> in a functioning market we'd see supply rise to meet demand

So, tear down existing buildings to build higher, dig more basements, or subdivide existing properties? Because you can't assume there's always free land to build new buildings on.

Even if you assume the city is in the middle of a desert and there's essentially infinite room to grow horizontally, eventually you lose the reason people came to the city in the first place: The city itself, which you aren't really living in if you're commuting from a neighborhood more than an hour away from the city proper, or the city before it added on a dozen outlying regions.