Another thought from Texas. Out here in the Hill Country where the residential population density is extremely low it’s very easy to see that talk of things like a “real estate bubble” or a “real estate boom” is somewhat confused. Real estate is two things – it’s your land, and it’s the structures you have on your land. I spent Christmas Day at the home of some friends of my girlfriend’s parents who inhereted an old ranch property a while back. The old ranch contains an old ranch house that was originally build in the 1920s. The owners expanded it substantially in the years after World War II. The present owners, however, built a whole new and substantially larger modern structure on the property quite a ways away several years ago. When that building was done, they turned their sights to the old ranch house where they did some internal renovations, upgraded the appliances, and replaced the windows with modern double-pane insulated glass to make it more inhabitable in the winter. The property also includes some other sheds and minor out-buildings, and I believe there’s a cabin somewhere that hunters can rent in the appropriate season.
Structure-building of this sort can definitely occur in waves of boom and bust. But it’s fundamentally a totally different kind of thing from a boom-bust cycle in the price of land. The two can be causally related, of course. A ranch owner who sees the value of his land skyrocket becomes wealthier, and may well invest some of this wealth in upgrading the structures on his land. But by the same token, a landowner who sees the value of his land skyrocket becomes wealthier and may well invest some of this wealth in buying a more expensive car. Alternatively, if you own a big piece of land and a modest house and then you win the lottery, you may go build yourself a bigger house for reasons that are unrelated to land price trajectories. I think it makes more sense to restrict the idea of a “bubble” to speculative asset like land (or stocks or gold or whatever) rather than to the actual building. A building boom may be (indeed probably is) in some sense “unsustainable” but when the boom collapses it’s not like an asset price bubble that leaves nothing in its wake but debt. A boom in structure building leaves you with extra structures. Whether or not this is the most useful thing to have on hand is open to debate, but it’s very much the opposite of “paper wealth” that vanishes when the boom fades. The buildings are still there, and still as useful (or useless) as they ever were.