As to your assertion that, "The more housing built, of ANY price, the lower the average price in the overall market." I have to call bullshit. Are there more housing units in Victoria today than there were two years ago? Has the average price gone down? You need to qualify that statement before it can even approach being accurate.
Supply: housing construction
Demand: population growth, plus renters turning into home owners
If we built housing to house 4,000 people, but population + absorption of housing supply equated to 3,500 people, prices would slide. As things stand today, right now and as they've stood for the past 20 years, we've built less housing than demand hence the growth in the secondary suite industry. For a long while vacancy rates throughout the region were at 0.05% and lower, literally unheard of. This is what pushed municipalities to finally legitimize secondary suites and why developers who you insist are building McMansions and forcing buyers into them, responded to the higher cost of housing by building secondary suites (thus increasing the square footage of most new homes). Nowadays if you don't include a secondary suite in a new-build the majority of your potential buyers won't even qualify for a mortgage (the bank wants to see that secondary suite option should it be needed).
You're making the real world far too complicated than it actually is
In the real world, if we want affordable hosing we have to accept some sort of government involvement whether that be in the form of direct investment, tax breaks, zoning variations etc. The only real argument is about what are the most effective forms of involvement. I personally favour working with private developers and potential homeowners and keeping bureaucrats and politicians out of the process as much as possible.
But just a few posts back you were saying that it's the developers overcharging for new homes and building excessive homes and therefore causing affordability issues. So you want less government oversight of development but you also don't think developers are incapable of working in our best interest. I just don't think this will fly if what you say is true, or do you concede that maybe developers actually are building what the consumer wants and charging what the consumer is willing to pay?