ABSTRACT
This chapter looks at the relations between planning policy and building cycles, with particular focus on the role played by changes in financial conditions. It studies the application of policies aimed at housing supply whether it be easing or tightening to building cycles, using a simple economic model of the housing market. The effects of planning policies on the cycle are shown to depend on the origin of the shift in demand and its duration. The Nordic countries have been implementing counter-cyclical rules intended to dampen the financial cycle. Such regulation may prove to provide important support to planning policies in smoothing building cycles depending on their underlying causes. Due to urbanisation in Iceland during the twentieth century, the demand for housing in the capital region has increased continuously. Traditional responses to rising prices, such as attempts to lower housing costs and increase the supply of housing, appear to have been less effective than before in dampening the cycle.
