What I'm seeing in my city is that smaller, perfectly liveable existing homes are being targeted as tear-downs to be replaced with homes 3X the size and up to 4X the price. What's typical is that the house & lot sells for $250K, and is replaced with one that sells for $875K. Normally you are going from a 1000 sq.ft. one or 1.5 story home to 3800 sq.ft. with 3 full stories and a basement, built right up to the lot lines thanks to setback variances being granted.
This is forcing working-class people away from living close to work, and is pushing them to the FAR outer suburbs to find something they can afford, yet often as not, the only thing they can manage is a townhome with no room for expansion.
What I would like to see is a rule that unless the home currently lacks an occupancy permit (yes, we do have those), whatever is built to replace it on the same lot cannot be more than about 25% larger, exclusive of garage space. ((I'm OK with putting a garage on a property that didn't have one before, but not making the house exponentially larger in terms of living space. Most of the older homes in these neighborhoods either have parking on an alley running behind the house (usually detached garages, with the lawn in between the house and the garage), or there is a single-wide driveway running alongside the house leading to parking behind it.)) My feeling is that this way, unless the house is in such bad shape that it really needs to be leveled and can be had for a song, builders will sometimes shy away from destroying perfectly good homes because the profit won't be sufficient.
This city has thousands of homes that are not liveable at all due to things like dry rot and failed foundations. If you want to build an infill McMansion for profit, go ahead and replace those, so that you're replacing nothing with something, but don't tear down a perfectly good home unless you actually will be living in the one that replaces it.
PS: There is also a double-profit motive here as well, because most of the older homes in my area are brick, and the new builds are not. Our brick is highly prized as salvage nationwide, going for $2/brick on average, and builders always sell off the bricks from the homes they tear down -- most of which have double-course walls. (There is always a flatbed full of pallets parked on the street when they do the demo, and the bricks are carefully stacked on them, shrink-wrapped, and hauled away at the end of the day; never left on the site overnight.)