With that in mind, thinking of the problem of asset bubbles and the problems with property as an asset -- set out rather usefully here -- lead me to suggest that it may be appropriate to ban borrowing money to buy a house beyond its
This would bar betting on capital gains with borrowed money (so the banking system would not be exposed to a collapse in expectations of capital growth) and would make it clear how much of the price was based on expectations of capital gains, increasing the flow of information about house prices.
The rule could be extended to commercial property as well to eliminate any fuss over definitions.
The thought was prompted by two things. First, that Texas did much better than Georgia in the recent housing problems in part of because, even though neither had a significant housing bubble, Texas has more restrictive rules about borrowing for house purchase so Georgia suffered far more from the sub-prime crisis.
Second, that when a housing bubble bursts, house prices tend to collapse back to around their rental income value. Rather than being based around some arbitrary notion of a "good number" about borrowing limits (some X% of price), the proposed rule would be based on genuine information about house value.
Increasing information, increasing stability, reducing risk, fairly straightforward to follow: a possibly useful rule.
NB: This post is a work in progress, and has been amended to hopefully make it clearer.