For starters, prices are highly dependent on the area where homes are built, e.g. I could afford a significantly larger house if I moved 20Km away from where I am now.

Square footage price is thus set in accordance with the local market. The obvious issue here is then that someone has enough buying power to ransack the market, leaving most individual buyers behind.

If you were to build two or three homes in the place of a current one, that issue would remain.