Thornberg wrote a few very good papers about this very issue. The answer is no, builders can’t build according to the demand of the market. Due do zoning regulations, permitting process, NIMBY opposition, etc, the builders end up building many more high-end houses than the market needs, and substantially less entry-level housing. Usually the builders are blamed for this (“those fat capitalist pigs!”), but it’s rarely their fault. Local regulations are a huge barrier to building more high-density and low-cost housing.
My position in a nutshell is: “builders are my friends, and NIMBYs are my enemies”.
