There is a problem with the mystic rational consumer, because theories assume that core goal of every market participant is to increase value. Taking actions toward increasing property value are only rational with intention to put the property into market. Without such intentions (e.g. owner plans to spend the rest of their days there) owner's interest is in keeping the property (and the neighborhood) as it is, maybe even decreasing real value.

While increasing property value may seem rational to probably the majority, but given certain circumstances, preferences and goals the opposite can be easily argued to be rational. With modern metropolis lifestyle of changing home every some years based on workplace location, family size, etc. one is always in the market and increased real property value is quite favorable economically. For some groups changes in property value are seen as irrelevant in face of non-economic values.

This is interesting but is tangential to my point: compensating NIMBYs isn't a viable strategy.

OT, but:

"Taking actions toward increasing property value are only rational with intention to put the property into market"

No, even if you intend to die in your current home, increasing property values are great if (i) you can borrow against the value, to fund current expenditure and (ii) property taxes don't go up as a result (yay California).

"lifestyle of changing home every some years based on workplace location, family size, etc. one is always in the market and increased real property value is quite favorable"

I think that depends on whether you're trading up or trading down. If you want to buy a place double the size of your current one (e.g. to raise a family), then you'd want prices to be lower. As the differential between the sale price of your existing home, and the purchase price of the new one, would be lower.

> even if you intend to die in your current home, increasing property values are great if

Exactly, certain things can be argued to be either advantageous or disadvantageous, depending on mindset/worldview, focus duration (long-term vs short-term goals), focus population (single individual vs average/median of population), etc. and these are core to public policy making.

And that is my point: attempts to maximize quality of life for a single individual/family for a few years naturally lead to NIMBYs. And they are not inherently wrong - annoying with different focus (e.g. median citizen after few decades), but not wrong.

They're rational.