How long will it take for the mainstream in the USA, from the Fed down, to work out that cities with few constraints on urban fringe development have minimal price inflation; when demand is high they just build lots of houses? The "aggregate" data conceals the fact that where the volatility DOES exist, it is actually significantly higher than than what the aggregate data suggests. California is the main problem. I realise that a few districts in CA did build a lot of houses in the last bubble, but this was "deflected" from the anti-growth areas and CA as a whole is afflicted by undersupply. Price inflation commenced in elastic-supply Vegas and Phoenix when developers looking for land, ran up against government land holdings.

It is also interesting to compare the economic recoveries of rust belt cities in the USA with their counterparts in the UK. Somehow the UK's urban planning system causes even rust belt cities to still have unaffordable housing (and this of low quality and small size). The effect I describe in my comment just made, is the explanation why these UK cities never recover, while US rust belt cities, in which land costs fall to almost nothing, show signs of rebounding. Any business in which land costs are a major consideration, and which supply the national market, are attracted to a place like Detroit post-crash. Then there is Jane Jacobs thesis about the creativity that occurs in low cost commercial space.

Fritz, there are differences in the response of different housing markets within the USA, to interest rates. Where supply of housing is elastic, which is the case in dozens of cities, the price of housing is not forced up by easy credit or monetary easing like it is in the cities with growth containment urban planning. These cities have a massive advantage in household discretionary spending, and this makes a difference; the effect "compounds" right through the flow of money in the local economy. For example, this is probably the reason why there are far more spin-off jobs in services and consumption sectors for every new primary sector job in a low housing cost city. This is invariably due to elasticity of supply.

Also significant: Florida's State-wide "Smart Growth" mandate was repealed.

Leftists focusing on the "need" to "redistribute wealth" completely ignore the fact that the well off are already paying tens of thousands of dollars per year, for each less well-off person, for the "free" services that government provides. People in third world countries do not get these free services. If government got out of providing "free" services and just handed out the money instead, the less well off people might actually notice just how much they are already being "given to". The disincentive effect of the taxes to pay for all the free services is bad enough already, without trying to achieve financial equality as well.

Matt Ridley, in "The Rational Optimist", asks the question in the first few pages, why housing has not fallen in price relative to incomes, like most manufactured goods. He says this is because of government involvement. He has a good point. The real price of housing HAS fallen in all the US cities where government does not interfere with the supply of land for housing. The price of farmland has been falling relative to incomes, for decades; it is now around one quarter of what it was 60 years ago. Therefore, the price of lots (per square foot) on the urban fringe has fallen too, where government lets it . Govt messing with "services" also prevents price-efficiency gains.

Analysing "the USA" in aggregate is about as useful as analysing "the EU" in aggregate. There are disparate policy settings and outcomes in different housing markets in the USA, that are every bit as diverse as the difference between Germany and Spain in the EU. California's house prices and property cycles behave totally differently to most of the rest of the USA because of regulatory-induced inelasticity of housing supply. For example, data might show supply of new homes for "the USA" rising, and prices for "the USA" also rising. This could lead to totally erroneous conclusions being drawn. In reality, the supply is rising in markets where the price is NOT, and the price is rising in markets where supply is NOT.

Read John Cochrane: "Inflation and Debt" http://www.nationalaffairs.com/publications/detail/inflation-and-debt The assumption behind QE via the purchase of Treasuries and other instruments, is that the brakes can be put on inflation, when it sets in, by selling off the Treasuries held by the Fed, to mop up the excess liquidity. I have an astute friend named Henry, and when I told him of the above assumption, his immediate response, without missing a beat, was "who to"? (That is, who does the Fed sell the Treasury Bonds to?) John Cochrane's paper asks the same question. If the market has (correctly in my opinion) realised that US government debt is NEVER going to be paid off, the Treasuries won't sell and there will be hyperinflation.

A total "fail" for this. Read Robert Shiller's piece, "Unlearned lessons from the Housing Bubble". Urban land is NOT "in short supply"; less than 1% of the world's area is urbanised, and the price of farmland and land in other uses has steadily dropped relative to the price of urban land for decades, indicating that there is no shortage there either. The real (in income related terms) price of food and agricultural product has fallen for decades, which is why the price of land for producing it has also fallen in real terms. In any city where there are no regulatory restrictions on converting fringe land to urban use, the price of URBAN land has ALSO fallen in real terms; AND these cities do NOT have house price bubbles.....!!!!!!!