Richard Dunning
An applied behavioural economics model of owner occupier housing choice
There has been a revival in interest amongst both academic and policy makers in the potential use of ideas from behavioural economics to shape public policy. This has been driven in part by frustrations with the limitations of mainstream economic models, and in particular their weak behavioural and psychological underpinnings and has brought renewed attention to the work of Herbert Simon and the psychologists Kahneman and Tversky.
Housing consumption choice involves a number of inter-related decisions. There is a decision to form a household; a decision to move; choice of tenure; location/neighbourhood choice; and selection of house type (and size). The complexity of the decision-making process is exacerbated by the fact that most households´ experience of the exchange process is infrequent and few have up to date knowledge about their options. This means that households must also make decisions about their housing search strategy – its scope, intensity and duration - as a means of addressing the information deficit. The behavioural economics literature suggests that households tend to take short cuts in order to deal with informational and cognitive limitations. Decisions are shaped by aspirations infused with experiential knowledge – with a strong social and cultural construction. Social norms, concerns about social status, and emotions are critical at certain points and there is a clear difference between information, derived from agents and constrained search processes, and knowledge. The complexity of the process means that errors of judgement are entirely possible and aversion to making mistakes is a potential source of inertia in the housing market. Outcomes of housing choice processes in different local markets will reflect the particular institutional arrangements and informational characteristics. Market adjustment may be highly constrained – by inertia as well as information constraints - and the housing system will be extremely fragmented with only weak inter-connections between segments. As a result, in terms of size and type, households will in all likelihood be poorly matched to the housing stock. The outcomes of this process are far less predictable than the mainstream model would imply.
This PhD will seek to contribute to this task. It will attempt to develop a conceptual framework, based on behavioural principles, that will identify the appropriate hierarchy sequences) of choices for different household types. It will also test the model (or models) using a survey of approximately 4,000 households in Sheffield, South Yorkshire. The survey will target households who entered the market at two time periods as a means of ensuring that the results are sensitive to changing economic circumstances.
The project will seek out to enhance our understanding of the housing choices made by new house purchasers. It will be designed specifically to explore the way in which changing economic conditions influence households attitudes, expectations and preferences and will seek to shed light on a variety of aspects of the decision making process described above including: the stages of the decision-making process the drivers of the decision to buy (rather than rent) the nature of the location choice decision the factors shaping house type preferences
I am supervised by Prof. Craig Watkins and Dr Cath Jackson. As well as undertaking the PhD I have worked on a number of projects, including research for the Royal Institution of Chartered Surveyors, Communities and Local Government, URSULA and courtesy of the Roberts Fund undertaken a six month placement with Sheffield City Council´s Affordable Housing Team.