Chapter 7 After the increase in demand, rents initially rose to $500 per month. At this higher level, it now becomes more profitable to construct more housing. Thus, an apartment and housing construction boom will hit the city. Of course, it takes time to build the additional housing. But, as time passes, more housing is produced and so the supply of housing increases. The figure shows the effect of the construction boom. The construction boom increases the supply of housing. Thus, the housing supply curve shifts rightward, from S0 to S1. As the supply increases, the rent falls and the quantity of housing increases. The figure is drawn so that eventually the supply increases to the point where the rent is driven back to its initial level ($400 per month) and the quantity of housing increases to 70,000 per month. The conclusion that the rent returns to its initial amount is not always going to be the case. Depending on the cost of constructing housing, the rent may end up above its initial level, equal to its initial level (as in the figure), or, though unlikely, below its initial level. But, the important points are: As time progresses, the rental rate falls from its level after the increase in demand. As time passes, the quantity of housing increases. How would the presence of a rent ceiling affect these conclusions? Click on the figure below to find out.