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CLDs can identify the feedback processes that drive the behaviour of the system.

This  is a model of the relationship between the housing and rental markets. At the centre of the model is the expectation of capital gain. This drives both the rental and residential markets. When expectations of capital gains rise the supply of both residential and rental markets also rises. (This is shown by an S at the end of the causal arrow meaning that the two variables move in the same direction. If expectations go up, then supply also goes up. However, it expectations go down in supply also goes down.)

 To understand the dynamics of this model, you can do what is called “walking through the model”.

Start with Expectations, and moved to Housing Supply. The story goes: if expectations go up then Housing Supply goes up, if Housing Supply goes up, then Housing Prices go down. (Notice there is an O at the end of this arrow. This means the variable goes in the opposite direction).

You can now work your way around the diagram. When you get to the centre again, work your way around the left-hand side of the diagram.