Some people invest in cities with falling house prices. They could be long-term speculators or more likely are landlords who expect the property to cash flow more than a property in an in-demand city. Generally the slower the asset price growth of a property the larger the margins on rent. You trade cash in the future upon sale for cash now from rent.

The thing that can really crater a housing market is a departure of jobs from an area.

Your last statement is not correct. People like to invest where they can make money and multi residential rent is profitable in most places and we have REITs and other financial instruments ready to grow and invest lots and lots into multi residential rentals to generate a decent cash flow to send back to investors. The problem for them now is that there is so little land zoned that way that these guys are often outbid by people building luxury apartment condos (because that's the most profitable up front thing to build and it is relatively low risk because of constrained land supply). In a land abundance situation it shifts profitability from scarce luxury apartments (because they no longer have to be scarce) to rental units, plus it allows buildings to age out into rental units rather than age out into being renovated or torn down to make higher value luxury apartment condos. All we need to do is force cities to zone land this way rather than allowing them to cave to nimby's trying to push up the value of their single family home.

Regarding my last statement: People like to invest into multi residentials now, but are those investments still profitable when the zoning changes?

How do you protect your investment when there is innovative pressure and housing units compete on price? Say you have a building and you try to monetize your investment over 20 years but after ten years, due to innovation, competing units can be built for half your costs. Then your tenants will move if you don't halve your rent which destroys your profits.

In a city with nimby's, that's never a problem because rent remains high, even if costs are reduced.

>All we need to do is force cities to zone land this way

This requires the vote of the nimby's which means that you need other options.

regarding your last point first: no, it doesn't require the vote of the nimbys. The state and/or province could force this very easily and that group of politicians is beholden to a group of people with more varied interests so are less under nimby pressure.

regarding your first point:The loss from rezoning will happen at the time of rezoning and will primarily affect the currently zoned high density land. With newly repriced lower, non scarce multi unit residential land it is unlikely to end up in a large downward risk situation because the sophisticated reits will be pricing what they will pay now for land off of what they think will happen over the next twenty years and will likely be pricing in a rent drop (which is what drives the drop in land prices for high density). You also aren't really at risk of technological disruption because the total turnover/increase in units is low relative to total housing stock even if we ented a building boom. If it suddenly costs half as much to build a high density residential building, it's still going to take decades for that to erode rental costs by half because you don't suddenly have enough supply of that cheaper to build stock to house everyone.