For a few years, I've been challenging people when this discussion comes up to give examples of situations where increasing housing supply resulted in falling prices. As far as I can tell, without a fundamental demand drop, this rarely if ever happens.

And you've hit on one of the reasons: the investors who want in want into a market where real estate commands the prices it does.

Downtown Auckland, 2005/6. There was a big increase in the number of small apartments available. Prices did fall, and people I know "lost money" because of it. It was still a great thing for the city.

Auckland itself is growing quickly, and the price of houses is (like in many other places) outrageous. Apartment rents are still relatively sane, though.

Seattle: https://www.google.com/search?client=ubuntu&channel=fs&q=sea...

Well, from the last discussion where Sonja participated:

Philadelphia, additional housing, plus market crash. It doesn’t say that prices on existing housing went down, but the new “luxury” housing did not sell for close to the expected luxury prices.

https://news.ycombinator.com/item?id=10370964

http://grist.org/cities/urban-activists-set-out-to-sue-san-f...

Generally, people don't build housing supply with the intent of oversaturating the market and losing money!

no but who said everything that happens is what was intended

It would help, but housing will retain value as an investment vehicle unless the rental value of the land itself is taxed. Only a Land Value Tax would entirely achieve this, for what it's worth.