“Housing is cyclical.” Another line you see everywhere, and this one is true. Before the 90s, housing *supply* was cyclical. Since then, because we’ve tied production up in regulatory knots, supply isn’t very cyclical, so housing *prices* are cyclical instead.
“The Great Moderation” applies at least as strongly to housing supply as it does to GDP growth. All the chatter about Americans keeping up with the Joneses and going all in on McMansions is defied by data.
People prefer privacy and space. People also prefer activity and interaction. These preferences are at tension with each other. In many ways, they are substitutes.
If the US population was still 20 million, dense, busy interaction just wouldn't be as much of an option.
So, as we grow, things get better, because the privacy option still exists, but the possibility of choosing dense interactions keeps getting potentially better and better. That draws more people in to making that choice, even if it is in tension with preferences for privacy.
The problem is that density doesn't just pop up in a pasture in northern Wyoming. It develops in the center of growing cities. That means density develops where there are neighborhoods which were chosen when the lack of dense options made privacy and space a better choice.
Think about what we are doing to ourselves. We are literally devolving into a culture that is incapable of taking care of itself. This is happening in housing too. We have the technology to build better homes, more affordably, than anyone in history.
But, in places like coastal California housing is more expensive than it has ever been in history. And, by that, I mean that even the poorest sedentary people who ever lived could construct housing with a few months' effort, using animal skins, or sod, etc.
In coastal California, today, using price/income ratios, it takes the equivalent of several years of effort to build a house. A Californian cannot choose to spend the amount of money/effort on a home that has been normal for centuries.
Scott Sumner and I have a new paper on housing, monetary policy, and the Great Recession.
Tl,dr: The stuff you thought was settled fact is wrong. There is a lot to unlearn about the recession in order to learn what needs to be learned.
Myth: The Fed needed to stop a housing bubble. The reason the crisis was so deep was because the Fed waited too long and let the bubble get out of hand.
Reality: Rising home prices are an international phenomenon. Popping the “bubble” made us worse off.
Myth: Artificially low interest rates overheated the economy.
Reality 1: Interest rates are a terrible way to measure monetary policy. During the housing boom, the Fed was pushing up against natural downward rate trends.