Definition of housing supply responsiveness

Changes in house prices depend on how quickly supply responds to changes in demand. If supply responsiveness is weak, changes in demand will lead mainly to rises and falls in prices. The price elasticity of new supply measures the proportionate increase in new housing supply in relation to the proportionate increase in house prices.

Some cities and countries have much poorer long-run supply responsiveness than others and, so, are more prone to house price inflation and fluctuations as a result.

Example

Sweden and the UK are examples of countries with poor supply responsiveness.  Germany has historically had a much greater supply responsiveness and much more moderate house price rises and low price volatility as consequences. [1]

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