have you ever tried building a house? it's one of the least free markets there is. the quickest way to get arrested is to buy cheap land and start putting up houses willy nilly
The "free market" in the context of housing was meant in a satirical way hence the TM symbol. Of course that market is 100% fixed by design but we get parroted the story where it's 100% "free" as if the government has no control over the levers that wholly impact it's pricing (zoning and building regulations, immigration, interest rates, banking and loan duration regulations, banning overseas investors, banning AirBnBs, property taxes, etc)
https://www.theguardian.com/cities/2017/jan/31/britain-land-...
At least not until you factor in government. What landowners and land speculators clearly don't fear is huge swaths of land suddenly becoming available for building. Or sharply increasing interest rates. Or mass deportations.
A market failure is more like how a CEO is often incentivized to maximize the stock price in the short run at the expense of the long-term health of the company. That is how his compensation is structured.