In Flatland, which occupies the middle of the country, it's easy to build houses.
When the demand for houses rises, Flatland metropolitan areas, which don't really
have traditional downtowns, just sprawl some more. As a result, housing prices are
basically determined by the cost of construction. In Flatland, a housing bubble can't
even get started.
But in the Zoned Zone, which lies along the coasts, a combination of high population
density and land-use restrictions - hence "zoned" - makes it hard to build new houses.
So when people become willing to spend more on houses, say because of a fall in mortgage
rates, some houses get built, but the prices of existing houses also go up. And if
people think that prices will continue to rise, they become willing to spend even
more, driving prices still higher, and so on. In other words, the Zoned Zone is prone
to housing bubbles.