“First, it appears that the housing boom has not been driven by unusually loose monetary policy. This is not to say that monetary policy has not been unusually loose, but that to the extent it has been loose, this is not what has been driving spending on housing.”
Sorry, but it’s hard for me to take anything following the above quote seriously. If you can’t connect the dots and figure that when short-term rates are below inflation (1% vs. some number much greater than 1%) that such loose policy will flow through discount rates and then to malinvestment, then I can’t help you.
In my view, the big three housing boom culprits are:
(1) Too many years of artificially low interest rates via the Fed;
(2) Too much easy credit via lenders (option ARMs, etc.); and
(3) A lack of risk aversion on the part of home buyers and investors, mostly a result of the “Greenspan Put.”
I’m sure there are other reasons, but I’d say these are the Big Three.
