> we solved the problem with ramshackle one-room buildings with dirt floors,
there is a fallacy here. People with access to debt bid up the price of an asset, like a house, against other peoples’ similar access to debt. Sans debt access, the solution was not necessarily a small ramshackle house. The fallacy is the belief that the same asset price - whether opulent or ramshackle house, wouldn’t adjust to the reduced level from the bidding environment. The differential cost of construction for a nicer house can be countenanced in the access-to-debt case, but that is second order.
Illustrative straw-man example: Suppose, once one had a parcel of land, that it was trivial to construct one’s ‘starter home’ the ramshackle house if you like. Get one’s family and friends to help build in exchange for future return favors. As one advances in life, rebuild to have something more opulent. The rub is in the parcel itself. Unlike the would-be house, it had no cost built-in, just whatever price the previous owner was willing to accept to release their parcel. That parcel’s (and those around it) price reflects the market’s access to debt, or lack of access to debt. In the market without access to debt, parcel pricing reflects which buyers have accrued more savings vs other buyers. In the market with access to debt, parcel pricing reflects who can access more debt (through the various means we know of today - down payment ability yes, which parallels the non-debt’s savings case, someone co-signing, long term expected future earning potential vs someone retired, the parcel itself put up as collateral, perhaps other non-immobile assets put up as collateral, like the family oxcart).
The point is that there isn’t necessarily a 1:1 coupling between market’s debt vs non-debt access and whether the construction is opulent vs ramshackle.