I'm not sure why new housing devalues old housing. In my mind, higher density generally makes an area more desirable (e.g. because higher density enables more jobs, better infrastructure) and raises the value. Imagine as an extreme example and existing house in the middle of nowhere around which a metropolis is developed. Surely the value of the house, or at least the land it is built on, goes up, even though it loses its "cabin in the woods" appeal.

You think if there were modern highrises in Menlo Park a tiny 2BR shack next door would still sell for $2M? It’s a supply and demand issue, nothing more.