demand for professional education: Evidence from the Dutch real estate industry, The

Journal of Real Estate Practice and Education, 2003 by Hakfoort, Jacco, Berkhout, Peter, Manshanden, Walter

Executive Summary. This study analyzes the demand for professional education in the Dutch real estate industry. The research is based on a survey among managers of six types of real estate firms, alumni of the main postgraduate course in The Netherlands and persons that have shown an interest in following such a course. The results suggest that human capital and signaling arguments are the most important motives for real estate professionals to take part in real estate courses, while firms are motivated by screening and firm capital arguments. The specific institutional characteristics of the Dutch market for real estate education suggest that there might be a role for interest groups or professional institutions to regulate this market.

Introduction

What explains the demand for education? Why do individuals spend time and money on education when there are obvious opportunity costs to this behavior? Neo-classical economic theory provides a possible explanation. It assumes that individuals are utility maximizers. If education would not provide utility, there would be no demand for it and the market for education would not exist. As a result, education must provide some benefits.

According to the so-called human capital theory, the utility derived by participating in education is partly enjoyed in the short run; there is a consumption element in education derived from the pleasure of learning. However, the demand for education is also motivated by dynamic considerations. Education can be regarded as an investment of current time and money for future (additional) income that is the result of an increase in productivity. Empirical research in this area has tried to identify the impact of education, training, working experience on wages, the optimal level of schooling given social background, tuition costs and ability (Oosterbeek, 1992).

However, other economists have criticized the assumptions of human capital theory. These authors argue that education merely serves as a signal to employers of the innate capabilities of an individual, or as a selection mechanism of employees for different positions in the firm. These alternative economic explanations of why people participate in education are known as the signaling model and the screening model, respectively (Johnes, 1993).

From this brief discussion of alternative approaches to the demand for education it is therefore possible to abstract four different motives for participating in education programs. Education can either be a consumption good, an investment, a signal to employers or a selection mechanism for employers. In reality, these motives are likely to go hand in hand. This study is interested in the motives driving the demand for professional education in the Dutch real estate market.

External effects, non-rivalry and imperfect information characterize education as a good. Straightforward examples of external effects of education are literacy and numeracy. These skills are essential for the functioning of an advanced economy, implying that every individual benefits from the skills of other people. The same holds true at the level of an individual industry.

Furthermore, competition or rivalry between consumers of the good is not very strong. The consumption of education by one individual does not in essence exclude other individuals from consumption of the same good.

Finally, the market for education is characterized by imperfect information. Students do not know whether and how much they will benefit from education until they finish the course. In this respect knowledge, as an educational product, is also different from normal goods. People are only able to relate to the value of knowledge if they actually do know it, that is, after consumption of education. Beforehand, there is no way of telling whether or not there is a difference between price and value.

The three characteristics often give rise to intervention in the market by the government or by industry organizations because they fear that the demand for education will otherwise be below the optimal level. In the market for professional real estate education, one can observe considerable differences in the market for professional education across countries, even in the case that these countries are in similar phases of economic development.

In general, differences between national markets for real estate education are related to (1) government involvement; (2) the role of professional organizations and interest groups in the market for education; and (3) the maturity of the real estate sector. An example is the specific role of the Royal Institute of Chartered Surveyors (RICS) in the United Kingdom as compared to the situation in the United States. A wide array of specialized courses, distance learning options and the use of multi-media characterize a well-developed market for professional education.

This research is based on a survey among managers of six types of real estate firms, alumni of the main postgraduate course in The Netherlands and persons that have shown an interest in following such a course. The next section presents new data about the size, structure, demographics and education level of the employees in the Dutch real estate market. The article proceeds by describing the market share of the different part-time courses for real estate professionals. Next, the motives of employees and firms to follow part-time courses in real estate tuition are analyzed. Regression analysis is used in the next discussion to explain the demand for this type of education. The last section is the conclusion.