DiPasquale-Wheaton Four-Quadrant Model

Solves the DiPasquale-Wheaton four-quadrant model to a long-run equilibrium rent, asset price, construction rate, and stock, and shows the rent overshoot that follows a demand shock while supply catches up. Inputs are the demand index, cap rate, depreciation rate, and replacement cost.

Interactive Tool

Market conditions

The four quadrants solve together to one long-run equilibrium. Raise the demand index above 1.0 to fire a demand shock and watch rent overshoot, then mean-revert as supply arrives.

Demand index (E)

Cap rate (i)

Depreciation / decay (δ)

Replacement cost (C₀)

Long-run equilibrium: walking the box

Construction

2.00M sf

New building / yr

C = γ·(P − C₀)

Asset market

$500/sf

Equilibrium price

P = R ÷ cap rate

Stock adjustment

100.0M sf

Equilibrium stock

S = C ÷ δ

Space market

$30.00/sf

Equilibrium rent

R = (α + θE − S) ÷ β

At the baseline demand index the box closes on a stable equilibrium: rent $30.00/sf, price $500/sf, stock 100M sf, construction 2.00M sf/yr exactly replacing decay. Raise the demand index to fire a shock and trace the overshoot.

Learn the concept

This calculator comes from the free Real Estate Finance course, where the concept is taught with readings, worked examples, and practice questions.

Open Real Estate Finance

Built by Devon Coombs, CPA, MBA, Teaching Professor of Finance at Santa Clara University.