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That's the problem of having a "market" economy. The only time they can work is when everyone agrees it is a good idea and they don't set up black markets to get around it. They worked to some extent in WWII because there was a war on and everyone had to sacrifice.
But the problem with real estate is that people are forever looking for places to stash their money. Capitalism rewards people who buy appreciating assets, and so they bid the price of houses up and up and up, far in excess of their replacement value. Once you account for the building cost of the house, that's how you get a $50,000 house sitting on a $400,000 lot.
The history of capitalism is replete with bubbles, where money gets sucked into something cool and fashionable, until it is no longer self-sustaining. Most bubbles collapse entirely, like the Tulip Bulb craze, but real estate is a little different in that it is always in demand (unlike tulips) and you can always set a floor for it depending on its value for agriculture. The problem is to keep the bubble from starting to inflate in the first place, and the way to do that is to keep money out of it. You find some other non-market mechanism of allocating goods, as the Communists did when they assigned housing (based on job, status, party membership, etc). There was no inflation in the cost of assigned housing in the Soviet Union, but the weekend dachas in the country took up the slack in that respect. After 1991, state-owned flats were dirt cheap, because everyone had one and there wasn't much advantage in trading one for another, but dachas quickly turned into a Western style housing market.
One way that would have helped control the market to prevent the current mess would have been to strengthen the homestead exemption. It is a relic of previous times when the government was promoting home ownership, but now it is just amounts to a small rebate on property taxes. It could instead be used to have people designate one primary home, one which they could be eligible for all sorts of tax breaks, assistance in times of emergency, and special low-rate mortgage programs. Property that was NOT declared as a homestead could then carry the extra reward (and risk), but those owners would be real estate investors and speculators and they could be expected to pay more substantial down payments, pay market rates for loans on it, get their own insurance, and not expect the government to come and help rebuild if there was a natural disaster.
I would expect to get an earful from Mr.&Mrs. McCain for making such a proposal. How dare I force them to single out only one of their seven properties for special tax status! How dare I say "you're on your own" if one of their other vacation spots gets hit by a hurricane of a tsunami. I think if such homestead exemptions were adopted, there would be a lot less flipping and speculating, which is the basis of a capitalist bubble.
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