I believe that allowing people to refinance a house without it becoming a taxable event is the problem.

If getting a second mortgage on the higher valuation required the valuation to be used for both property and income tax purposes, people would be much less willing to extract value from their houses. That would then slow down the price increases and lower the inflationary feedback loop.

Using the valuation used for loan collateral as a taxable event would also close the "shares/options as collateral" tax loophole.