In "Paper Dragons," it's the Twelve-Year Solstice in the California of Land of Dreams, and the narrator is drawn into the dragon-building obsession of his neighbour Filby, sent searching for Filby's elusive mentor Augustus Silver, and joins Jensen in observing the migration of the increasingly larger and larger hermit crabs.

"Paper Dragons" is perhaps most easily found in the Ace collection Imaginary Lands (1985), edited by Robin McKinley.
McKinley's "The Stone Fey" and Patricia A. McKillip's "The Old Woman and the Storm" are further reasons to seek out this anthology. Here's a list of the entire contents of Imaginary Lands:

"Paper Dragons" -- James P. Blaylock
"The Old Woman and the Storm" -- Patricia A. McKillip
"The Big Rock Candy Mountain" -- Robert Westall
"Flight" -- Peter Dickinson
"Evian Steel" -- Jane Yolen
"Stranger Blood" -- P.C. Hodgell
"The Curse of Igamor" -- Michael de Larrabeiti
"Tam Lin" -- Joan D. Vinge
"The Stone Fey" -- Robin McKinley