First, not all land is the same. The US coasts, for example, have much better income and job availability than sparsely populated cities in the middle of the c

First, not all land is the same. The US coasts, for example, have much better income and job availability than sparsely populated cities in the middle of the country. In Europe, the size of the city is somewhat "fixed," depending on geography, transportation, etc. The same is true of some US cities, meaning that land is just more valuable that other land. That's why you see houses that are almost free in some cities, but those towns and cities are not the place where most people want to live. Second is construction cost. A round number for the US is about 150 USD per square foot. So a 2,000 sq. foot house should be in the neighborhood of $300,000. (That does not include land, just the structure). However, in desirable cities this number is higher because labor costs are higher. In sparsely populated cities, that number is (of course) lower. This varies country to country, and in some space constrained cities, vertical is the only direction that you can build. (As one poster noted below, the $150/sq foot is only for single family. Multi-story buildings are significantly more expensive.) But probably the biggest problem are artificial barriers to construction. The zoning system in the US, for example, prevents the construction of higher density in some areas. For example, a neighborhood can be zoned at 1 per acre. It's illegal to build a duplex, apartment, or to divide the acre into four and build four houses, etc. The zoning is set by a local board elected by homeowners in that locality. Being near high-density housing often lowers the value of existing homes, including making traffic worse and stressing the school system. (Also, to be fair, a sudden, large influx of new people, before the tax base and services catch up, can stress EMS, hospitals, fire, police, public transportation, sewage, water, electrical grid, etc. as well as just schools and roads). Finally, there are builders, who would rather sell one large unit instead of lots of cheaper units. Building and selling a 1,000,000 USD home is cheaper and easier to manage than 5 200,000 USD homes. If you can only build one house per acre, or the space is constrained by geography, it doesn't make economic sense to build a 200,000 USD house. Even if space isn't constrained, the incentive is to build luxury, high end units as long as you can sell all your inventory.