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Looking at many housing markets in major cities around the world today it looks like most (London, New York, Sydney, Beijing, Toronto,...) have become totally detached from the earnings of the local market. This seems unsustainable but I can only think of one chart, see below, of Japanese property that goes into a boom, crashes and never recovers.

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Are there any other episodes in recent history where the price of real estate crashes and never recovers in price?

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  • $\begingroup$ It has happened in many former mining towns, due to local factors $\endgroup$ – Henry Apr 10 '17 at 20:33
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Maybe the case of Germany before and after WWI could provide you an example. See here. The short story is that there was a big housing shortage before the WWI, which, after the war, which was no solved by the market, because of rent controls, profits controls, and other regulations.

The origin of housing shortage and rising prices:

Germany's housing problem originated in the period of rapid industrialization, population growth, and urban concentration between 1870 and 1914. Population mushroomed from 41 million to 67 million, and by 1910 twenty-six German cities boasted populations of 200,000.

This led to:

high real estate prices, heavy mortgage indebtedness, and high rents

State intervention begun:

Systematic government intervention in the German housing market began during World War I.

Some thought it would stop after the war:

After the war, many Germans would have been satisfied to permit the wartime measures to expire, allowing the economy to return to "normal." With a return to normalcy, private enterprise would return to the housing market, eliminating the need for state intervention.

However, this did not happen:

Plagued by inflation and a severe capital shortage, the German housing industry failed to return to normal. The little capital that was available commanded exorbitant interest rates; until the credit crisis of June 1931 first mortgage interest rates hovered between 8 and 10.8 % per cent. ... Predictably, there was practically no demand for new housing, and thus very little new construction. ...

The state capacity to build was also damaged:

the war effort had exhausted Germany's capital supply, the loss of her colonies, merchant marine, and industrial investments in Alsace-Lorraine diminished the nation's capacity for new capital formation, and reparations payments appeared to have first claim on any capital formation the country might manage.

So, albeit not the exact narrative of a modern housing crises, it might be of help.

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