The problem with housing started when...
People stopped putting money into their retirement fund and, instead, started putting money intp their house.
If you go to Japan, houses actually lose value over time. A house in Tokyo is not an investment, it is an expense.
The reasons are multiple but they boil down to 2 factors :
The result is that, in Japan, older houses get torn down to built new houses and, because of that, people do not invest as much into their house, knowing they will lose money if they manage to sell it to someone else. What is valuable in Japan is the land but land does not require renovations or investment.
Your grand parents' house
Going to your grand parents, their house was pretty plain. Standard bathroom with standard shower head, bog standard steel bathtub, standard toilet bowl, affordable tiles on the walls and floor.
Their kitchen had large countertops built of cheap materials and the floor was almost always linoleum.
The bedroom almost never had a walk-in closer or an on suite bathroom.
Basements were left unfinished or we finished with cheap materials.
Most rooms has carpet, which is much cheaper than hardwood flooring or expensive stone tiles.
Today's house
Marble countertops, granite in the bathroom, hardwood flooring, finished basements, expensive 12 x 12 tiles everywhere else, crazy kitchens with more stainless steel than a DeLorean...
Today's homes are decked out in the best materials and the price tag reflects that.
What your grand parents had and did not have...
Compared to today's home owners, your grand parents with their large but sensible homes had something most people don't today : A nest egg with money in it.
But they also did not have something most people have today : Large debts...
How and why it changed ...
Believe it or not but it changed with banking deregulation being repealed by the Reagan, Thatcher administrations and followed by Canada, New Zealand, Australia, Sweden and Hong Kong.
Banks before the 1990's had a "Reserve requirement" limiting the amount of money they could lend to a % of the amount of money they kept in deposits. If the bank had $1 billion in deposits with a 10% reserve requirement, it meant it could led $10 billion in loans.
Governments did that because it was believed that allowing the banks to lend almost unlimited amounts of money would grow the economy very quickly.
To maximize their lending capacity and their capacity to generate profits through interests, Canadian and American banks had to incentivize deposits by offering a series of attractive saving products with good return rates.
But then came the 1980's and 1990's... That's when the reserve requirement was replaced with the "Capital requirement" where instead of holding cash, banks had to hold "assets" in sufficient number... Well a mortgage is a debt to you but it is an asset to the bank as it can seize the building if payments aren't made...
So because of the deregulation of banks, starting in the 1990's, banks stopped incentivizing deposits and savings and started incentivizing mortgages.
Because the bank no longer offered good interests on its savings products, putting money aside became useless and people started doing other stuff with their money, like playing the stock market and buying properties and improving those properties to maximize their resell value.
Henceforth, since the 1990's banks do not always offer a saving's account for people, only an Operations account.
Hong Kong was the canary in the coal mine
Hong Kong was one of the first place in the word that saw the price of housing explode following the abandonment of banking reserve requirement. Because banks could lend way more money, they did and more people qualified for mortgages and more people wanted to buy into housing and the prices just exploded. Hong Kong was first because it is a small island with not a lot of land to build on.
The Dot com bubble and housing bubble
The Dot com bubble was also a direct result of banks no longer offering a good return rate, a lot of naive people turned to investing in the stock market to replace traditional retirement savings and bought stock from useless companies only because they had ".com" in their names. When the bubble burst, a lot of people lost a lot of money.
The housing bubble is the direct result of the lack of good savings products and the need of people to have retirement money in the absence of good savings products. People now invest a lot of money in their house and if the bubble pops, many will lose a lot of money.
If you want to solve the housing price bubble
Make it possible for people to invest their money in financial products that are safe and that provide a better return on investment than whatever a house can provide.
Basically, force banks to go back to the reserve requirement. Because they will need to have cash in reserve to support their lending practices, they will automatically be more selective of who gets a mortgage and at what price, this will lead to home buyers having smaller mortgages and to house prices making sense again.