engaging in the real estate process are
assumed to act in unison and react automatically to
existence of a perfect market and the rapid elimina-
tion of any price differences. Both consumers and
producers seek to maximize utility and profitability
and do so within social, legal, or local constraints.
Authors relying on neoclassical frameworks have
increasingly recognized urban specificity as a major
condition shaping the supply of and demand for land
and property. Thus, markets are actually segmented
into submarkets, such as downtown and suburban.
Moreover, property itself is not homogenous but is
instead heterogeneous. Neither is it easily divisible
into small or uniform units; it exists on unique differ-
ent sites, each having its own characteristics.
According to the neoclassical approach, the
density of real estate development is shaped by the
land value gradient or a series of land value gradi-
ents. Transportation lines, which converge at one
location, give rise to what has been referred to as
the peak land value intersection. As a result of
maximum accessibility, land values at the peak
land value intersection are the highest in the city.
Demand for space results in high land costs, which
reflect the potential value of the land if built on to
the maximum allowable extent. In these locations,
the cost of land is the major component of real
estate development. Capital is substituted for land
as large amounts of capital are invested in the erec-
tion of more intensive land uses to compensate for
high land values.
The initial argument of the political economy
approach suggests that, in the long run and in the
absence of profitable investments in the primary
(manufacturing) circuit of capital accumulation,
capital will flow into the secondary circuit, where
capital is deployed in the production of the built
environment. This approach acknowledges the
important role of the state in facilitating real estate
development. Within the political economy
approach, issues of landownership and rent are
emphasized. Instead of the perfect-competition
assumptions built into neoclassical land use models,
this approach emphasizes the power of landowners.
It is suggested that land has a monopolistic charac-
ter. This enables landowners to manipulate or con-
trol the land market by charging monopoly rents.
Advocates of institutional approaches argue that
it is essential to understand the institutional forms,
relationships, and practices of the real estate sector.
The starting point is its institutional articulation

and the networks and relationships between agents.
What is needed is a thick understanding of real
estate that identifies the type and composition of
agents involved in the real estate sector and reveals
the interests and strategies they adopt. The nature
of the relationships between actors, their actual
roles, and their relative influence in the negotiation
of particular projects are analyzed in turn.
These works focus on agents and differ from the
neoclassical and Marxist approaches in being con-
cerned with the details of how the development
process takes place, rather than making generaliza-
tions and engaging in abstractions. Agents are not
treated as homogeneous entities but are clearly dif-
ferentiated. Institutional scholars have noted the
importance of how developers interact with other
intermediaries within the development process.
Classifications of Real Estate Assets
As a whole, urban real estate assets form markets
that are stratified according to type, quality, and
location. Real estate includes several key classifica-
tions. First, a prevalent classification divides the
real estate sector into residential and commercial
assets. Residential assets include multifamily hous-
ing and detached houses, whereas commercial
assets are made of three major property types.
These are retail (e.g., shopping centers), industrial
(factories and warehouses), and office buildings. A
second classification takes note of the quality of
properties. Properties have diverse qualities; some
properties are of top quality in terms of age, facili-
ties, and architecture, whereas other properties
may be older, less equipped with contemporary
facilities, and of poor architecture. Top-quality
office buildings are known as Class A and com-
mand much higher rents than lower quality ones
(Class B or C). Finally, location is of critical impor-
tance. In spite of evidence of globalization, real
estate remains a local business. At the metropoli-
tan scale, office buildings located in the central
business district are different from those in subur-
ban locations. Land scarcity and agglomeration
tend to drive up land prices, producing taller build-
ings that dominate the urban skyline (e.g., lower
and midtown Manhattan, Chicago’s Loop). On
the other hand, land in the suburbs is more easily
available and is also less costly, a fact that makes
development less dense (sprawl) and less tall. The
Real Estate 637
different types of real estate do not negate interde-
pendencies between different property types. For
example, the concentration of office buildings
attracts residential development for office employ-
ees who wish to live nearby; the concentration of
office buildings may also attract hotel develop-
ment that caters to business travelers.
Agents, Time, and Space
Real estate involves numerous agents, such as
developers, architects, engineers, and brokers, all
of whom are vital in the functioning of real estate
markets. The developer is a pivotal agent who ini-
tiates and coordinates the development process.
Developers conceive opportunities for develop-
ment when others are unaware of them. As prop-
erty owners, they also engage in the buying and
selling of properties. Landowners are important
because they hold the product without which real
estate development cannot exist. Leasing agents
and real estate brokers bring together buyers, rent-
ers, and sellers; they match demand and supply. In
addition, city planners and local authorities decide
which projects to approve and thus are capable of
steering property development to different loca-
tions and uses.
Similar to many economic processes, the perfor-
mance of real estate markets is cyclical. This is best
described by building cycles. As a result of the time
lag between initiation and completion of a project,
demand and supply are not fulfilled instanta-
neously. Extensive real estate development for a
specific period usually results in an oversupply,
leading eventually to a decline in new development
as the surplus is absorbed. The 1980s building
cycle resulted in massive real estate development
in many cities across the world. Enormous amounts
of office space were completed in cities such as
London, New York, and Tokyo. This cycle
was followed by a severe downturn during the
1990s; for a substantial amount of time, office
buildings experienced high vacancy rates, and
development was anemic. More recently, stagnant
demand for downtown office space and an
increased demand for housing have led to the
upsurge in residential development in downtowns
and in near-downtown areas.
Real estate markets have been studied at multi-
ple spatial scales because real estate has both
638 Red-Light District
global and local dimensions. The growing open-
ness of the world economy has paved the way for
some integration of real estate markets. The prom-
inent example is that of the Canadian firm,
Olympia & York, which during the 1980s con-
ceived and pursued major real estate complexes in
New York (Battery Park City) and in London
(Canary Wharf). On the other hand, property mar-
kets and particularly property development is a
local business, which is segmented even at the city
and metropolitan scales. Property developers tend
to work in specific places, those that are most famil-
iar to them. For example, suburban developers tend
to work in the suburbs and within the suburban
realm in several specific locations. On the other
hand, downtown developers rarely engage in
development outside the downtown.
Conclusion
The urban fabric of our cities is made of numerous
real estate properties having different shape, archi-
tecture, and meaning. Tall office buildings like the
Empire State Building and Sears Tower define their
cities’ skylines, shopping centers are the definitive
consumer spaces, and houses make neighborhoods
and residential landscapes. In spite of being largely
a local business, real estate development has made
cities look more alike. It follows fundamental rules
enhanced by the spread of capitalism and thus
increases the tendency of cities to converge.
Igal Charney
See also Developer; Growth Machine; Land
Development; Rent Theory; Urban Economics; Urban
Planning
Further Readings
Ball, M. 1996. “London and Property Markets: A Long-
term View.” Urban Studies 33:859–77.
Beauregard, R. 2005. “The Textures of Property Markets:
Downtown Housing and Office Conversion in New
York City.” Urban Studies 42:2431–45.
Fainstein, S. 2001. The City Builders: Property, Politics,
and Planning in New York and London, 1980–2000.
Lawrence: University Press of Kansas.
Feagin, J. R. and R. Parker. 1990. Building American
Cities: The Urban Real Estate Game. Englewood
Cliffs, NJ: Prentice Hall.
Harvey, D. 1985. The Urbanization of Capital: Studies in
the History and Theory of Capitalist Urbanization.
Baltimore: Johns Hopkins University Press.
MacLaran, A. 2003. Making Space: Property Development
and Urban Planning. London: Edward Arnold.
RED-LIGHT DISTRICT
Red-light districts are areas in cities or towns that
are themed around sex. They consist of clusters of
activities or individuals and can be widely known
outside the immediate area. The definition of red-
light district has varied by place and time. They
may be characterized by prostitution alone, but
some districts have few or no visible prostitutes
and consist of entertainment or other services.
They can be characterized by entertainment of a
sexual nature or by ancillary services related to
sex, including the sale of books and videos, sexual
aids, and clothing of a sexual nature.
The origin of the term is uncertain, but even
today, districts in some cities, such as Amsterdam,
are characterized by red lights in shop windows
occupied by prostitutes, which are lit to indicate that
the shop occupant is working, but busy. The nature
of the district depends on the cultural and legal con-
text. In some countries and cities, prostitution is
legal, but authorities restrict open prostitution to just
a few areas. In others, it is tolerated but illegal, and
in some, it is strictly forbidden. Red-light districts
have often been associated with ports, railway and
bus terminals, or hotel districts, particularly those
visited by large numbers of single males.
Historical Development
Throughout history, red-light districts have been
features of cities. For example, in seventeenth-
century Japan, the Tokugawa Shogunate created
special districts for prostitution in cities, including
Yoshiwara in Tokyo, Shimbara in Kyoto, and
Shinmachi in Osaka. By the end of the nineteenth
century, the one in Tokyo had some 9,000 women;
it finally closed in the 1950s. Sociologists and their
precursors have written about red-light districts
since the nineteenth century. In 1925, Park and
Burgess included a “vice zone” in their description
of Chicago. Red-light districts were (and are) often