>> Incentives to reduce the value of their largest asset are not strong
Its not just incentives. It can nuke entire economy if done not carefully.
Ideally new housing supply would be slowly increasing so that prices stop growing and there are incentives to invest into other assets but at the same time not reduce the wealth people have been building for many years.
But overall it seems like the world would be a much better and prosperous place if basic need like housing would be more of a commodity than a wealth driver.
If you have housing you can spend your income on building companies, wealth, experiments etc.
If you spend 30 years buying a place to live - obviously your hands are tight pretty badly.