Dynamic cycles of unsold new housing stocks, investment in housing, and housing supply-demand

Abstract

Unsold new housing stocks may be closely related to housing market fluctuation, especially the difference between housing supply and demand, which is influenced by macroeconomic conditions. These factors simultaneously influence developers' investment decisions and, thus, housing supply over time. However, previous research on the housing market has focused on explaining the statistical relationships among factors with reduced-form equations rather than analyzing dynamic behavioral changes. Thus, system dynamics should be introduced to analyze the dynamic cycles of unsold new housing stocks, housing investment, and housing supply-demand. This study develops Causal Loop Diagrams (CLDs), in which dynamic relationships are presented, and Stock-Flow Diagrams (SFD) for quantitative simulation by introducing normalized unit modeling by elementary relationship (NUMBER). The simulation results show that system dynamics can explain dynamic relationships in the housing market by focusing on unsold new housing stocks. In terms of the practical use of system dynamics models, governments can establish housing policies and developers can make decisions on investment in housing by considering unsold new housing stocks and their influence on the housing market. However, further consideration should be given to developing a method to reflect unpredictable economic events, such as the global financial crisis, in the system dynamics model.