You are confusing marginal price (or profit-equalization) theory with numerical limits on the level of housing unit production.

If people were allowed to build as they wished, they'd build a lot of housing, much of the housing crisis would subside and then the profitability of building house would equalize with the profitability of other uses. But stable point would give a lot more people housing.

It's like... Taxation or similar things can reduce X use of resource Y. Remove taxation and eventually X use isn't any more profitable than other uses but a tautology of markets/economics, not an argument the taxation isn't limit the production involved in X use.