Chapter 40 Urban housing markets: Theory and policy This chapter examines certain of the developments in the application of economic theory and in empirical and policy analysis with respect to housing markets in general and urban housing markets in particular. The majority of the material refers to US and UK experience with some English language contributions related to other mainly European countries. The main thrust of the chapter is to clarify how the particular attributes of housing especially those of durability and locational specificity have been introduced into microeconomic models of housing. On the demand side analysis concentrates on estimates of price and income elasticities and the results that arise from different mode specifications. On the supply side there is emphasis on the importance of distinguishing the factors determining new supply from those which affect investment in the existing stock. Overall housing market analysis is also divided into that which applies to the market as a whole and the very different issues particularly with respect to market segmentation which dominate urban models. Turning to housing policy the chapter clarifies the different approaches taken to analysis measurement and evaluation of policy in Europe and America and examines in detail developments with respect to particular examples of policy concern including market versus administrative allocation housing and labour markets the impact of local taxation and rent control.