And everyone would have to live with parents or friends until they could afford a down payment. That sounds like a worse world than the one we live in.
For some time house values would drop, they will be sold to largest possible buyers. This isn't small buyers but probably banks, since they have lots of capital. Because of price drops, demand will be lessened and house construction industry will experience layoffs.
Many people will be without a house to rent, so banks or large money interests will offer their stockpile of houses under strict terms i.e. rent without renting (timeshare/leasing/house borrowing).
You'll get landlords but with deeper pockets.
There's an argument to be made about affordability, but there are a lot of arguments against paying someone else, for which you receive no equity, and they get to keep any price appreciation of the property.
It'd be interesting to see a rental market that banned anything but rent-to-own contracts, where some portion of your monthly rent had to buy equity in the property you occupy. (With standardized terms for disposal, sale, etc)
Therefore, the sum of the rents of the tenants of the property is enough to cover the purchase of the building, which is a subset of those costs.
The "sum of the rents of the tenants" isn't relevant to a single tenant, the loan isn't used to "secure the purchase", and you're confusing cash flow for total equity.
A building owner puts down a deposit for some percentage (say, 20%) of the building's cost, gets 80% in debt, and pays down that debt over time with the cash flow from the tenants' rent payments. They make a small margin net of expenses, plus whatever equity accumulates over time.
Setting aside the (significant) question of whether or not a given tenant would have the credit necessary to do such a thing, a tenant is not necessarily able to do the same thing, just because they can afford to pay the rent.
Real scenario: Someone buys a 4-plex for $1M. They put in $240K down payment. That's $60K per apartment. Will those tenants have that $60K they can put down to continue living there?
Sure, they'll own it and can get it back if they sell, but the majority of tenants don't have that kind of cash lying around.
The other components of the market aren't fixed and immutable.
If state governments wanted to mandate denser rezoning and smaller minimum unit sizes once unaffordability reached a certain level... they could.
Pointing at expensive housing and saying "We therefore have to make it cheaper by forcing more people into bargains in which they receive none of the gains" seems like the tail wagging the dog.
Micro housing that's cheaper should certainly be able to meet that bar.
Switzerland also has an interesting system that seems designed to somewhat equalize renting vs. owning.
You're paying the landlord for the cost of capital and the property management. And a 400k house in the stock market would on average generate 40k a year in appreciation. Most apartments in functional markets aren't anywhere near that appreciative.
Only in your dreams. The massive value increase in the last decade is an extreme outlier. Schiller showed that in the long run, looking overall, the appreciation is only 1-1.5% above inflation.
Sure, some places do get big increases. But it's not the norm.
Basically if you and 3 friends want to buy a 4-plex for 400k you would assume the bank would just make sure each person could afford 100k, they don't. Instead the bank will ensure each person individually has sufficient financial resources to afford a 400k home.
That and converting a 4 plex into condos doesn't make financial sense when you could just demolish it and build townhomes.
> And everyone would have to live with parents or friends until they could afford a down payment. That sounds like a worse world than the one we live in.
You are using a logical fallacy known as false dichotomy. We have many other possibilities such as commie blocks and even denser privately owned residential housing with fair competition and pricing. Maybe hard to achieve fair pricing but not impossible.