Transcript Slajd 1 - Property Finance

Application of system
dynamics modeling in real
estate market analysis
Konrad Zelazowski, MSc
Department of Investment and Real Estate
University of Lodz
e-mail: [email protected]
tel.: (+48)(42) 635 51 90
Classic models of real estate markets
They do not account for the time factor
(time course of adjustment processes)
 They do not reflect complex interrelations
between the variables and processes
(feedback, short- and long-term
relationships)
 Their potential for modification and
expansion is limited.
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System dynamics
“System dynamics is a methodology for
studying and managing complex feedback
systems, such as one finds in business and
other social systems.”
System Dynamics Society
System dynamics consists of the
following research stages:
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Identifying the problem
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Putting forth a research hypothesis
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Constructing a model simulating the functioning of the
selected system
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Verifying the correctness of the model and determining
the extent to which it reflects reality
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Conducting simulations of the system’s functioning in
order to verify the proposed hypotheses
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Drawing conclusions or selecting the optimum solution
Building blocks used in system
dynamics modeling:
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Stocks
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Flows (inflows, outflows)
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Converters
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Connectors
Residential market model
Equations:
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Price(t) = Price(t - dt) + (Price_adjustments) * dt
INIT Price = 2000
INFLOWS:
Price_adjustments = (Optimum_price-Price)/Time_delays_in_price_adjustments
Stock_of_available_real_estate(t) = Stock_of_available_real_estate(t - dt) + (Construction - Sales) * dt
INIT Stock_of_available_real_estate = Optimum_stock_of_available_real_estate
INFLOWS:
Construction = HISTORY(Supply_of_new_real_estate,TIME-Supply_delay)
OUTFLOWS:
Sales = Total_real_estate_demand
Consumption_demand = (28000-6*Price)*Demand_disturbances
Disproportion_in_real_estate_stock =
Stock_of_available_real_estate/Optimum_stock_of_available_real_estate
Optimum_price = Influence_of_stock_disproportion_on_price*Price
Optimum_stock_of_available_real_estate = Total_real_estate_demand
Speculation = 4
Speculative_demand = (Price-HISTORY(Price,TIME-1))*Speculation
Supply_delay = 0
Supply_of_new_real_estate = 10000+3*Price
Time_delays_in_price_adjustments = 1
Total_real_estate_demand = Consumption_demand+Speculative_demand
Demand_disturbances = GRAPH(TIME)
(1.00, 1.00), (2.40, 1.00), (3.80, 1.00), (5.20, 1.00), (6.60, 1.50), (8.00, 2.00), (9.40, 2.00), (10.8, 2.00), (12.2,
2.00), (13.6, 2.00), (15.0, 2.00)
Influence_of_stock_disproportion_on_price = GRAPH(Disproportion_in_real_estate_stock)
(0.00, 1.95), (0.2, 1.60), (0.4, 1.42), (0.6, 1.16), (0.8, 1.10), (1.00, 1.00), (1.20, 0.67), (1.40, 0.54), (1.60,
0.29), (1.80, 0.2), (2.00, 0.12)
The demand side:
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Consumption demand as a decreasing
function of price.
Speculative demand as a function of real
estate price changes.
Demand disturbances, a variable
representing positive and negative
demand shocks.
The supply side:
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Available real estate stock.
Supply of new real estate.
Optimum stock of available real estate.
Disproportion in the real estate stock.
Mechanism of price adjustments:
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Current real estate price level.
Optimum price.
Influence of stock disproportion on
prices.
Time delays in price adjustments.
Market behaviour simulations
Scenario assumes that after 5-period
equilibrium, real estate market experiences
a rapid increase in consumption demand for
housing units
Classic model
S
Price
D’
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Quantity
Price adjustment path in the case of a demand shock
without time delays in the reaction of supply side
No speculative investments
Price adjustment path in the case of a demand shock
without time delays in the reaction of supply side
Speculative investments appear
Price adjustment path in the case of a demand shock with
time delays in the reaction of supply side (4 period delay)
No speculative investments
Price adjustment path in the case of a demand shock with
time delays in the reaction of supply side (4 period delay)
Speculative investments appear
Market reaction on the positive demand shock
Conclusions
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the occurrence of time delays in market
mechanism reactions prolong the process of
forming a new market equilibrium
supply-side time delays lead to a stronger price
reaction in the initial phase of market adjustment
price fluctuations in market mechanism
adjustment are additionally reinforced by
speculative investments
Summary
System dynamics is an effective approach to
the modeling of complex systems. It allows
to construct detailed models of economic
reality by incorporation of quantitative and
qualitative data. Due to its unquestionable
advantages system dynamics should be
considered as a useful tool in education and
real-life applications.