Behavioural Real Estate

Abstract

All over the world there is a strong infatuation towards real estate. Nevertheless there seems to be a (sub)conscious omission in incorporating this stylised fact into the academic literature. The decision of buying residential property may be one of the most important transaction people will ever make, and the emotional attachment when houses become homes is inevitable. Can we effectively sustain that properties, houses, and homes are equivalent terms? It is fair to say that while its importance is undeniable, the consumption function as well as the social and emotional perspective of real estate are often neglected. The behavioural approach to decision making under uncertainty combines insights from psychology and sociology into real estate finance and investment. We aim to provide an overview of the current state of affairs of the main themes in which the behavioural approach intersects with real estate to gain a deeper understanding of the build environment. It seems to be the general agreement that behavioural studies can help to gain insight into property markets, but that a large component of behavioural decision making is left undiscovered.

Keywords: real estate markets, market participants, behavioural decision making

JEL Classification: G02, R31, R33