I will disagree with this as much as possible. Construction costs (union labor) is very high. This is part of the cost to build which much be recouped. This high cost drives the developer to build "luxury" housing to ensure ROI. Lower construction cost could allow for more affordable housing. Unfortunately, most likely they would charge the same to sell/rent it, and pocket the difference.
Your last sentence (which is 100% accurate) is in direct contradiction to your first four.
"Luxury" is built because there's demand for it and it makes the most money. This is true with inexpensive construction as much as it is true with expensive construction. Even if construction were free, developers would still build "luxury" as long as that's what the market demands.
The only way to get developers to shift below "luxury" is to build enough housing so that market demand for "luxury" is satiated. Then they will have to move along the demand curve to targeting consumers with lower willingness to spend. The only way you generate enough units to do this is by loosening zoning and regulatory limits.
Obviously, there are some projects that would happen if construction were cheaper (such as the decking projects I previously mentioned), but the quantity of those pales in comparison to the quantity that zoning/regulation holds back.
Volkswagen Group sells both $120k Audis and $20k Jettas. The $120k Audis don't cost anywhere near 6x the production cost of the $20k Jettas, so the company makes way better profit on the expensive cars than the cheap cars. However, there are only so many people who will drop 6 figures on a car, so Volkswagen (and all other car manufacturers) produce a huge diversified lineup of vehicles at various pricepoints to target as many consumers as possible. They only do this, however, because there is no cap on the number of cars they can produce. In this world of unlimited production, a drop in the manufacturing cost of a car would lead through to a drop in price, as car companies would pass these savings along so as to expand their customer base.
However, if regulators only allowed, say, 25k cars to be produced every year, you can be 100% sure that Volkswagen would keep selling those $120k Audis but would drop their lineup of Jettas in a heartbeat. All other manufacturers would do the same. Lowering the cost of producing cars wouldn't change this; as long as there's a cap on quantity manufacturers will focus only on the highest prices. There's no point in lowering prices to expand your customer base when quantity is set by regulators.
This is the situation we have in the housing market. We produce $120k Audis in buildings like One Dalton and Millennium Tower, and $70k Audis in buildings like all those apartments in the Seaport and Fenway. But we don't allow enough construction to make it worth it to produce a Jetta.
