Abstract
Since the instability of housing markets may be quite harmful for the real economy, we explore whether public housing construction programs may tame housing market fluctuations. As a workhorse, we use a behavioral stock-flow housing market model in which the complex interplay between speculative and real forces triggers reasonable housing market dynamics. Simulations reveal that plausible and well-intended policy measures may turn out to be a mixed blessing. While public housing construction programs may reduce house prices, they seem to be incapable of bringing house prices much closer towards their fundamental values. In addition, these programs tend to drive out private housing constructions.
Acknowledgements
We thank two anonymous referees, the editor in chief (Peter Winker), Mishael Milakovic and Christian Proaño for helpful comments. This research was carried out in the Bamberg Doctoral Research Group on Behavioral Macroeconomics (BaGBeM) supported by the Hans-Böckler Foundation (PK 045).
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