Market structure and cycles

Cycles in housing markets occur in recurrent and irregular patterns. The amplitude of these cycles is usually considerably larger compared to the general business cycles. Furthermore, housing market cycles have considerably longer wavelengths compared to the business cycle. Housing market cycles often affect the whole economy heavily, which is a good reason for trying to keep the housing market free from cycles. In general the underlying mechanisms for housing market cycles are not widely understood. Housing market models usually employs a set of variables such as change in GDP, interest rates, population migration and growth and housing construction activity, mixed together in some kind of econometric model. However, such models fail in not taking feedback, delays and information chains properly into consideration. In this sense the System Dynamics method is a useful tool for revealing the housing market's structure and its behaviour in order to change the structure in order to prevent or dampen cyclicality. The current work employs the System Dynamics method in order to attempt to explain the sources of cycles and possible instruments to avoid them.