Abstract
This paper reports on the current state of a project to develop a system dynamics (SD) model for urban housing markets in China, aimed at facilitating policy analysis and supporting practical educational tools that might reach large numbers of potential entrepreneurs in China. Although numerous academic papers have applied SD models to real estate markets over the past generation, the technique remains relatively unknown and little used both in the academic economics literature and, more to the point, among practitioners and educators in the real estate community. Yet SD has the potential to address key needs among these constituencies, and extend and complement upon traditional economic methods. SD models are focused on modeling market transitions toward long-run equilibria, facilitating the study of the details of causality and the dynamic path of the market and features that are prominent in the history of housing markets in emerging markets. Different from intensive data-driven economic models, SD models are structural-based operational models that can more easily accommodate the actual non-market features and unique institutional components of these emerging real estate markets, where long-range historical data are not readily available. SD can provide intuitive and transparent model structures that should be able to improve pedagogy for educating large numbers of potential real estate entrepreneurs particularly in emerging market countries. For demonstration, in the present paper we choose to focus on the China-specific features of ‘speculative demand’ and ‘land financing scheme’, and use the newly developed SD model to explore the effects of land supply, “command-and-control” versus “market-driven” policies for housing in China. It is important to note, however, that while we chose China for the purposes of our study, the same technique can be applied to any emerging real estate market. Moreover, our research here can be seen as a stepping stone: Before a generalized SD model for emerging markets can be developed, it is both reasonable and appropriate to construct a model that is constrained to a manageable subset of the overall market space.
Highlights
The past generation has witnessed in China the greatest urbanization in world history to date
The results show that the basic system dynamics (SD) model translated from D-W model does not fully explain the historical housing price of City A
When we apply the historical dataset to the integrated model with only land financing scheme incorporated, the price trend shifted from cyclic behavior to an increasingly rising pattern
Summary
The past generation has witnessed in China the greatest urbanization in world history to date. The result will be a tremendous increase in demand, in terms of the quantity and the quality of urban housing. This will include renovation and redevelopment as well as new stock built on greenfield sites. It is impressive that Chinese cities have, for the most part, accommodated this unprecedented demand China has achieved this in part through flexible adaptation of the policy framework governing the housing industry. Most notably, it has transitioned from the previous centrally planned social housing system to a largely market-driven system, based on the sale of long-term land leaseholds from local government authorities to private developers. The developers produce the housing, largely units for owner-occupancy, as well as other types of buildings
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