The council of Maple County, concerned about the county's becoming overdeveloped, is debating a proposed measure that would prevent the development of existing farmland in the county. But the council is also concerned that such a restriction, by limiting

In order to avert overdevelopment, the council of Maple County considers introducing a measure that would prevent the development of existing farmland. However, the council is cautious of the side effects this measure might have on house prices. Indeed, by decreasing the supply of new houses, the propose measure may induce a significant price increase. Two contradictory empirical studies are presented; one conducted in Chestnut County where such a measure had been introduced ten years ago without significant effect on house prices, and one from Pine County where the implementation of the measure fifteen years ago led to more than a doubling of house prices over time. The council aligns its opinion with the latter evidence by predicting a significant increase in housing prices.

However in order to assess the impact of the proposed measure, several questions need to be addressed. What are the characteristics of Maple County and how do they compare with those of Chestnut County ten years ago and Pine County fifteen years ago? What were the overall trends in house prices over the last fifteen years? What is the prognosis for the housing market in the near future?

Suppose that geographical characteristics of Maple County more closely mimic those of Chestnut county, rather than those of Pine County. For example, Maple and Chestnut counties might be situated in rather unattractive areas where demand for housing is not very high. The building of new housing in such areas is only going to increase the supply of housing. With no concomitant increase in demand, house prices are likely to fall. Therefore, restricting such new housing is not going to increase house prices, but rather keep them at the existing level. On the other hand, if Maple County is a touristic area with buoyant housing demand, hindering the building of new houses is the same as constraining the supply of overall housing. The increasing demand is likely to drive the prices up over time. This might have been the scenario that happened in Pine County where prices more than doubled over time.

Beside knowing the characteristics of Maple County, it is also important to pay attention to overall trends in the housing prices. Suppose that all counties are similar in characteristics and that fifteen years ago there was a boom in the housing market followed by a deep recession, then a stagnation. It might be that when Pine County introduced the proposed measure fifteen years ago, its housing prices skyrocketed. Neither the recession, nor the stagnation have been able to bring them down to their initial level fifteen years ago. Overall, they have more than doubled. On the contrary, ten years ago when the Chestnut County introduced the measure, the housing market was already in stagnation and therefore its housing prices did not respond accordingly.

Ergo, to assess the side effects of the proposed measure, it is vital for Maple County to gather information on its characteristics and the prognosticated trends in the overall housing prices in the near future.