I bet your hypothetical developer would price the new houses at $1.9 million (or maybe $2.1 million, because where else are you going to buy a new house?), and

I bet your hypothetical developer would price the new houses at $1.9 million (or maybe $2.1 million, because where else are you going to buy a new house?), and they'd sell out as fast as they could build them, netting them a huge profit and hardly affecting your property values. Now if they could build 10,000 houses nearby it might have more of an effect.