In a free market, I don’t see why prices of housing wouldn’t always decay. No one worries about used cars decaying in prices over time. What is so special about a brand new house, ten years later, with all the beatings, older furnace, bathrooms, roof all decaying, declining in price.
A house is just a material object. A think. Decaying from day one.
It is all about maintenance and upkeep.
Homes keep their values the same way that Mercedes do - owners pump huge dollars into maintenance and upkeep. Homeowners do not allow paint to fail, wood to rot, roofs to leak, foundations to crack, electrical fires to break out. It is only the massive reinvestment for maintenance and repair, that makes houses keep their value.
This is why houses always go up with the rate of inflation. A well-kept old home that has been maintained in good condition will always cost about the same as a similarly sized and featured new home. There is nothing magic about either home that makes it more valuable. It is walls and roofs and carpet and appliances, etc. When it comes to finding a "home", you can choose a new or old dwelling. If the old dwelling has wood that is dry and strong, has a newer roof, was built with a strong foundation, etc - who cares if the building is old or new.
That is why homes keep their value. You pour money in to them. You don't pour money into your Toyota Camry. That is why Toyota Camry's depreciate.