Real estate rarely goes down, outside of a total bubble deflation. People just hold onto it longer, unable to profitably sell, further trapping others in a cycle of rent.
The current bubble will drain money from producers to the value-empty mortgage sector for decades.
Your model that people can afford to hold onto an asset with maintenance costs forever seems like it can't be true. It's possible for your primary residence, but that's because homes have a use - you can live in them. If you're using it and paying the mortgage then it doesn't matter if you're underwater.
Anyway, this can be solved by waiting for them to die, and in the meantime building more houses with more efficient land use.
It's almost totally true for homeowners who live in the "flooded" home, trapped and unable to move. For investors it depends if they can afford the loss from selling at below purchase, and how much profit they have to eat into. Large companies can afford to liquidate and leave the space temporarily, putting their real-estate funds into development or something other than retail rent. Small investors with only a few houses are the ones who most impact retail house rent (not apartments) and this is where the rent trap is, they aren't living in these homes (cancelling rent with ownership) but their reluctance to sell for a new reasonable price means their renters are denied a chance to get ahead.
As for new builds, much of that money is held by the large rental companies and needs them to transfer out of the rental space, which they won't do until the market looks sane. Maybe not as long as waiting for people to die, but still painful.
What a trap we built by trying to make our residences an investment.
My city Pittsburgh would also like to have a word with you. It's doing well now after a 40 year downturn. Long enough to ruin many peoples lives permanently where they couldn't outlast the cycle.
There are A LOT of places in the US where real estate has not been a panacea of wealth accumulation.
The current bubble will drain money from producers to the value-empty mortgage sector for decades.