I agree with most of your points, but I think the root of this problem is that most people will literally take out as much money as banks will approve them for.

I agree with most of your points, but I think the root of this problem is that most people will literally take out as much money as banks will approve them for. Once they lock in their mortgage and home, they'll fight for laws that keep the price of their homes high, even if that means artificially limiting the supply, or enacting zoning laws so no one can build buildings that might block their view, etc.