For nearly every homebuyer, a home is the largest purchase they will ever make and the bulk of their net worth. It needs to be a good long term investment that at least reasonably paces with inflation, otherwise you are losing money by buying a home and everyone has to rent and then you have feudalism with extra steps.

The good news is this is totally fine with keeping cost of living under control and overbuilding, because prices will go back up over time. Most people aren't going to own their home until the 30 year mark so it really is a much, much longer term investment than anything like overbuilding or other factors can reasonably affect.

The problem is really that people started seeing 2x-10x returns on homes and started treating that like the norm. That is not a 'good investment' that is a 'money printer,' and in most cases the government does not want to safeguard that behavior, but it's hard not to when those same people panic like crazy if their home only goes up 2% in value in a year or, god forbid, decreases in value for a year.

There is really no good solution to that mentality, if there really was one then Wall Street would have uncovered it ages ago to get more people into long term ETFs.

There is no "progressive" definition, income level is not at all part of the definition. Per the universal legal definition of 'affordable housing,' if a home costs $1B but is occupied by Elon Musk, it would still be affordable because it is less than 30% of his gross income.

When you are dealing with income levels it is universally called 'low income housing,' and the HUD definition is already scaled to local income levels, the 'A' in AMI stands for 'Area.'

You are conflating marketing ('we need more affordable housing!') with policy ('low income housing')

If you live in a magical fairy world where supply and demand are fixed, sure. In the real world, prices going down 10% leads to a surge in demand, and so you can fill more of your units. This leads to either equal or increased revenue, for the same construction (flat cost), which actually yields higher margins. This is why developers are usually concerned with occupancy rates, and prices are more a concern for homeowners.

There are only really 3 scenarios where prices are low and demand is low:

[1] There is a dramatic surplus of supply, in which case if a developer is trying to build they've not done research and probably should not get financing

[2] There is some other factor (usually high crime) in which case again, developer should do their research, and the market is operating fine

[3] You are developing super early and operating within incentives offered by the city, usually tax abatements, which drive down the carrying cost and make it a better investment.

Also important to note that in scenario [3] a smart developer will slowly release inventory to restrict supply to meet demand, and as demand grows, release more inventory at the newly raised price, continuing to do so as long as the tax abatements advantage the strategy. This is common in successfully developed areas e.g. Jersey City, and is fine as long as broad scale collusion doesn't occur

You are quite literally debating what the definition should be, because this is _not_ the existing definition of affordable housing, it is legally what OP is saying. "Affordable housing" is just when the household spends <= 30% of gross income on housing related costs. This is the definition used by the HUD and the same definition applied in policymaking.

What >you< are referring to and what it is conflated with by progressive policymakers is "low income housing" which imposes an AMI based restriction on the resident's income. This in turn means that 30% of their income is much lower and restricts the sticker price of the home.

In recent years, most 'affordable housing' policy has been advanced by progressives, who use that term for marketing purposes, whereas the actual policy primarily relates to 'low income housing' or even 'very low income housing.' This does not mean 'affordable housing' = 'low income housing', it just means the term 'affordable housing' is used in the title and the actual measures advanced are related to AMI and 'low income housing.'

Affordable housing = housing that regular people can afford

The only silly thing here is that "low income housing" got rebranded as "affordable housing" and absolutely everything else got rebranded as "luxury homes" for political reasons.

"Market-rate housing" is even sillier given that it is literally the opposite of what "affordable housing" policies dictate

It's not necessarily prices falling here but the profitability of [demand] at [price]. Like if prices fall 10% but demand rises 20%, you would want to build more housing.

This is the beauty of the free market because it guarantees three things:

[1] Real estate is generally a good investment and will hold value or appreciate in the long term, because supply will adjust to demand shocks to rescue values

[2] If people want to live somewhere, houses will be built for them to live there

[3] Real estate developers and construction are solid, safe businesses with great unit economics because building may decrease prices, but may still increase demand

It's when you constrain and restrict a market that players have to adjust and then you get crazy scenarios