The problem is actually in 2 ratios that lenders use - TDS and GDS which are 40% and 32% respectively.

This is like a self fulfilling prophecy - by setting GDS at 30%-32%, everyone buying a house or moving up will max this ratio out - people in bidding wars bid until they cannot borrow more.

Want lower housing prices and more disposable income for people to have kids, pay for daycare, etc., then the answer is simple, reduce GDS and TDS by 5%, and housing prices could be reduced by 1/6th (25% divided by 30%) if not more.

And remember, these ratios are calculated on BEFORE TAX income - most people only take home 75% or less of income, so in fact, the impact on standard of living would be higher