The story of what actually happened was that mortgage lenders had found reasonable ways to lend to young, qualified borrowers with loans that had to be outside conventional norms, because housing markets in Closed Access cities are outside conventional norms. That pushed prices in Closed Access cities up to levels that reasonably reflected the high rents that come from a persistent shortage of housing. That triggered tactical selling by existing homeowners. The aggregate effect of this activity was to lower the population of Closed Access cities as young households with high incomes were able to secure a more generous amount of housing in cities where the total amount of housing is relatively fixed. That led to depopulation and out-migration. The out-migration overwhelmed a few cities, like Phoenix and Las Vegas, and caused prices in those cities to spike.
Here are a couple of charts that marginally add to that story, both measuring population growth per new housing permit.
By this measure, if there was anyplace in the US that was overbuilding, it was the Closed Access cities. But, obviously, they have never come close to overbuilding. In fact, this apparent surge in homes was actually a surge of migration away from the Closed Access cities.
Much of that surge went to the Contagion cities, and the Contagion cities increased their building in response to it. That surge in building also has been taken as a sure sign of overbuilding, even though it barely met the need for housing demanded by the new residents.
But, the Contagion cities generally have more population growth per housing permit than the US does in general. There was a slight downshift in that measure during the boom, parallel with the rest of the country, but new residents per new home in the Contagion cities never dipped below the national average.
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