Dynamic Conceptual Model of the Real Estate Sector Growth Considering Behavioral Biases

Real estate and the housing market is one of the main drivers of the economy and national prosperity. It contributes significantly to a nation’s GDP due to the numerous property-related activities associated with it, including construction, facility management, investments, etc. Real estate sector performance is greatly impacted by several dynamic factors including consumer spending, developer practices, government policies, demographic changes, and the overall health of the economy. Some research efforts developed simulation models to capture the dynamic environment of the real estate sector. Others tried to study the impact of behavioral biases on decisions in the housing market from the view of behavioral economics, which is based on incorporating psychology into economics science. However, there is a lack of efforts that formulated the implications of those behavioral biases on the growth of the real estate sector. Accordingly, this research paper presents a dynamic conceptual model for a system dynamics (SD) model that captures the dynamic feedback structures that govern the real estate environment, including those driven by behavioral biases. A causal loop diagram (CLD) has been developed, as part of the SD model conceptualization, to capture the dynamic factors which can potentially impact the housing market and the causal relationships between them, including those related to the consumer, developer, and government. The real estate market in Egypt has been used to verify the model’s structure, as it has witnessed many fluctuations recently which makes it a good candidate for the study. The developed CLD, in this research, can be potentially used as a standalone mental model that maps the feedback structure of the residential real estate market sector. It can help policymakers visualize and understand the underpinning factors behind the dynamic behavior of the market growth, and thus make better decisions.