[suburbanite]

The problem with the argument as well is that it ignores the reality of real estate as a fundamental human need and not just a paper investment. Despite our incentivization of real estate investing, the vast majority of residential product is still owned by those who occupy it. Any proceeds on a transaction for those properties is not some free and clear cash flow to be used for something more productive. A substantial portion of it has to be used for replacement, unlike an equity investment which we do not require to keep us warm in the winter...

That is what is meant by capital being tied up in the system. Everyone needs it, our incomes our fixed, and so the more expensive it becomes relative to incomes, the less money we collectively have to spend on things that produce far more positive externalities through job creation and innovation.