Can't beleieve I had to scroll this far down. Land prices in urban areas are set by ability to pay, so with cheaper construction you can pay even more to the land owneer! Prices won't fall in urban centres one cent.
The problem of expensive housing is man-made: by bakers lending enough fiat credit to match your surplus value.
A thing is worth what another is willing to pay for it.
The problem with land, unlike almost anything else, is that you can't move it (or trade for a fungible equivalent). People pay high prices for urban land because that's their preferred way to get closer to other land they want to be close to. When it's important enough to you to have that lot, you are willing to trade a lot of value for it - which may include liquidating some of the value of what you intend to put on the lot (million-dollar lot, build cheap bungalow), or working with others to figure out how to put a lot of inexpensive housing on it (billion-dollar building with 1000 million-dollar flats).
The bankers just help you figure out how you can rearrange your assets & income to free up that million dollars now - when you're willing to pay more later to have the money now.
And nobody is forcing you to do anything. It's your choice to decide whether having that land, right there, is sufficiently valuable compared to the value of what you intend to do with it.
Most land is cheap. It's the land you want that's expensive - usually because a lot of other people want it too, and you're all bidding for it. No imposition of "fair" is going to be any more fair than supply-and-demand.
Want cheap land? Go to zillow.com, enter your state as a search area, and set the max price to whatever absurdly low value you want. I've found many lots for $1000, $100, and even $1 (including a lot in Atlanta for $1; no, they're not going to show you what's inside the building, take it as-is).
If land prices are set by ability to pay (rather than willingness to pay), that could be a good thing for buyers.
A reasonable model for the seller is to sell to the highest willing buyer. Each individual purchaser has an ability to pay and willingness to pay and will presumably only offer the lower of those two prices.
If land trades on ability to pay rather than willingness, that means that the highest bidder would have been willing to pay more but was only able to pay what they settled on, and I don't see a significant problem. The buyer is presumably quite happy, having paid less than they were willing to pay.
The chief downsides I see in such a system is that either the buyer is not actually able to pay (they misjudge their ability to pay), or for the non-buyers who are out-bid by other buyers with a greater ability to pay. (It could be frustrating to only be able to pay $X while land or properties change hands at 1.5 * $X, but no reasonable seller will sell for 2/3 the market price, so...)
That still means that you were willing to bid that much, right?
I've bought two homes in my life. In neither case did I bid all my available funds and in both cases, I got a house that served very well as my home. (There were several other houses I bid on over the years where I didn't get the property. Two cases were bank REOs where the bank was unreasonable, IMO. Two other cases I was simply outbid. Life goes on.)
You were forced to bid more than others who were willing to bid as much as they can. That is where the price tops out. If you have more money than them you still had to pledge more of your labour because bankers extended loose credit.
Life does go on. And we have to work for longer for the exact same pile of bricks than our parents because of the changes in banking, gold std and the tech enabling tracking vast quantities of digital fiat credit.
Banks are not intermediaries. Just where do you think all the new money is coming from?? $100K used to be worth something, it's worth sweet FA now for land. Banks issue money against land. There are two tiers of pricing as a result:
1. land - insane increase
2. everything else - mostly falling in price
Banks are the new churches, vast open receptions with hundreds of square feet to be in awe of in city centers.
That may no longer be true. Using mortgage backed securities in the way that triggered the financial crisis of 2007 effectively allows banks to bypass the fractional reserve mechanism.
With this process, the bank lends $1 creating a new $1 new deposit from thin air as they always have, but then start using the mortgage certificate as money to by selling it. This allows a $1 loan to create an extra $2 in new money instead of an extra $1.
If we only allow a fractional reserve of 80%, then $1 would previously have created an 80c new deposit, which in turn would create a 64c deposit on the next cycle and keeps diminishing. However, with the mortgage certificate thrown in too, $1 becomes $1.60 (80c of new deposit and 80c of sellable mortgage certificate), which becomes $2.56, which becomes $4.10 etc.
Nope, have a read of those links. Also when banks create this gets credited to other banks. And they lend and that, on average gets credited to their bank. The system bootstraps itself. Lending is only constrained by willingness to borrow, and in the new financialised world only playing money games gets you rich.
The problem of expensive housing is man-made: by bakers lending enough fiat credit to match your surplus value.