Comment by dlcarrier

In an open market, you can only have so much oversupply of any product, before people stop investing in building more, or too little supply before investment increases. There's some lag between demand and production, from the time it takes to produce any given good, but for houses, not counting permitting delays, it only takes a few months to build one.

When zoning regulations first started, it wasn't uncommon for people to drink unfiltered surface water and drain their sewage into an open pit. This heavily limits density, and was what zoning was targeting. There are areas in the US, especially in the south, where permitting and zoning are much weaker than in the rest of the country, but high-quality housing is just as prevalent.