A city is more than a rental market -- it's also a community. This is where all the-market-fixes-everything kind of arguments fall short. Unfettered development would eventually stack Berlin with enough housing but the disruption to people's lives would be immense; and Berlin would lose much of the charm and character that has drawn so many people there to begin with.
A city is one part market and one part enchanted forest.
I absolutely agree. It's ironic that we move to the places we fall in love with, only to modify them to our own needs. But this is the history of cities. It should always be up to local communities to accept or reject us. In a way, you can measure the strength of local culture by how it assimilates outsiders. Conversely, you can probably gauge the strength of an outside culture by how resistant it is to local assimilation. Of course, purchasing power speaks many languages.
And if we take the tourism bit a bit further, the tourist's search for the authentic ends up with companies ready and willing to offer a back door into local culture, creating an impression of authenticity for a tourist audience (often called "staged authenticity" in tourism studies).
This could be compared a bit to gentrification, in which I am reminded of Gertrude Stein's phrase "there is no there there" as well as, albiet more distantly, Marc Auge's concept of nonplaces.
A city is one part market and one part enchanted forest.