Table 3.1 Decision to form a household, adapted from Ferrari et al (2010b)
The extent of search needed is unknown at the beginning of the search process, yet the cost of searching for the perfect dwelling is likely to be prohibitively high causing households to limit their search pattern and settle at an acceptable standard of characteristics (Anglin, 2003).
Rossi (1980) found that half of all households undertaking a search for a dwelling (including rental accommodation) selected the first dwelling they considered in detail. This might suggest a very limited search stage and that the transaction costs (including emotional and opportunity costs of search) play a role, or that households may be satisficing rather than utility maximising.
“Half of the families made their choice of a new home after looking at only one possibility. They found this single opportunity close enough to their desires to take it without looking further. The other half of the families studied made their choices from among several alternative possibilities.” (Rossi, 1980, P. 224)
Both NBE and OBE perspectives argue that the NCE view of the search strategy fails to consider again the inability of humans to gather and process enough information to make a decision about the optimal duration of a search and to know when exactly the search costs have overtaken the utility of the future dwelling (Ferrari et al., 2010b). In NCE, the dwelling purchaser needs to be able to understand price and transaction volume trends in the housing market in order to be able to create a rational search strategy.
“How housing consumers respond to house price movements varies (Kiel, 1994): some intensify search in the face of house prices increases and others reduce the intensity of search or postpone search altogether. A key question for our purposes is, if we reject standard assumptions that housing consumers can form rational expectations, because they are unsupported by the evidence (e.g. DiPasquale and Wheaton 1994, Muellbauer and Murphy 1997, Poterba 1991), how do consumers form expectations regarding the future path of house prices upon which they base their strategy?” (Marsh and Gibb, 2011, P.221)
From an OBE perspective determining the extent and intensity of the search strategy will be partially dependent upon the attempts others make to influence the process. Estate agents may play a pivotal role not only in guiding negotiations when a dwelling has been determined (Smith et al, 2006), but also in encouraging or discouraging an extensive search, or to satisfice early (Smith and Mertz, 1980). Indeed estate agents may influence households to search in different ways, in part depending on the household characteristics (Teixeira, 1995; Galster, 1992). Perceptions of changes in market conditions will also influence both estate agents and household decisions about the urgency of finding a property. OBE analysis should consider further the social influences upon determining a search strategy.
Ferrari et al. (2010) expand on how IE and OBE can be brought together, expanding on Maclennans approach, to a fuller understanding of housing search strategies.
“Maclennan (1982) offers the prospect of an institutionally oriented behavioural approach (akin to the Original Behavioural Economics) to exploring the search process. This encapsulates three distinct phases: (i) an emotional and social stage, where experiential knowledge, and hence norms and habits are prominent and where the paths or future evaluatory processes are shaped and aspirations are formed on the basis of highly impressionistic and subjectively interpreted generalised information from sources such as the media; (ii) considered scrutiny (a form of more ‘conscious deliberation’) during which an ordered search will take place on the basis of aspirations and perceived constraints, which may engender other emotional influences such as counterfactual emotions – disappointment – social emotions such as liking as well as experiential and social referent emotions all of which shape deliberation and, drawing from Earl (2005), begin to reconcile aspirations with more realistic, feasible options; and (iii) detailed intensive evaluation (involving, for instance, formal surveys) of specific properties within clearly established price ranges and submarkets, ending ultimately in most cases in bid formation.” (Ferrari et al., 2011, P.24-25)
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