Housing bubbles are universally destructive

Housing bubbles are universally destructive
tbwns.com

My guess: tools that make it easier to live wherever you want disproportionately benefit the places people most want to live.

The thing that makes it worse is when taxable property values trail actual property values - it makes simply holding on to property a tax payer subsidized investment. CA for instance has capped taxable property valuations at 2%, which is a subsidy for empty properties, properties that increase rent/lease by more than 2% a year, and business (which never sell property) - the biggest component of civic services is fundamentally the cost of rent/mortgage, as that dictates how much all civic servants (emergency services, city/county administration, elected officials) need as there /base/ income. It also indirectly costs tax payers through the increased need for housing and other financial support for low income people (which can actually be a double tax, as it may result in tax payers paying rent on a property that is underpaying taxes anyway).

They are, in the short-term. The problem is that high housing costs have a slow, long-term corrosive effect on a city. Companies have to pay higher wages for workers to achieve the same standard of living, which makes them less competitive. So, for example, you see a lot of tech companies springing up in Austin now. It doesn't happen overnight, but it happens.

It also creates a large net transfer of wealth out of the city whenever someone moves. Someone who moves in with half a million dollars in net assets would normally be a boon because they would go use that money to patronize local businesses, but now they have to spend that and a good chunk of their salary going forward on housing, which goes to the seller who is moving out of the city and taking the money with them.

The housing ratchet is also completely unsustainable. The people who already own real estate want prices to increase rather than decrease to justify the high price they already paid and generate a competitive return on that huge amount of money, but when housing is already the majority expenditure for city residents, costs long-term can't increase faster than wages, and the higher wages get for the same standard of living the less competitive local companies are.

Eventually you reach a limit on how high housing costs can sustainably go, but once you hit it, nobody wants to put down a million dollars for a house that won't appreciate at all when they could be getting some ROI on the same money in the stock market. Then prices finally start to decline, but people definitely don't want to pay $950K for a house that will lose value, so the decline is rapid. This is, of course, catastrophic.

It's almost impossible to avoid this once the values are already ridiculous, but what the article suggests can mitigate it somewhat: Sustained moderate inflation combined with a large increase in the housing supply, so that real values come down even though nominal values are stable. Then the crash is in real value rather than nominal value, so people don't end up with underwater mortgages, and it can ideally happen over a period of a decade or so rather than instantaneously in a way that causes a local economic crisis.