I'm not sure why new housing devalues old housing. In my mind, higher density generally makes an area more desirable (e.g. because higher density enables more jobs, better infrastructure) and raises the value. Imagine as an extreme example and existing house in the middle of nowhere around which a metropolis is developed. Surely the value of the house, or at least the land it is built on, goes up, even though it loses its "cabin in the woods" appeal.
You think if there were modern highrises in Menlo Park a tiny 2BR shack next door would still sell for $2M? It’s a supply and demand issue, nothing more.
What is your mental model for this then? If the "2BR shack" can be built from scratch for 300k, and the value for the lot + shack is $3M, then the land value is $2.7M. Most expensive real estate is land value, not actual structure value.
Yes, it would go way, way, way up because if there is a high rise next door someone wants to knock down the shack and put up another high rise, a commercial building, etc.
