Thanks for the additional explanation. You seem to be describing how people bid on houses with offers based on the highest mortgage payment they can afford, and this sets the market prices for housing.

I don't argue that this is not a factor. But couldn't government subsidies also be a factor, especially if they are not given evenly to everyone?

In the U.S. we have:

1) Government backed mortgages, allowing borrowers to get mortgage loans below long term bond market rates because the government/taxpayers are taking on the risk of default. Do they have 30 year fixed mortgages in New Zealand? Until last year you could get a 30 years fixed mortgage in the U.S. at a 3% interest rate (which has increased to 7% this year).

2) First time home buyer subsidies, allowing for minimal 1-3% down payments, instead of the normal 20% or 5% or more with the additional expense of private mortgage insurance, there's currently also proposed new legislation for a first time home buyer credit credit worth up to 10% of the home price, or $15k max for a married couple.

3) Tax deductions for the interest portion of mortgage payments (this was made less relevant for the owners of modest homes a few years ago, by giving everyone a larger standard deduction, but these deductions still help those with homes more expensive than the average, and will become much more relevant with the current higher interest rates)

4) Capital gains tax exemption, allowing $250k of profits (double if married) made from sale of a primary residence to be made tax free, unlike other investments that are taxed at 15-28%, encouraging houses to be used as investments (it's possible to make money as a landlord renting a place out for years then live there two years before selling for the large tax break, people do this with vacation/retirement homes all the time)

5) Two large taxpayer bailouts, because banks were writing 30 year mortgages without taking into account the risks, effectively the government and taxpayers ended up on the hook as a cosigner for all the bad loans (the 1980s Saving & Loans bailout, and the 2008 "To Big to Fail" Great Recession)

6) Restrictive zoning, greatly reducing the supply of housing in desirable areas (where the jobs are), which has the effect of maintaining high prices as the population and demand grows (zoning for new housing overwhelmingly favors single-use single-family neighborhoods on the outskirts of town, and the large developers who build them)

I have trouble wrapping my brain around how the above wouldn't have an uneven affect on market prices.

It seems that people who bought before each of these subsidies went into effect (over the last 85 years) would benefit most, as the prices of houses would be bid up as time went by, according to what people can afford with new subsidies in place.

It also seems that people with more income and in higher tax brackets are being strongly encouraged to invest in housing, as opposed to other possibly more socially productive (but unsubsidized) investments. They can also borrow to leverage their housing investments much more than is legal for other investments like stocks. These subsidized investors act to bid up the price of all housing, competing on price with people just trying to put a roof over their heads.

There's other countries like Japan and Austria that have much different regulations around housing and mortgages and have much different outcomes when it comes to affordable housing, so I've assumed that the stuff I'm talking about makes some kind of difference.

Would you disagree, or say that the buyers income is the only factor that matters?