Yes, if that state was reached, we would see supply go up and prices drop. In the HCOL areas I'm aware that state seems ever further away, seeing as how they're still building luxury stuff everywhere.
It seems "ever further away" because most cities in the US are literally decades behind on building enough housing. It's going to take drastic anti-NIMBY overhauls to allow enough to be built to actually catch up.
Yes, because there's not enough housing, so housing prices end up being set by the upper averages of whatever people can theoretically pay.
> Who would put money into building for people who have no money when those people are out there?
The builders who are still looking for work after there's actually enough housing to match demand by the wealthy.