There should always be a surplus of homes, the point is to get a sufficient surplus in the places that are in demand that this places downward pressure on prices, aka competition.

One question would be how could we create any incentive for someone to build a home in an area that's currently in equilibrium?

Starting a new home construction in a location with falling housing prices isn't an obviously winning business strategy.

House prices don't fall forever, and as long as selling prices don't fall below cost of construction + margin, there's still incentive to build. There are numerous examples around the US where this is taking place, like Austin.

You don't need an incentive, you can just build it. Not everything that's good needs to make money.

Indeed. Only if you’re unhappy with the current pace of that does it make sense to examine whether the incentives are correct.

Habitat for Humanity is doing great work.