Path dependence (or historical institutionalist approach) refers to the idea that the outcomes of a particular situation or process depend on the historical path taken to reach that point. In other words, the current state or future developments of situations are influenced by past decisions, events, or processes, even if those may no longer be the most efficient or rational choices.  As a concept, it provides a valuable framework for analysing historical events, which is primarily concerned with elucidating responses and outcomes in the area of policy change and institutional persistence (Bengtsson & Jensen, 2020).

A simplified interpretation of the concept of path dependency states that developments at a specific juncture create inertia in economic, institutional, social and technological progress. Bengtsson & Jensen (2020, p. 15) interpret this concept as the "fundamental causal mechanism in historical versions of institutional theory." In practise, this approach says that a development at a certain point in time sets a direction that either blocks alternative paths or makes them more difficult to achieve at a later point in time.

The difference between path dependency analysis and mere "what if" speculation is the understanding of contextual mechanisms that govern historical development, rather than general social theories. In literature, the idea that "the past influences the future" is often only touched upon, leading to misunderstandings. Mahoney (2000) emphasises that a "proper" analysis of path dependency involves understanding change processes, tracing historical events while recognising mutual contingent relationships, and elucidating causal effects that cannot be explained by other events. Contingency refers to the inability of a theory to deterministically or probabilistically predict or explain a particular outcome (Mahoney, 2000, p. 513). In essence, a contingent event has not been predicted within a theoretical understanding of a particular process. Mahoney (2000) emphasises that path dependence should not be confused with a historical explanation that emphasises temporal causal sequences.

In the application of path dependency, certain historical outcomes are traced back to relevant earlier events, which are often themselves contingent. There are three key concepts in every path dependence analysis:

1. A single event that is not the product of social forces can significantly affect social outcomes.
2. Contingent events may be temporally distant from the outcomes.
3. The sequence of events is of historical importance and requires a chronological order in the analysis to trace the sequence of outcomes.

When applying path dependency as an analytical tool, three core elements are considered: an event (A) that is preferred to an alternative ("critical juncture"), a subsequent decision (B) that connects to A ("focus point"), and the mechanism(s) that explain(s) the impact of A on decisions at B. To identify these mechanisms, it is usually necessary to trace events where no plausible alternatives were chosen.

There are two types of path dependence: self-reinforcing sequences and reactive sequences, the latter involving events that are temporarily ordered and causally linked (Mahoney, 2000).

In the case of self-reinforcing sequences, the detection of the beginning of the sequence could occur just before a critical turning point. In the phase preceding the critical turning point, different options become viable and processes that influence decisions at that juncture begin to operate. If the conditions in this phase can predict or clarify the outcome of the critical juncture's outcome, the sequence should not be considered dependent on the preceding events.

In the case of reactive sequences, it is difficult to determine a point in time that corresponds to the initial conditions because the outcome under investigation may follow an extensive chain of causally related events that can be traced back in time. In other words, it may be difficult to find a starting point of the sequence, as the researcher keeps on going back in time (Mahoney, 2000).

The concept of path dependence is of great importance for housing research, especially in the context of housing policy development of post-socialist countries that radically transformed the institutional framework and changed the tenure composition from dominantly public to private homeownership, affecting the future pathways of social housing policy efficiency and wealth distribution (Lux & Sunega, 2020). Despite its potential, path dependency is still underused in housing studies (Bengtsson & Ruonavaara, 2010; Malpass, 2011). It is often applied at the national level, but can also be extended to the municipal and local levels where housing policies are implemented.