The question is WHY have land values been increasing. The answer is that the developers can still afford to pay more because above and beyond the increases in costs there are increases in profit that make it worth their while to do so. When it comes to developable land, it’s only worth what a developer will pay for it. Once demand for new construction decreases, which happens in every downleg, the land values will also subside accordingly.
Make no mistake, a declining market will put the brakes on the construction industry. People will indeed settle for less when faced with the prospect of settling for nothing. When that happens and the level of competition among the various suppliers goes back to a normal level, land costs will go down, materials costs will go down, labor costs will go down, financing costs will go down and profit margins will go down. The only things that won’t go down are the gov’t fees and associated costs.