Theory model and behavior analysis for production decisions of real estate developers

YANG Fan, LIU Hong-yu

Systems Engineering - Theory & Practice ›› 2015, Vol. 35 ›› Issue (4) : 857-864.

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Systems Engineering - Theory & Practice ›› 2015, Vol. 35 ›› Issue (4) : 857-864. DOI: 10.12011/1000-6788(2015)4-857

Theory model and behavior analysis for production decisions of real estate developers

  • YANG Fan, LIU Hong-yu
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Abstract

Whether the objective of increasing housing supply can be realized by the government's policies of increasing land supply or financial constraints on developers is significantly influenced by developers' supply decisions. To simulate the decision-making procedures of developers, this paper presents a decision-making theory model that can fully consider the critical decision-making procedures. The results are as follows. Firstly, developers tend to stably reserve land, housing, cash and financial credits in certain market environment. They may choose a sub-optimal strategy for a certain project or decision procedure to pursue the maximization of total corporate benefits and the goal of sustainability. Second, if the market environment changes, developers will adjust their reserve strategies. Developers will significantly increase the inventory reserve preference when the expected growth rate of housing price increases. Developers will significantly increase the capital reserve preference when the expected risk of housing price increases. When the cost of capital increases or the financing limit turns tighter, developers will increase housing sales to keep the corporation funded in short period. However, they will also slow down the speed of housing development and increase the inventory reserve preference, thus their potential of long-term supply will be adversely affected.

Key words

housing supply / real estate developer / production decision / decision-making procedure / theory model

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YANG Fan , LIU Hong-yu. Theory model and behavior analysis for production decisions of real estate developers. Systems Engineering - Theory & Practice, 2015, 35(4): 857-864 https://doi.org/10.12011/1000-6788(2015)4-857

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