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Dynamic Model for the Simulation of Equilibrium Status in the Land Use Market

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  • Francisco Martínez

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  • Ricardo Hurtubia

    ()

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    Abstract

    This paper presents a dynamic equilibrium model for the real estate market. Households have stochastic behavior and compete for quasi-unique locations (real estate goods), which are assigned to the best bidder through an auction-type mechanism. The producers are modeled as maximizers of their profits over the long-term through the production of real estate assets, represented by the present value of future sales. It is assumed that the producers do not possess complete information about future levels of demand or prices. Rather, it is assumed that producers are myopic, meaning that they take the actual and historic prices in each period as the relevant information for their decision-making. A notion of equilibrium is used that adjusts prices given two situations: supply and demand surplus. In the supply surplus case, the prices are diminished and supply in the market is reduced until supply equals demand. In the case of demand surplus, the prices rise and demand diminishes (homeless households) until demand equals supply. This equilibrium condition yields prices that are jumpy over time, resembling observations of inventories in the real estate market and the manufacture industry. Copyright Springer Science + Business Media, LLC 2006

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    File URL: http://hdl.handle.net/10.1007/s11067-006-7685-4
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    Bibliographic Info

    Article provided by Springer in its journal Networks and Spatial Economics.

    Volume (Year): 6 (2006)
    Issue (Month): 1 (March)
    Pages: 55-73

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    Handle: RePEc:kap:netspa:v:6:y:2006:i:1:p:55-73

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    Web page: http://www.springerlink.com/link.asp?id=106607

    Related research

    Keywords: Dynamic equilibrium; Location; Real estate supply; Residential development;

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    1. Caballero, R.J. & Engel, E.M.R.A., 1990. "Dynamic (S,S) Economies," Discussion Papers 1990_44, Columbia University, Department of Economics.
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    Cited by:
    1. Marisol Castro & Francisco Martínez & Marcela Munizaga, 2013. "Estimation of a constrained multinomial logit model," Transportation, Springer, vol. 40(3), pages 563-581, May.

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