Well let’s talk about what it would mean for prices to go down. We’re in agreement that not building enough to meet demand will drive prices up. So why is that so? Well we can think about what demand is, it’s people already living in the area that want to move (perhaps because they’re renters looking to buy), it’s people outside the area looking to move into the area and it’s investors/rental landlords looking to buy because they anticipate an increased demand that they will be able to profit from by selling or renting to future demanders from one of the first two categories.

So in order for prices to go down, you need to have a 0 or negative expected future demand to eliminate the incentive for the investors. But if you have negative or 0 expected future demand, then you also have no reason to build new houses at all. No one is going to spend tens or hundreds of thousands of dollars to just sit and watch the building rot away. Either they expect to sell it or rent it after it’s built, and you can only do that by either having demand outpacing supply or anticipating demand in the future that is higher than the current demand. If we had a magical perfect equilibrium between demand and new supply, at best prices would remain steady/only increase with inflation. The only mechanism by which new building can reduce the costs of housing is to build more housing than both current and all anticipated future demand.