| Abstract: | This research aims to understand the source of temporal fluctuations in real estate development through simulating a cellular automata model. In this cellular automata city, investment decisions are made according to the profitability measured in a local neighbourhood. If developers think there is enough of a profit margin in a particular site, i.e. a 'niche' of investment, they will increase investment at that site. However, by increasing investment at the site, new 'niches' might be created. Therefore, the action of converging towards an equilibrium state itself paves the way towards new fluctuations. This model demonstrates the potential of using simulation to increase our understanding of real estate dynamics. The experiments suggest that locally made 'rational' decisions can lead to temporal fluctuations because of non–linearity (discrete changes/densification and local bounded information). Interestingly, the fluctuations may show the property of a temporal fractal. This requires a sufficiently sensitive process of 'niche' formation compared with a relatively large impact of additional investment. The simulation suggests that the impact should be 4 to 20 times higher than the threshold over which a niche will be formed. This condition is satisfied in most cases of real estate investment, thus suggesting a self–organised criticality in complex real estate development. |
