From the article, it seems like the distortions were introduced by policy makers. There was a tax benefit from building new homes in certain places. In those places, prices went down. However, the policy allowed the tax benefits to be claimed against any homes the developer built. This meant a developer could build in tax advantaged locations even though there was already over-supply there. This did not help locations where there were no such benefits so prices continued to rise there. This creates a situation where supply increases (in tax advantaged locations) and price increases (everywhere else). This is a policy failure not a market failure.