System Dynamics Based Study of Affordable Housing in Shanghai

Since the late 1990s, the housing affordability issue has aroused exceedingly heated discussion in Shanghai. The boom of the market, however, attracts frantic speculation that generates some serious problems in Shanghai, especially the severe inflation of house price. This paper investigates the dynamic factors that could drive up the house price in Shanghai emerging house market. Since delays, feedbacks and nonlinearities in house market are usually out of the reach of people´s mental model, a system dynamics based model is developed to capture the underlying dynamic interactions among the different sectors involved in the real estate market, we study how they all together induce and exaggerate the affordability problem for local households. The policy tests demonstrate that the results of some already approved measures are counterintuitive or unsystematic, and show that only the systematic analysis and policy design can generate effective and radical solutions to the current problem.