It creates additional demand because the house not only provides shelter, but also takes on the form of an investment. How many people do you know who talk themselves into buying a house because of the potential pay off when prices rise?

I have heard that people do that, but I know zero people who have done it.

My dad tried. Lost a bunch of money.

It gets worse when foreign real estate speculation is allowed. Where I live most new condo developments are bought out by millionaires in Asia for the sole purpose of making money thus I need $700,000 for a tiny studio.

Supply and demand? Increase demand, supply is largely fixed* , prices go up.

* a house in the boonies isn't really a substitute for a house in the city. Every house has demand from people who want to buy it as a home plus the demand of people who want to buy it to rent/flip/scrape it.

You are confusing land and housing - they are not the same. Land area is fixed but habitable space is not. In built up areas the constraint on building new housing is largely regulatory (mostly planning regulations).

I lump land and housing together because that's how reality does it. Aside from trailer-houses they all stay on one piece of land for the duration.

If an analysis depends on houses being able to fluidly change land positions I don't think it would be very useful.