The land price argument and why it fails

One common argument against all forms of infill development runs something like this: “In dense, urban areas land prices are always high, so housing prices will never be affordable absent government subsidy or extremely low demand.  Furthermore, laws that allow new housing will make land prices even higher, thus making housing more unaffordable.”

This argument seems to be based on the assumption that land prices are essentially a fixed cost: that is to say, that they can only go up, never go down.  In fact, land costs are extremely volatile.

For example, a recent Philadelphia Inquirer story showed that in Philadelphia, land costs per square foot  of vacant land fell by 46 percent over the last year.  Why?  A developer quoted in the story suggests that as supply has started to keep up with demand, rents have declined, causing land prices to decline.   In other words, when supply increases, rents go down AND so do land prices.