I don't follow, can you elaborate? People making more efficient use of a scarce resource doesn't suggest falling demand. How are steps 1-3 akin to that? The pr

I don't follow, can you elaborate? People making more efficient use of a scarce resource doesn't suggest falling demand. How are steps 1-3 akin to that? The price signal called "rent in SF" suggests that there is a scarcity, given that people who would like to have a 2 bed apartment to themselves can't get one. That's not weird. What's weird is that we've let the owners of homes vote on whether it should be illegal to build more homes. It makes sense - it increases the value of their asset. It's just not helpful to non-home-owners. You wrote "The only possible source of instability in the whole housing/population cycle would be the government trying to prop up the house prices once the price correction start" - but the government, at the behest of local homeowners, IS propping up the price of houses by making it nearly impossible to build new ones (this has abated somewhat in the extremely recent past). Do we give GM a vote on how many cars Ford is allowed to build? Note that I write "home", not "house" intentionally - providing homes for many people in a small area usually means apartments, condos, etc. for the most part. Houses still exist, albeit as a luxury. It also means you don't price land used for sleeping cars cheaper than land used for sleeping people.