Taking a hard line on rewriting the bankruptcy code. Por Edward L. Glaeser.
In places with fewer building restrictions, like Atlanta and Dallas, housing price volatility is moderated by a construction sector that supplies extra houses during booms and ratchets back building during downturns. In California and Massachusetts, where abundant land use restrictions keep new construction low, any uptick in demand translates into higher prices, which then come back to earth. If an area’s prices go up by an extra $100,000 over five years, then, on average, those prices fall by an extra $32,000 over the next five years.
There are winners and losers in both booms and busts. Owners, who win during booms and lose during busts, get the most attention. We often ignore prospective home buyers, who lose just as much as owners gain during booms and gain just as much as owners lose during busts. Moreover, housing cycles don’t pose huge risks to most homeowners, whose longer time horizons enable them to sit out downturns.
Housing cycles pose the most danger for deeply leveraged, short-term investors. No matter what the get-rich-quick-in-real-estate infomercials say, short-term bets on housing are a terrible, hard-to-diversify investment for the little guy.
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