Trading up during the pandemic was a good idea, since the interest rates that were available during the pandemic were amazingly low. Interest rates on homes have moved up dramatically from those historic lows during the pandemic.
As recently as 2019, the year before the pandemic, the average mortgage rate was 3.9% (today it reached over 5%) which was below prior years. So, the truth is most people who "traded up" modestly during the pandemic did not see the increase you suggest in their mortgage payment. We did not trade up, but we did refinance our investment properties and saw a 1.25% drop in our mortgage rate and a substantial drop in our monthly payment. Had we "traded" up in value, we could have traded up substantially (with a corresponding higher mortagage and not increased our payment.
Meanwhile, we manage 51 properties, and the incremental maintenance cost of a home is very negligible rather than proportional if it is a new home. So your maintenance cost analysis is way off for new homes.
Also, if trading up means more land in addition to "more home", the incremental maintenace cost of the land is extremely low. So, if a portion of that dream house is a bigger yard, that cost does not translate.
For older homes, your analysis is closer to the truth, since as the home ages, the costs become more proportional, but never reach proportional. Why?
Because early maintenance issues have to with leaky faucets, appliance replacements, etc, that cost the same no matter the size of the home. Only when stuff like replacing the roof, painting the entire house, replacing all the carpet come into play does square footage become a factor. But most maintenance we do is not really square footage related... one extra bedroom and bigger rooms adds to the purchase price more than the mainenance costs... add a bathroom and that cost is more proportional to the number of bathrooms vs square footage.
Your property tax example is relatively real. The only difference there is some taxes are not based on value but are assigned per living unit in some part of the country (Mella Roos fees are an example, where the cost is fixed since it is tied to retiring a bond).
Looking at your example, if the house "swap" was into a newer home from an older home, the monthly payment would be about $500 higher if the person achieved a financing rate 1.5% below their previous rate (pretty common at the time), the maintenance costs might be the same or less, if they went from an older home to a newer home. Propety taxes are most likely to have increased proportionately. So for most people, the increased cash flow of the home would like be closer to $1000/month plus or minus. For most people that took this step, the extra $1000 (less than a third of your estimate) is proportional to their income increase between the time of their first home purchase and their "stepping up" a level since financing laws are pretty strict these days, so if they got the low interest mortgage, it was because they had the income to support it.
At this point, the whole premise of your argument collapses. But there is one cost factor, you missed and it is hurting home owners especially those that traded up... energy/utility costs.
Depending where you live rising energy costs combined with more square footage means utility bills have increased more than proportionately. These costs are costs people did not anticipate and they blame Biden for inflation.
https://nypost.com/2021/08/12/nearly-80-of-americans-blame-biden-for-inflation-surge-poll/
In a weird sort of way, if people can keep their wages rising as fast as inflation, they will be better off down the road relative to housing costs. But for the short term, the unexpected impact of energy prices are really hurting housing costs especially those who took on "bigger homes".
