That Bob is indeed really screwed, and so is the bank. But if we're printing a bunch of new money and giving it to everyone equally, that Bob doesn't get any more than the original one.
> Raising taxes and/or raising interest rates decreases speculative forces.
Raising interest rates especially, and that's the one I'm suggesting.
The problem with raising property taxes is that it equally impacts people who aren't speculating. You have to pay the same amount even if you only bought a house because you needed somewhere to live; even if you're not borrowing the money.
It also doesn't solve the general problem, because then people move money into things that aren't subject to property tax, like stocks. We don't need to deflate the housing bubble by creating a stock bubble the size of the sun.
> Either housing prices fall back to earth, or the earth expands so that housing prices don't seem that high anymore :).
Right, exactly. And housing prices falling screws people with mortgages and causes defaults, which is so bad that we haven't been able to solve it since 2008.
> The latter is obviously just old fashioned universal inflation (wages and consumer prices rise), and really screws someone saving for a housing downpayment
Their existing savings will be the same percentage of the house as it was before, because the nominal housing prices are staying the same -- inflation offset by higher interest rates. Then their nominal wages go up, so they can save the rest of it more quickly, which is the entire point.
> (not to mention, loans would be harder to get as inflation picks up).
Not harder to get, just higher interest rates. Which is, of course, the idea.
If you want to make it easier to buy a house, fix zoning so we can build more housing.