That would work if the supply of houses has kept up with populations growth, and just as importantly, the desired ___location of where people want to live.
If there's housing scarcity, then prices will rise far ahead of ability to pay. That's the source of a lot of other types of today's inflation, for example, cars.
> If there's housing scarcity, then prices will rise far ahead of ability to pay.
Housing costs tend toward people's ability to pay, otherwise folks default. That's why the banks ask you about your income and credit worthiness, they want to know you'll be able to pay the mortgage and not default. If money costs increase faster than income, folks won't be able to afford as much money (as high a price).
Housing costs do tend towards ability to pay, and when there's scarcity, that "ability to pay" starts cutting out those with the lowest incomes, since they do not get the housing.
That's how housing costs can increase faster than the income of an area, it's the market displacing those with lower incomes, and readjusting to only house the wealthiest.
Add in that housing prices are distinct from the housing costs, and that leases only change rent occasionally, and lots of people are owners and have fixed costs, and prices can rise quite a bit faster than incomes.
Population may have flattened, but a toooooon of people were looking to move suddenly to new areas, which is another way that scarcity is created.
Your chart is the number of units under construction, but that high number doesn't translate into more new homes than ever before, because completions have been massively delayed. So there's a lot of homes sitting half finished as they wait for supply chain crunch's to resolve. And to compare this to numbers from the 80s means normalizing for length of construction, something which is getting delayed more and more.
Overall, construction has massively constructed since 2008, and even before that it had been trending down for a long time.
The connection between interest rates and housing prices is weaker than I would have expected (it certainly exists, just not to the extent I imagined) and oddly enough it takes a couple years to show up: https://www.bis.org/publ/work665.pdf
I suppose it makes sense. They say not to spend more than 1/4 (or 1/3) of your income on housing but if a house costs 2/5 of your income you're probably not going to set up a tent and wait for interest rates to come down.
If there's housing scarcity, then prices will rise far ahead of ability to pay. That's the source of a lot of other types of today's inflation, for example, cars.