MARKET FAILURE PROBLEM

Market Failure Problem In The Local Private Residential Property Market



Market Failure Problem In The Local Private Residential Property Market

Introduction

The housing bubble, and its consequence, the credit crunch are familiar terms now. The underlying reason is said to be an unsustainable property/housing market. Unsustainable means 'not sustainable'. What then would be a 'sustainable market'? Market is an economic concept, and pertains to a process where the driving goals of its participants are in one way or another aimed at reaping a profit as a producer or intermediary, or maximizing economic utility as a consumer. Profit (and indeed utility), however, refers to a short-term gain; furthermore, it is relatively one-dimensional, even if there are schools of thought that do not refer to 'maximising' but merely 'satisficing' strategies (notably, Thorstein Veblen's institutionalism and Herbert Simon's behaviouralism). These are in fact the key differences to the concept of 'sustainable market': its goals are defined as long-term and multidimensional (Kauko, 2008a). Sustainability is multidimensional even if we are restricted to only the economic dimension. In a prior presentation for ERSA Liverpool 2008 (Kauko, 2008b)

Discussion

The individual property asset based rating is a relatively new instrument, the cutting edge development and application taking place in the German speaking Europe and to some extent already in UK. In any case, there is a need for trans-disciplinarity. Hobson (2008) argues that 'ethics' and 'participating' provide important views for developing the sustainability discourse. True that 'climate change is as much about ethics and justice as it is about sound social science, sustainable economic growth and technological fixes', as she claims (p. 199), but can it really be that 'being cheerful' is a relevant concept to conduct research, as she also claims? In any case it should be agreeable in general that knowledge generated outside academia should be recognised and given credit too.

Visiting EXPO Real 2008 in Munich - an essentially non-academic event of gargantuan proportions - gave me the picture that the ideas of sustainable real estate are much better accepted and developed in business than in academia! Furthermore, sustainability always is a local issue; and importantly, metrics of sustainability is a critical issue for investors. The panellists stressed the need to adjust the sustainability in relation to the market. A big discovery (from EXPO Munich 2008) was that the real innovative guys can be the private sector property investors rather than academics - even in sustainable urban development and beyond! For an academic it is therefore a good experience to meet people and see things that are different from the normal forums and meetings where one participate.

Among the benefits of attending such meetings are the possibilities to learn about various private investment and city marketing perspectives applied in practice. This is true; presentation of very up-to-date statistics and case-studies, including urban renewal and housing market information on various circumstances (including CEE circumstances). Based on this experience it is safe to assume that the ideas of sustainable real estate are much better accepted and developed in ...