And that makes the city less desirable, so fewer people live there, and RE prices find an equilibrium.

No, it makes it more desirable for older people who don't want raves down the block, and who also have more money, increasing the RE prices. The average age goes up, the number of interesting energetic people goes down, and the city becomes a cultural desert with high RE prices. Yes, that's an equilibrium, but Adam Smith's invisible hand just gave you a shitty city and undercut cultural innovation.

not when the majority of real estate is being bought by investors just looking for a place to throw money regardless of price. That's the main issue in Canada and in tier 1 cities in the US. The people owning the RE don't live there

Real life does not behave like an econ 101 class. Real estate in particular does not allow for perfect competition - there are significant entry and exit costs, and demand/supply tend toward inelasticity.