> The challenge is that the people who live in an area use the rules in such a way as to make building new homes very expensive or outright impossible. The people who would like to live in that area have no say, and lack representation.

Okay so what? I think that is perfectly fine. It isn't necessary for everyplace to cater for everyone.

> The bigger picture here is that it means even two rational people can inadvertently make the situation worse for themselves. > > Person A lives in City A, but wants to move to City B > > Person B lives in City B, but wants to move to City A > > Person A votes to make it hard to build new homes in city A, because it makes their own home worth more. > > Person B votes to make it hard to build new homes in City B, because it makes their own home worth more. > > It makes sense in a self-interested way but both wind up worse off.

These seems like a fantasy scenario to me. Typically people are either moving to a particular area, or out of a particular area, not swapping one nice affluent area for another equally affluent area (which is somewhat assumed in your scenario).

The reason btw housing is expensive is because housing became an investment vehicle isn't because of nimby's and we have about 600,000 (net) people entering the UK every year.