I'm not sure "pushing everyone into working full time" is an existing economic policy goal so much as what happens as a result of artificial scarcity.

If Alice and Bob want to buy the same house as Carol and Dave and nobody works full time but Alice and Bob currently have more money, Alice and Bob get the house. But Carol and Dave can get the house by each taking a full time job. Until Alice and Bob do the same thing, and then you're back to square one except that now everybody has to work full time.

The solution is obviously to build a second house so they can each have one instead of being locked into a bidding war that requires everybody to run faster just to stay where they were. Which is growth. Elimination of artificial scarcity enables growth. Artificial scarcity is a method of war/theft and its prevalence is the source of the trouble.

Your thought experiment assumes cheap credit. Imagine with no credit - Carol and Dave could still start working more to close the gap in their funding, and Alice and Bob could still follow suit to stay ahead. But as soon as the houses were sold, the competition would end and all of them could stop working extra. Only with cheap credit are the four put into the situation of bidding away their futures. Moderate interest rates are on the continuum between the two extremes wherein parties would be disincentivized from bidding far beyond their current means, by a significant down payment and resulting compound interest.

Cheap credit matters more as to how much of the money goes to the bank vs. the original property owner. When interest rates are higher more of the money goes to the bank, because the monthly mortgage payment each household can afford is the same but now more of it is interest.

Even eliminating banks entirely wouldn't fix it, because if Carol and Dave could pay the equivalent of the higher mortgage payment in rent every month by taking full time jobs, a rich landlord would pay the higher price for the house and then rent it to them, which means they would still get to live in the house by both working full time, until Alice and Bob do the same.

The only real way out of it is to have two houses for two households so they don't both have to bid on the same one.

That's the main difference for fixed monthly payments. But higher interest rates cause lower asset valuations, which increases the marginal utility of paying more than the minimum payment each month. Paying off a mortgage ahead of time used to be a common goal. Now you hear people talk about how it's smart to pay the bare minimum and gamble their surplus in a brokerage account.

And sure any individual loan done by a bank can also be done by a well capitalized landlord, but the difference is in the quantity of money being newly created and funneled into housing. You can't take out a securitized loan to buy groceries, but everything that can be financialized shoots up. Even non-scarce manufactured goods like cars.

I agree that increasing the supply of housing is a good thing. But you're never going to get rid of positional goods - few want to live in a tiny apartment their entire life. So our solutions aren't a matter of either/or.

> But higher interest rates cause lower asset valuations, which increases the marginal utility of paying more than the minimum payment each month.

That requires having enough income to pay more than the minimum payment each month, which isn't really compatible with working less. And to the extent that this is helpful in allowing people to work less after the house is paid off, it would just tend to increase housing prices by a corresponding amount as long as there are still constraints on increasing the housing supply, because people would just bid them up by the amount that it's worth it to be able to do that.

> You can't take out a securitized loan to buy groceries, but everything that can be financialized shoots up. Even non-scarce manufactured goods like cars.

That's not necessarily the same thing though.

Suppose you can afford a $300 car payment and interest rates are such that a $300 payment translates to a $20,000 car. Then interest rates go down such that you can get the same car for a lower payment or a $30,000 car for the same payment.

Some people are going to choose the better car over the lower payment. That kind of looks like the same cars getting more expensive even if it's really people buying better, more expensive cars. Especially confusing when they're the same vehicle models but the later model years had a bunch of premium features added to them because the manufacturers noticed hardly anybody was buying the ones without them.

> I agree that increasing the supply of housing is a good thing. But you're never going to get rid of positional goods - few want to live in a tiny apartment their entire life.

You can't get rid of positional goods but you can move them up-market so they aren't necessities anymore.

Living in a tiny apartment with a long commute is terrible. People will be willing to work full time for many years to avoid it. But if you build a large number of normal sized houses or condos a reasonable distance from where people work, so that they cost the same as tiny far away apartments currently do, would people be so willing to give up years of their lives just to avoid living there instead of the giant mansion you could then get with two full time salaries?

Affluent people would then live in the giant mansions because they can afford it, and it would still be a positional good in that respect, but that doesn't detract from the dramatic improvement it would be over the status quo.

By contrast, it really doesn't matter what you to do interest rates, if building new housing is prohibited then the number of people who get to live in satisfactory housing is dictated by the amount of such housing that currently exists. Which makes everybody a lot more inclined to do whatever it takes not to be the ones stuck in the crappy housing.