Developer sentiment, developer’s strategy and housing supply : evidence from Hong Kong

Abstract

The increasingly important role of sentiment in the housing market has complicated the challenges facing developers during boom-and-bust cycles. This study investigates how developer sentiment affects developers’ decision-making and the housing supply at the project level. As the standard evaluation usually overlooks sentiment resulting in suboptimal inferences, we develop a new theoretical model that analyses both sentiment and developers’ optimal strategies. Our findings suggest a ‘U’-shape relationship between developer sentiment and the expected waiting time to develop. Second, the optimal development density declines when developer sentiment intensifies. The Hong Kong housing market is used as a case for empirical analysis.