At the time of creating the condo the 0.1 acres would be substantial cheaper. If I have thousands or millions of acres to choose from and I can pick whatever 0.1 acres I want my demand for housing is 0.1 acres and the supply is still all the available land. Pushed to the mathematical limit the housing value of the land approaches zero for the land you buy for your hong kong condo, since demand is now near zero and supply far outstrips it. That is, the cost of the 0.1 acres to the developer is about the same as all the worthless for housing land surrounding it.
Since a large portion housing is currently locked up in 30 year mortgages in a once in a lifetime COVID era near 0% loan that people will not give up for less than a king's ransom, we should be especially sensitive of price of land for new construction, and that will continue to be a dominant factor in rental costs and home prices.
You talking about the average price of all land. I'm talking about the price of built-up land. We're not talking about the same thing.
Land in Hong-Kong and Manhattan is more expensive. And arbitrarily tall tour makes its tiny neighborhood of land arbitrary valuable.
Your also assuming housing demand is exogenous to land use — e.g. that everyone that would live in SF but can't afford it lives in Tracy. That's not true. If you make SF contain 3.5 million people, at Manhattan density, you better believe we'll not suck all the people out of Palo Alto or Oakland, but also increase demand in those areas. Fremont would have more demand but less so, Pleasanton in not sure, and the central valley exurbs less demand.
Suppose Hong Kong and Manhattan rezoned and made it illegal for half the density there to exist. That is, for any given population, the demand for land would now be double.
Would you expect land prices to go up or down as some portion of the ejected people try to maintain a footprint there?
OK so under your though experiment we are chopping of too-tall buildings?
I would expect unit prices to go up, but land prices to go down. There are ugly bidding wars as people try to stay, but also much less revenue per building as the number of units shrinks. The increase in per-unit rents will not be as great as the decrease in per-building units, and thus per-land revenues will go down, and the land will be less valuable.
What actually happens depends a bit on the inequality makeup of society. In UWS / UES apartments are combined into a larger apartments more than people realize. That is somewhat similar to the zoning change, except it is market driven.
At the same time, the fact that rich UES/UWSers live in apartments at all is clear evidence that the rich can afford less land than they can in the suburbs, and they are OK with this.
There is a famous quote "a developed country is not one where the poor own cars, but the rich take public transportation". By the same token "a developed country is not one where the poor own houses, but the rich live in apartments".
Density is very egalitarian in that higher densities allow masses of less-rich people to compete with richer people for land. Arguably the inequality-driven apartment-merging-during-housing shortage is downstream of having a housing shortage, and if Manhattan didn't in fact have stupid zoning constraints too (yes, I know!) we would not be seeing these apartment merges / bigger units would be accompanied by taller buildings so not net fewer units.
Since a large portion housing is currently locked up in 30 year mortgages in a once in a lifetime COVID era near 0% loan that people will not give up for less than a king's ransom, we should be especially sensitive of price of land for new construction, and that will continue to be a dominant factor in rental costs and home prices.