These are the points that I have experienced in Christchurch, New Zealand:
1. Buyer sentiment matters. Prices were cheap 3 years ago, but I couldn’t convince friends to buy, even offering to help my friends with the deposit. Then Suddenly everybody wanted to buy a house and prices went up 30%+.
2. Demand outstrips supply by at least 3X. It is virtually impossible to increase supply enough: people invest, people buy second homes, wealthy people with empty houses because they don’t get enough rent to make it worth letting, everyone wants their own home instead of sharing, children and marriage breakups want their own homes.
3. People will bid as much as they can afford to pay. All disposable income is dedicated to paying off the mortgage. If their income increases, many people move to a more expensive home. Edit: so house prices on market are a fn(income distribution, mortgage rates, irrationality). Some poor people have to miss out because they are below some median earnings figure and can’t afford the minimum bid.
4. Popular areas will always be expensive. Home prices are a status symbol, perhaps even a Veblen good. You can’t fix that by increasing supply in a popular area. New York ain’t cheap even with high density housing.
The proper way to fix the housing crisis is to allow the population to decrease, or for people to not live as long (which also increases house demand). However that causes structural problems to the economy (see Japan). Edit: that is tongue-in cheek. In New Zealand, one major problem is that property is a better investment than a business. I made more money by owning two properties than by owning a moderately successful business over the last few years. New Zealand lacks a capital gains tax if you own a home for more than ten years, so the taxation advantage of property is huge compared to investing in any business. Wealthy New Zealanders invest in multiple properties because our government sets the incentives for property, and our government relatively penalises business owners or investors.
Edit: anyone that bought at the peak in Auckland, and whose property still meets the bright-line test, and the value has gone down significantly in value, should consider selling their home and claiming the capital gains loss? Just a thought the CGT can probably be used to your tax advantage significantly if you overpayed for your home, or a second investment? I am guessing that is possible, but consult a tax specialist! Say you are on 32% marginal tax, and you lose $200k moving homes, then you can claim back $64000 on tax which is big biscuits to me.