The Economics of Housing: the Need for a New Approach

This paper argues that the conventional economic approach to housing is subject to a plethora of weaknesses that renders it, at best, a rather limited basis for understanding housing markets. Conventional analyses assume market efficiency and clearing, and ‘rational’ individuals. These core assumptions present an unnecessarily restrictive view of human behaviour and the economic process. By emphasising utility maximisation and equilibrium, and abstracting from history and social institutions, the conventional approach effectively eschews any analysis of the central forces of the market process. The paper asserts that in order to achieve this analysts will have to recognise heterodox economic contributions on uncertainty, human behaviour, evolution and exchange. A possible ramification for empirical research is the adoption of grounded theoretical procedures.