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A slowdown in the economy can be represented by a decrease in economic output of other sectors, a decrease in the interest rate to 4.00% and reduction in the costs of land to £3500 per hectare.
This is a set or combination of policies. You need to identify the likely effects on the demand and supply conditions, then gauge the general outcome.
The reduction in economic output of other sectors and the reduction in the cost of land will influence the supply curve.
The relationship between economic output of other sectors and the supply of housing is that they are in composite demand. For instance, the fall in output of other sectors means that there is more available land for housing, hence, the supply curve will shift to the right.
The lower costs of land will also increase the market supply of housing. The lower cost represents lower costs of production, this will increase profitability, so attracting more producers into the market. The outcome is that market supply curve shifts to the right.
The lower interest rate will reduce the cost of borrowing money to buy a house (mortgage). The current situation is where people have to borrow money to purchase a house, then a mortgage and a house are complementary goods. Therefore, if the demand for mortgages increase then there will be a corresponding increase in the demand for housing.
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