>I tried to explain that, if given space that had 12 units now has 200, the overall affordability rises, but she totally didn't or wouldn't get that point.
I don't know what your friend's reasoning was, however, I can see an argument on her side.
If the 12 units that were torn down were worth (and able to be sold for) 200k each and they were replaced by 200 units worth (and able to be sold for) 500k each, then that neighborhood is about to change character, and it probably won't continue to be affordable for the people who can't afford a 500k unit.
As I understand it, even if the builder is wrong and they can't sell at 500k (there are only 200k buyers), affordability still suffers.
Why? Because the developer won't sell the first flat for 200k even if that turns out to be the highest achievable sale price, because it would mean immediately having to write down the market value of the other 199. (A paper loss of 200 * 300k, not just the one lot of 300k). That's going to mean the flats sit there unsold for a long time, while the developer holds out hope of finding high value buyers that don't materialise.
Net upshot, for a significant period the developer has reduced the available housing by twelve 200k flats (the replacement two hundred are effectively not available for sale at the going rate).
Exactly, we can consider that the 200k unit is not the same item as the 500k unit. Indeed, the price of "de luxe" units will decrease (but maybe there were not enough of them in the first place) and, unfortunately (for poorer people), the price of the "affordable" unit will raise.
I don't know what your friend's reasoning was, however, I can see an argument on her side.
If the 12 units that were torn down were worth (and able to be sold for) 200k each and they were replaced by 200 units worth (and able to be sold for) 500k each, then that neighborhood is about to change character, and it probably won't continue to be affordable for the people who can't afford a 500k unit.