This only seems to be an issue if the marginal cost of building is too high to expand supply, though, right? Otherwise if people have more money, they bid up housing, then new stuff gets built, and supply profits decline.

Of course, restricting supply is a problem. I also think this logic might break down in tightly restricted areas that are already vertically built out - Manhattan, for example, because costs per housing unit tend to follow a U curve with respect to height, where they decline with density but start increasing again at very high density, but that's not an issue in most places.