Question

Prior to 2005, it seemed like 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 polices to increase the elasticity of supply. What specific policies might hold prices down when demand increases? Explain.

Answer 1

To hold home prices down, we need to increase elasticity of supply.An inelastic supply is one that cant change quickly to adapt to market changes. An elastic supply in housing means there are house to spare when market demand increases. In an attempt to create an elastic supply in housing, increase spare capacity can be worked on. Reduction in Tax rate for developers and shortening permit processes for building new homes would definitely create additional housing for purchase. To increase elasticity, we must supporting inventories of raw materials. The Lumber and concrete suppliers can be ensure to receive concessions to encourage them to supply additional raw materials.