An agent-based model for exploring formation of housing prices: Housing market laboratory (HoML)

Abstract

Throughout the economies of the world the construction industry plays an important role. A major share of the activities within the industry takes place in the housing market. Since the mid 1990s increases in housing prices have been observed frequently in a variety of countries. To explain the price increases researchers from a multitude of disciplines have studied the housing markets. However research output from construction management domain is scarce. This research study presents an agent-based model (ABM) named Housing Market Laboratory (HoML) for the purpose of testing hypotheses related to housing price formations. The model comprises three types of agents representing developers households and land owners who trade two commodities simultaneously: land and housing units. Combining rules adapted from standard urban economics with a cellular spatial model HoML allows agents to interact using bilateral bid and ask prices. Although the focus of this research paper is the theoretical underpinnings of the land use and housing models several experiments are presented to demonstrate the use of the model. The results of these experiments suggest that HoML conforms to the behaviors of earlier models. Furthermore an experiment focusing on developer behavior demonstrate the potential of HoML in exploring differing objectives of agents that trade in housing markets. © 2014 American Society of Civil Engineers. © 2014 Elsevier B.V. All rights reserved.