Question

Assume that house prices always rose and never fell. When the demand for housing

increases, prices in the housing market rise but not always by very much. For prices to rise

substantially, the supply of housing must be relatively inelastic. That is, if the quantity

supplied increases rapidly whenever house prices rise, price increases will remain small.

Many have suggested government policies to increase the elasticity of supply. What specific

policies might hold prices down when demand increases? Explain.

Answer 1

Such specific policies as subsidizing housing producers by the government might hold prices down when demand increases.