[graeme]

This analysis only works if you assume the supply is fixed.

If you increase the returns to building ownership then people will build more buildings. Which lowers prices.

Capping supply by decreasing the returns leads to less supply, other things equal.

[emmacharp]

Won't lower prices reduce returns to building ownership?

[Jensson]

Yes, that is supply and demand. Supply will expand until it is no longer profitable to expand supply.

[emmacharp]

But for supply to expand, prices must go up, right? They can't go down.

That is what I'm trying to understand, since a lot of people here imply that "increase in supply will lower prices".

[sethammons]

It is called The Law of Supply and Demand. I'm sure there are zounds of articles or videos on it.

In the model, the price of a unit will change as you adjust either supply or demand. If there is lots of demand and little supply, the price is high. If there is lots of supply, the demand cannot force the price higher. Assuming the seller wants to sell, they have to compete with other sellers. The more units for sell, the less negotiating power they have because someone more desperate can sell cheaper.

[emmacharp]

I understand supply and demand... but it's a really basic theory.

My point is: prices will have to increases for supply to increase as well. Saying that increasing supply will keep prices low makes no sense if right now prices are too low for private interests to build more housing.

Supply won't keep prices "low" and certainly not lower than they are now. How would that work? How would they make profit?