Consumers purchase a house or multiple dwellings for a number of reasons. But what is the rationale behind their decision to buy and/or sell a house, flat or apartment? Do consumers generally exhibit rational or irrational behaviours in their choices? Are people calculative machines i.e. working out all the pros and cons of the good with pinpoint precision, or are consumers more so bounded in their rationality? What does economic theory say about this vis-à-vis the buying/selling of a residential dwelling? Increasingly also, especially in recent decades, real estate (housing) is seen as a speculative asset to make money on rather than simply as a place to live and raise a family. But there can be a negative impact on society as a result of individual (micro) actors involved in the buying/selling of real estate, leading to speculative bubbles. When a housing-price bubble bursts below its fundamental values, then this can lead to social dislocation in the economy.
Applications of Traditional vs. Behavioural Economics Explanations
Using standard consumer choice theory, explain the decision-making process of purchasing a residential dwelling to increase well-being. Discuss in some detail what behavioural economics suggests about the decision-making process of buying or selling a residential dwelling, and about whether people make such decisions that maximise their well-being.
Speculative Housing-Price Bubbles
Examine the specific characteristics of speculative bubbles in the real estate (housing) market before and during the Great International Crisis of 2008-2012. Referring to specific times and areas (e.g. cities or suburbs within Australia, or from a country of your choice), provide a sound analysis of the link between housing-prices and fundamentals.