Right, and if the original statement is true - that price drops are killing supply (without providing houses at a sufficient level) - then that implies that housing does not work like a traditional commodity. Which it doesn't.
I strongly suspect that 1) higher housing prices make builders more likely to build (or at least to max out their ability to build), and low prices (at least below some threshold) cause them to be more hesitant to do so, 2) high prices make people less willing to buy, and low prices make them more willing (or at least able).
So far, so much "working like a traditional commodity". Where do you see it working differently?
But a big problem is that people try to view housing as not a commodity. They think that people don't move, don't change housing, don't need different things at different stages of their life.
If instead we actually view housing as the commodity it actually is, we would realize that the reason old cars are cheap is because we build new cars that are more expensive. That day old bread is only cheap because new bread was made today. Houses fall apart, the housing itself is actually going down in value every day. The land is the only part that rises in value, because we restrict its use so much.
New housing is nicer and more expensive than old housing, yet for some reason we are saying those with the least ability to pay should only be allowed to buy new housing. There are a ton of aging people in gigantic old houses that would like to downsize into something newer and smaller so that they don't have to walk as they age, yet that sort of non-car-dependent community is largely banned.