There's no guarantee that builders will use the loosened restrictions to build the most efficient housing. In fact they will most likely build the most profitable housing instead.
The most profitable is on the high end - so marble countertops, stainless steel appliances, etc. All the builders will race to build as much of that as they can, as fast as they can. Then, when the market is glutted, they'll be unable to sell off their investments. Builders will end up with their capital all sunk in cheap land and expensive housing. no one can afford to buy. The builders can't sell the cheap land since they leveraged it to pay for developing the expensive housing. They can't sell the expensive housing because the market has temporarily dried up. The builders will just wait until the glut resolves and continue business as usual.
Meanwhile, there is not really that much more actual housing for the low end market. Some builders made a bunch of money and some craftsmen got extra work building houses they can never afford.
> Then, when the market is glutted, they'll be unable to sell off their investments. Builders will end up with their capital all sunk in cheap land and expensive housing. no one can afford to buy. The builders can't sell the cheap land since they leveraged it to pay for developing the expensive housing. They can't sell the expensive housing because the market has temporarily dried up. The builders will just wait until the glut resolves and continue business as usual.
If there’s a glut in the market prices fall. If you have invested a lot of money in something in the hopes of selling it at a profit and you can’t you go out of business and your assets are sold. So if you over leverage and prices fall you go out of business and lose all your assets and the bank may lose some of its assets. Housing supply increases though. In a market where there’s excess demand at current price points (rising prices) that’s good.
Capitalism doesn’t make ever increasing housing prices, zoning does.
