Blockchains in housing markets: a simulation analysis of the impact on house price dynamics

Source abstract

The introduction of blockchain to real estate transactions is changing how people trade and finance property. One such shift is exemplified by tokenization, the process of recording a digital representation of traditional assets on a blockchain network. Tokenization is expected to facilitate the trading of real-world assets, making it possible to trade them 24/7, settle instantly, and do so at virtually no cost. However, the effects of nationwide adoption of blockchain technology on housing remain unclear. We build an agent-based model calibrated for the Swedish housing market to study how redesigning of the house sale process with blockchain can affect housing market price dynamics. First, we analyze the traditional conveyancing setup. Second, we simulate a streamlined transactional workflow orchestrated by a smart contract and compare it with the traditional process. The results indicate that, with all other variables being equal, using smart contracts for conveyancing leads to significantly increased transaction activity and heightened price volatility. Such changes would bestow housing markets with markedly different price and liquidity characteristics, substantially altering their nature. The paper demonstrates that optimistic predictions and generalizations about radical technologies enhancing the functioning of property markets have their limits when based primarily on perceived efficiency gains and cost reductions.