There is a lot of stickiness and inelasticity when it comes to housing, especially when other factors such as kids and schools and spouse's commute and all come up.
The major issue is that the market is NOT free. This market can't ever be free. There are building codes, zoning, planning, approvals, etc. All of that red tape related to building the level and quality of housing that an area needs already distorts the market.
Thus the underlying issue is that there has not been proper correction and guidance from the governance structures established by the people in the area; mostly because the rising home prices and status-quo of neighborhoods generally benefit those people.
It's going to take state or federal level correction to fix this issue and the "best" way of doing that would be to sour the use of housing as an investment.
Address what? A vague reference to "stickiness and inelasticity when it comes to housing?" I suspect you're misunderstanding what the "swap houses" example means. It's not actually about two people who might want to swap their houses. It's just a "bottom up" way of showing how housing restrictions create inefficiencies by limiting choice.
It might help to think of it in a "top down" fashion. Imagine laying out housing for everyone in a metro area as an optimization problem, where you're trying to maximize a value function over things like amount of space, proximate to peoples' workplaces, quality of schools, affordability, etc.
Housing restrictions add additional constraints that make the solutions worse for everyone. E.g. say some group of people with kids are willing to live in a duplex on 1/8 of an acre rather than a detached home on 1/4 of an acre in order to reduce their commutes and see their kids more often. But they're not willing to live in a city apartment with their kids and pets. Housing restrictions basically eliminate that part of the solution space by making it illegal to construct such housing. That group of people get punted to their less-preferred alternatives, and the resulting solutions are worse for everyone.
There's nothing to dispute here–the are obviously factors other than costs that make (some) people prefer to stay put: local family, friends, or even plain old laziness.
That doesn't exclude the cost scenario outline further up, and the relative strength of these effects vary from person to person.
And no argument will "win" such debates for either side. These are complex issues, and even if everyone can agree on the mechanisms at work, you'll get widely different results based on differing importance for the conflicting goals you're trying to optimise for.
Rent control, as shown above, might legitimately add to traffic. But it's also cruel to force elderly people to leave their remaining friends, and their familiar neighbourhood, just because they can no longer afford rent.
Anyone claiming "it's so easy: just..." is invariably wrong. California's legislators aren't stupid. The main contributor to housing problems happens to be the unparalleled economic success of the state, plus a few geographic quirks.
Simplifying to the tired old "free market" vs "regulation" debate is only exchanging one set of problems for another. The US happens to have other locales that dabbled in an ideology-driven "free market" approach. The result are the suburban hell-holes that are Atlanta, or parts of Houston: Low-density clone cities totally reliant on cars, with much longer commutes and huge environmental footprints, almost devoid of street life.
What's usually needed is neither more nor less regulation, but smarter: encourage high-density mixed zoning, create public transport that can compete with cars, encourage companies to adopt telecommuting, flexible hours, distributed workplaces instead of central campus etc...
that dabbled in an ideology-driven "free market" approach. The result are the suburban hell-holes that are Atlanta, or parts of Houston: Low-density clone cities totally reliant on cars, with much longer commutes and huge environmental footprints, almost devoid of street life.
I assume because that's what people want?
HNers seem to think a downtown core existence is the best and apparently aren't aware there is a big group of people who don't want that.
Yes and no: Given the choice, people will prefer a single-family home with a large garden, to the same home without a garden, or a smaller apartment.
But rephrase it and the answer changes: People prefer to life in (nice) apartments if others do so as well, and the resulting increase in density cuts a 60min car commute into 15min on a bike, or even 30 in public transportation.
In any case, I would consider mixed zoning more important than density. It's not just metropolitan city centres that provide higher quality of life than the suburbs. Another winning model is that of the classic "Small Town USA".
It's perfectly possible to have suburban-style homes with gardens clustered around a city centre providing everything you need in a typical week, plus schools/medical care/sports/you kids' friends all within a radius of about 3 miles, making it easily accessible by bike, and even on foot.
