People can't live without housing so demand is not elastic. Plus the housing market is special regarding spatial location. Applying regular market rules as if the housing market behaved the same as, say, the screwdrivers market, does not make sense at all.
In any case, my point is that applying market rules to housing does not make sense, it's not a competitive market at all and never can be.
The private investors won't do infrastructure either - it is expensive - so they want to build where the infrastructure is already in place. So that's why we see trying to increase density.
So the zoning rules are there as a conterweight to this.