The housing affordability issue has aroused exceedingly heated discussion in Shanghai Since the late 1990s. The boom of the market, however, attracts frantic speculation that generates some serious problems, especially the severe inflation of house price. There are great concerns that commercial housing price is too high and beyond the affordability of the average urban households. This paper investigates the dynamic factors that could drive up the house price emerging house market. A system dynamics based model is developed to capture the underlying dynamic interactions among the different sectors involved in the real estate market. We study how they all together induce and exaggerate the affordability problem for local households. The model is used to test some policies, either currently applied or suggested by experts or existing literature, aiming to curb speculation fever, reduce house oversupply, dwarf cost inflation, and to solve the problem of affordability for local households.
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