That over simplified "law" would only be true is housing were a commodity and everyone had access to all the market info. Then if we built a noticeable oversupply of housing, prices would fall.

Housing is not really a commodity and we are building mostly for the high end of the market. A small study was done after several new projects were built in my Burlington ONE neighborhood and the average rent in the area went up, not down! Basically the new apartments came in with significantly higher rent and advertised how fancy they were. Other apartments increased their rental price to be near, but significantly lower than the new ones. The cost of new construction is so much higher than the cost of an apartment in an older building that is paid off, that there's plenty of room for new construction to pull up rent prices.

Burlington has added around 1000 new apartments in the past several years, and the increase in rent has sped up. I think part of the problem is that it would require maybe 10x as much new construction to make a noticeable oversupply, and the market would build an oversupply if it can help it. So we have to have policies on existing buildings, like restricting short term rentals like Burlington did, increasing the tax preference for owner-occupied, etc.

What has changed over the past few years when the cost of housing was increasing was not an increase in population or decrease in supply as that simple economic idea would suggest. It was a change in who owns housing and their profit expectations. The tripling of the share of single family homes that are owned by investors was likely a big cause.