Abstract for: Likely Causes of the US Housing Market Crisis: A System Dynamics Investigation

This paper investigates the causes of the US housing market crisis that have been cited in the literature. The loosening of bank capital requirements, cheap money availability through the government’s push to increase home ownership and household equity rise due to the housing market boom, and the impact on available money for debt service due to changes in mortgage rules, are all investigated. The system dynamics approach allows for studying each in isolation as well in connection with each other. This helps to assess whether the claims in the literature regarding the various reasons cited for the crisis are justified and what specific conditions lead to a stronger or weaker effect of each.