Specifically for HN, the high cost of housing severely restricts entrepreneurship. If you are paying 50% of your income on a rent or mortgage, you are of course less likely to start a business, and the cost of doing that business in terms of employees salaries and commercial rents make it less viable.
Also consider that your suppliers, and their suppliers, and their suppliers ad infinitum, all have the same high costs ultimately derived from high housing costs for their employees.
This all adds up across the country and the whole economy is made less competitive and agile as a result. With lower housing costs there would certainly be less unemployment.
The sad thing is that the even intelligent people are duped into believing the myth that high house prices are good for them. Clearly lower prices mean more disposable income, which is usually a good thing? Clearly high house prices barely benefit anyone as we all need a house, and the next house you buy would likely have gone up by a greater price than the one you have now? And yet we persist - 'we MUST get on the housing ladder' and we blame those nasty banks because 'they aren't lending any more' when all they are doing is scaling back lending multiples from the absurd back to the ridiculous.
All that high house prices achieve is to keep young people into debt serfdom, keeping us on a treadmill servicing massive mortgages for the same bricks our parents bought for 20% of the price. We really could be out doing something much more worthwhile.
Edit - you may wish to read this to put the madness of this credit bubble into perspective: http://www.housepricecrash.co.uk/forum/index.php?showtopic=5...