All planning and zoning does this. By definition it takes available space and places artificial barriers to what would happen naturally. And yes, despite your claims the laws of supply and demand — the laws of economics- are at play here. You are indeed arguing that they are, while stating they aren’t.
When you take a city and carve it into sections you limit what can be built. But you also add increased retirements for automotive infrastructure, and an incentive to restrict even further.
Because demand is outstripping supply prices go up — what caused the shortage doesn’t change this. And who benefits from it the most? The city collecting property taxes on that increasing value. So not only does the city not have an incentive for keeping property values from rising, they have a direct incentive to do whatever they can to increase them. But it doesn’t end there. This is simply the beginning of the cycle.
With the added funds from more tax revenue, or by borrowing against expected increase in it, the city does things that look and sound good in paper, and tries to grow. This of course increases demand but on the already constrained supply.
The city of Austin, Texas was talked about on public radio a while back and I was fortunate enough to catch it. The residents there have begun complaining loudly about the property taxes. One lady interviewed unwittingly demonstrated and summarized the problem: “I don’t understand why my taxes are so high; I mean, I voted for all the things to make us a great city.” Emphasis mine.
The modern large city is like the empire of old. It must grow and expand to feed its ever growing appetite. A key aspect of the problem is that so many, including probably most council members, think the laws of the market are trumped by their laws.