Real estate development, or the process of land development to construct commercial and residential buildings, shapes tomorrow’s urban scene. This is because real estate development governs future land-use and the associated spatial distribution of jobs and houses. As such, it provides public planners with an instrument to steer urbanization. More specifically, real estate development allows public planners to provide residents with a sense of cohesion and security, to contribute to job creation and a more prosperous and viable economy, and to a more sustainable and energy-efficient built environment (Power 2004). As a consequence, real estate development is intrinsically linked to almost every major area of government policy (see, for the Netherlands, Rijksoverheid 2012). A specific public policy aim is to improve the conditions in which people live, work and relax, suggesting a spatial link between residential and commercial real estate development. The focus of this paper is on the relationship between commercial and residential regional real estate developments.
To address this issue, we build upon the literature regarding the spatial distribution of jobs and people. First, we draw on the planning literature that addresses how urban planning and development management affects the job-housing balance (where people live and where they work) and associated implications for future commuting patterns (see Cervero 1995; Zhao et al. 2011). This so-called job-housing balance, which measures the distribution of employment (jobs) relative to the distribution of workers (households) in terms of spatial proximity, depends on the relationship between commercial and residential real estate development. Urban planning and development instruments, such as zoning, height and density restrictions and growth moratoria, all influence commercial and residential real estate development. These regulations typically also regulate land-use and thereby land-use changes, implying that commercial and residential real estate developments competeFootnote 1 (see Evans 2004) in terms of land, labour and development finance (Meen 2002). Such land-use regulations create a substitution (crowding-out) effect between commercial and residential real estate development activities and thus affect the distribution of where people live and work.
Second, the geography and economic literature addresses how people and firms make locational choices. These studies stress the behavioural and dynamic relationship between jobs and people, and question whether people follow jobs, or jobs follow people (Hoogstra 2013). Haig (1926) argued that space and time constraints result in people and jobs being within close proximityFootnote 2. In addition, Papageorgiou and Thisse (1985) suggest that households are attracted to places with a high density of firms (agglomeration economies) because of better job opportunities. Furthermore, the literature also suggests that firms are attracted to places with a high density of households because the generated business volume is expected to be higher. In other words, employees (households) want to live in places with many good choices of work, while firms like to locate where many good potential employees live. So firms will locate near people and people will locate near firms, creating a complementary effect in the relationship between commercial and residential real estate developments, and thus where people live and work.
Studies on the relationship between commercial and residential real estate developments have considered whether commercial and residential real estate developments substitute or complement each other, and contradictory findings can be observed. Green (1997) concluded that commercial and residential investments are positively correlated over time,Footnote 3 with Coulson and Kim (2002) finding similar results. Wigren and Wilhelmsson (2007), however, found a crowding-out or substitution effect within the European construction industry. Meen (2002)Footnote 4 who had considered industrial real estate development had suggested something similar in the relationship between industrial real estate and residential real estate development. Gyourko (2009)Footnote 5 noted that although commercial and residential real estate markets do show differences they indeed share fundamentals suggesting a substitution effect between commercial and residential real estate developments.
We contribute to this debate by considering whether commercial and residential real estate developments are complementary or substitute for each other. We consider the relationship between commercial and residential real estate developments on a regional level. Following Broitman and Koomen (2014), we believe that it is important to disaggregate national level data to regional areas as real estate development differs substantially over space. Disaggregation is important as political and economic conditions, including supply, agglomeration economies, land use regulations and local governments, play an important role (Mayer and Somerville 2000; Vermeulen and Ommeren 2009). As such, addressing the relationship between commercial and residential real estate developments on a regional basis will enable the measurement of any regional substitution or complementary effects in that relationship and thus in the spatial distribution of jobs and households.
The remainder of this paper is organized as follows. First, in Sect. 2 below, we describe the main trends in the data. Section 3 then presents the empirical methodology to model the relationship between commercial and residential real estate development. Section 4 presents the empirical results, and our conclusions are presented in Sect. 5.