Home builders being very short term doesn't seem related. If they won't build because they can only make mc mansions on tiny lots while land values inflate wildly, they're part of the issue and blasting land prices along with home prices to reset the cost of building should benefit them in the long run. But it does mean that they're paralyzed until land values stabilize at a lower value.
by all means, go invest in a REIT whose logline is, "We make money when land values go down!" How exactly would they be building housing in such a scenario? And why wouldn't an investor interested in this simply short real estate instead? Does this illuminate for you that you are right, short term isn't related, but you are wrong, and the truth is surely prices dropping is bad for investing in building houses?
You seem to be ignoring that once land values reach some kind of floor it will be entirely sensible to build houses. Land values going up leads to FOMO, and going down leads to the reverse of FOMO, IE fear that the bottom hasn't been reached.
Clearly it is correct to short, but short positions expire - they are definitionally short term.
That said, the behavior is pretty expected: the current operators are operating on in inflated land value cost because the market has become distorted due to lack of supply. Altering the market by injecting supply will drive down land value and cause operators with money stuck at the current equilibrium to lose money or fail. But it poses no issue to operation or new entrants at the new market equilibrium. If it operates like a market should operators should be happy to begin providing houses on land at the new equilibrium as soon as it's reached. However fear of not knowing when it's been reached will mean that it does to take time settle.
Okay, but what actually happens is exactly what happened with the tariffs: a bunch of bold statements about policy benefits, huge market drops, followed by chickening out back to the status quo. You are talking about policy effects that would take a decade to realize, a decade of huge pain to investors… I cannot comprehend how “Rube Goldberg machine that leads to long term benefits, guaranteed short term catastrophe” is a policy idea.
I trend towards 3 to 5 years over a decade in my thinking, but if investors never seriously think that risks or slow or down markets like mentioned are possible the market is absolutely going to be completely misvalued until the mechanisms that prop it up get overextended or weighed down to the point of failure.
