I see your point about overextending your borrowing and using refinancing as a way to service your loan, and how this can be compared to a Ponzi scheme in a sense (still a far cry from what a Ponzi scheme actually is, but we will have to agree to disagree on this, and I think going on and on about it is really losing track of the focus of this topic) but most people don't do this.
Real estate is not like other assets. It's a very unique asset class and can't be compared to depreciating assets because (1) land doesn't have a useful life and (2) land can't be reproduced.
If you have time, have a read of the document I posted above that was published by RBA about the history of housing price growth in Australia. It explains what drives prices and demand.