I don't see how this holds. Why would more houses not get built if the banks were so willing to lend higher and higher amounts? Seems more to me like, because

I don't see how this holds. Why would more houses not get built if the banks were so willing to lend higher and higher amounts? Seems more to me like, because there is a shortage, the marginal price gets bid up to the maximum people can possibly pay (which is decided by the banks).