System Dynamics Modeling of Chinese Urban Housing Markets for Pedagogical and Policy Analysis Purposes

45 Pages Posted: 3 May 2015 Last revised: 31 Jul 2017

See all articles by Xin Zhang

Xin Zhang

MIT Engineering Systems Division

David Geltner

Massachusetts Institute of Technology (MIT); MIT Center for Real Estate

Richard de Neufville

Massachusetts Institute of Technology (MIT) - Center for Real Estate

Multiple version iconThere are 2 versions of this paper

Date Written: April 30, 2015

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.

Keywords: Housing Markets, China, System Dynamics, Real Estate, Pedagogy, Policy Analysis, Urban Economics

JEL Classification: A22, C61, C62, O18, R51

Suggested Citation

Zhang, Xin and Geltner, David and de Neufville, Richard, System Dynamics Modeling of Chinese Urban Housing Markets for Pedagogical and Policy Analysis Purposes (April 30, 2015). Available at SSRN: https://ssrn.com/abstract=2600777 or http://dx.doi.org/10.2139/ssrn.2600777

Xin Zhang

MIT Engineering Systems Division ( email )

MA
United States

David Geltner (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
Cambridge, MA 02139
United States

MIT Center for Real Estate ( email )

77 Massachusetts Avenue
Cambridge, MA 02139
United States

Richard De Neufville

Massachusetts Institute of Technology (MIT) - Center for Real Estate ( email )

United States

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