The Hoyt Group
Complex Real Estate Systems Research Program
The extent of the financial crisis of the 2000s which caught most economists and regulators by surprise is evidence of how complex the US and global financial markets have become. It is also evident that the models being used to make financial decisions were not adequate or at least not exposed to enough stress testing to capture events that could cause a collapse of the subprime mortgage market triggering the financial crisis.
The Homer Hoyt Institute embarked on a program of research and conferences (Subprime Crisis Research Program) as the financial crisis was occurring to try to better understand what went wrong and what kinds of research and models might be helpful to avoid future financial crises. One obvious conclusion from this program was that there was a need for new ways of modeling real estate markets as they relate to the broader financial markets and how the actions of all the various agents in the market (homebuyers, lenders, mortgage backed securities issuers, etc.) interact.
To further explore develop of these models, the Homer Hoyt Institute has initiated a “Complex Real Estate Systems Research Program.” A key component of this research program is to recognize the inter-disciplinarily nature of real estate and that concepts and models from other sciences can help explain real estate markets as a system.
This research program has several threads. The lead box, titled Homer Hoyt Institute Research Initiative, is an extension of the Institute’s Subprime Crisis Research Program. The full title of the focus this effort on the HoytWiki site is “Homer Hoyt Institute Research Initiative for Developing Data and Analytics to Monitor and to Identify Emerging Imbalances in the Housing Finance Market.” It is an integral part of this Wiki site devoted to complex real estate systems. This initial focus on housing markets is underway; however, a parallel and complementary research program is also planned to deal with commercial real estate markets since they are interrelated and part of the overall financial system that is critical to a healthy capital market.
As a resource for facilitating researchers becoming acquainted with the necessity of emergent research methodology and the integration of nascent disciplines to research in the selected areas, the second box, “Discipline Development” is provided. It contains a series of articles written by Maury Seldin that discusses concepts from other disciplines that are applicable to understanding real estate markets. Many of these concepts are found in the Complexity Economics literature as well as biology and other disciplines and he suggests how consilience can lead to these concepts being applied to the analysis of real estate markets including the subprime mortgage market. This section is also open to comments and discussions.
The third box, Agent-Based Modeling discusses the type of modeling that is used to analyze complex adaptive systems. The Homer Hoyt Institute is fostering the development of agent based models to demonstrate how these models can complement other models traditionally used by researchers to capture the interactions of the various agents in the real estate market. Jeff Fisher is currently leading this effort.
Fourth, the Institute is exploring ways that previous research that it funded can be used to better measure capital flows – or more importantly imbalances in capital flows that indicate the system is moving out of equilibrium as happened with the financial crisis due in part to too much capital flowing to subprime mortgages and securities backed by these mortgages. Ron Donohue has been leading this effort.
Finally, responsible development practices should use what we learn about complex real estate systems. Dan Kohlhepp has created a “development matrix” and related material to attempt to capture the interrelationship between all the various agents to the development process.
To encourage discussion and collaboration among Hoyt constituents and others, the Hoyt Wiki has been created to facilitate this interaction and hopefully further our understanding of Complex Real Estate Systems. The flowchart summarizes the various initiatives described above. Click on any of the boxes to learn more about the Complex Real Estate Systems Program at the Homer Hoyt Institute.