That sounds like a great way to slow down real estate development. Make sure there is an additional cost if you oversupply the market.
Of course there is waste, this is part of the cycle of boom and bust. The people that mistime the market will overbuild and lose their investment.
When the frenzy passes, house may stay empty, but the market will adjust. Fewer new houses will be build and people who stayed out of the market will have a chance to buy at cheaper prices.
The market controls growth. Of course many factors manipulate the market (interest rates...). Boom/Bust is always going to be a factor because it isn't possible to know perfectly how much space we need before we need it. Boom/bust isn't even all bad, those who need space after the bust can get it cheap and start something interesting that they wouldn't otherwise) - artists for example need cheap space if they are to start a studio.
That sounds beautiful in theory. In practice, whoever has surplus capital controls it. Growth ends up a product of a few people's bets, and they can afford playing against the 'invisible hand' and making big mistakes. The human cost will be paid for by the communities where the game plays out.
In short I reject your pessimism.
> Of course there is waste, this is part of the cycle of boom and bust. The people that mistime the market will overbuild and lose their investment.
> When the frenzy passes, house may stay empty, but the market will adjust. Fewer new houses will be build and people who stayed out of the market will have a chance to buy at cheaper prices.
Why would there be new development in places with high vacancy? Wouldn't the community want new development to be hindered if most of downtown is empty already?