Capitalism just pursues profit wherever it can be earned. Govercement as you aptly call is the one that distorts prices with subsidies and restrictions which is not always a bad thing but in housing in particular it subsidizes the least cost effective form of housing (I.e. single family house sprawl) at the state and federal level and restricts more cost effective forms of housing (I.e. anything denser than single family house suburbans) at the municipal and county level. This ultimately creates shortages which as usual hurt lower income people the most. While real estate speculation is inherent to capitalism and does eventually lead to people being priced out of more lucrative job markets the subsidies and restrictions governments impose on the housing market make it more or less profitable especially in what they choose to tax. Taxes reduce profit. If you give one asset class special tax breaks and incentives not available to other asset classes you will make that one more profitable to invest in. When you make realty the special asset class you end up with scarcity because their are no land factories to keep pace with indefinite population growth.