From an excellent article here.
The most important bit is this:
... radical town planning policy changes have been proposed around the world. By allowing higher-density housing [or the same density on larger areas], proponents of these policies expect that the rate of new housing supply will increase enormously, reducing housing prices...
When demand growth is high, you sell more. This makes sense. You sell into a boom and withhold sales during a bust. This is important because one argument for relaxing density restrictions is that new supply would occur at such a rapid rate that prices would fall. But falling prices reduce supply. There is hence a built-in ratchet effect in housing supply dynamics.
Nailed it!