Why does new housing supply respond slowly to a sudden jump in demand?
Correct Answer
B) Land, approvals and construction take months to years
Why this is correct: Real estate supply is inelastic in the short term due to the lengthy processes of land acquisition, zoning approvals, infrastructure development, and construction. These take months to years, preventing a quick response to demand changes. Why the other choices are wrong: Builders respond to price signals, not wait for prices to fall. Lenders often finance in rising markets. Building codes regulate construction but do not cap annual starts. Exam tip: Remember: supply lags demand due to long development timelines.
Why This Is the Correct Answer
Why this is correct: Real estate supply is inelastic in the short term due to the lengthy processes of land acquisition, zoning approvals, infrastructure development, and construction. These take months to years, preventing a quick response to demand changes. Why the other choices are wrong: Builders respond to price signals, not wait for prices to fall. Lenders often finance in rising markets. Building codes regulate construction but do not cap annual starts. Exam tip: Remember: supply lags demand due to long development timelines.
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