Question

Cities like Indianapolis and Dallas are unbounded by mountains or oceans, while cities like Los Angeles and San Diego are bounded by both. A housing bubble is

A. equally likely to occur in all of these cities.

B. more likely to occur in cities like Dallas and Indianapolis.

C. more likely to occur in cities like Los Angeles and San Diego.

D. unrelated to the supply of land.

Answer 1

Housing bubble refers to the exponential rise in prices of real estate primarily because of increased demand for real estate, speculation and factors such as supply of land in the areas.

Over the years, the world has seen land as the biggest asset since the price rises exponentially over a period of time. A housing bubble in this regards, happens when availability of land is scarce. In areas which are bound by oceans and mountains, the likelihood of this happening is relatively higher since the towns or cities find themselves as hard to expand. With demand rising and the supply side unable to check this, the prices of real estate tend to rise causing what is known as a housing bubble.

On the other hand, in cities and countries in which, expansion allows for room for demand to settle down and accommodation is possible, the chances of a housing bubble occurrence is relatively lower.

Therefore the correct answer to this is that a housing crisis is more likely to occur in cities like Los Angeles and San Diego since the supply side is extremely dynamic while, the chances of its occurrence are relatively lower in areas such as Dallas and Indianapolis since they are not faced with similar challenge.

The correct option therefore is option (C)

Please feel free to ask your doubts in the comments section