I'm not convinced by this argument - presumably the people sitting on houses are also not buying houses, so unless they mostly would be downsizing, the lack of

I'm not convinced by this argument - presumably the people sitting on houses are also not buying houses, so unless they mostly would be downsizing, the lack of supply should be matched by a lack of demand. Though this does mean a lack of liquidity in the market (in the general sense of lack of trading), so maybe prices are 'sticky' or find their correct supply vs demand level in jolts.