I can't wait for the luxury housing market to pop because that means developers will be building more affordable housing as that market is still hot (as others have suggested) just like they did in 2008.
Oh wait....
I doubt the next recession will hit Affordable housing development as much as 2008 did. That was a unique event in that the pricing of low income housing tax credits (LIHTCs) cratered due to a really unique event. Fannie Mae had for some time prior to 2008 been showing an insatiable appetite for LIHTC and had grown to a percentage of the market that was unhealthy for the market itself (40% - ish of all credits in 2007). You may recall that Fannie had several years of struggling to re-state their own books and fully understand what their own financial status was. When they got to some semblance of self-awareness, they realized that not only had they not had any profits for several years against which to claim credits, they were not likely to ever again have profits, all the way to infinity and beyond. Tax credits can get rolled forward ten years if you have some and have a bad year, but if your deficits project out forever....., that roll forward is useless.
Fannie's first announcement was not just that they would instantly stop investing in new LIHTC deals - which would have been a shock enough. They also announced the were going to dump all their existing credit investments back on the secondary market. This of course cratered the pricing on all credits, as all the other investors realized that a) a cracking big chunk of competition on new deals just self-vaporized itself, and b) no one really had a clue how much secondary market selling Fannie could or would do, or how fast they could do it, or how much it would spill over into new deal credit pricing. Every single LIHTC deal then in development - which is over 90% of all Affordable apartment construction each year - died instantly.
The Obama administration did not allow Fannie to dump their existing credit investments, so that helped ameliorate that second part of the whammy, and part of the recovery stimulus went to propping up a subset of the deals, pulling them back out of the grave after some time. But lots of them were too far dead. The LIHTC sector did bounce back faster than nearly all other RE sectors, but "faster" does not equal "fast".
While LIHTC pricing has gotten up to a point where I can easily believe a correction is coming, there is no single investor now with such a commanding market share in LIHTC investments as what Fannie had built up in 2007. And while I would not be surprised if a bubble of sorts pops in some real estate sectors, or maybe even a more general recession, I do not at all hear any rumblings of the sort of black swan global financial sector crash that might take down a bunch of LIHTC investors all at once, and recreate the 2008 Fannie swoon. Even the worries about Euro-banks, seems mostly confined to the Euro-zone.
So I don't think Affordable housing would get hit so hard this time around, and you are right, the demand would still be there even if we saw a pop of bubble at the higher end of the market.
Defined terms: "Affordable" with capital A in this post means rent / income restricted, not to be confused with "affordable" with small a, by which I mean the bottom rung of the unrestricted market rate apartments, some of which is indeed pretty affordable to moderate income households by any common sense approach, but is not legally held to households under some given % of AMI.
