Of the choices that you have given us, the best answer is the second choice. The first and third choices do not make sense economically. The fourth was less likely during a time when transportation was slow.
If urban land values rise, housing prices will (all other things being equal) rise as well. This means home ownership will become harder. It also means that people will (if possible) have smaller homes. This rules out the first and third options. Expansion might have made sense, but this was in the days before there were good cheap ways to commute. Therefore, what did happen was higher density living; homes were subdivided so more people could live in a given space.