Abstract for: "Boom without Limits?" - An Analysis of the Stuttgart Real Estate Market

Real estate markets are known to fluctuate (Sterman, 2000). The real estate market in Stuttgart, Germany, has been booming for more than a decade: square-meter price hit top levels and real estate agents claim that market prices will continue to increase. In this paper, we test this market understanding by developing and analyzing a system dynamics model that depicts the Stuttgart real estate market. The resulting simulation of the model explains oscillating behavior arising from significant time delays and endogenous feedback structures and not necessarily oscillating interest rates as market experts assume. Scenarios provide insights into the system's behavior reacting to changes exogenous to the model. One scenario deals with possible effects on the real estate market if the regional automotive economy suffers from intense competition from new market entrants with alternative fuel vehicles. The other scenario tests the market development under increasing interest rates. With a special policy we test market structure changes to eliminate cyclical effects. The paper confirms that the business cycle in the Stuttgart real estate market arises from within a system's structure, thus emphasizing the importance of feedback structures.