> But firstly lots of islands (eg Martha’s Harbour, Long Island, which isn’t really an island but close enough) in the area are significantly less dense and have very expensive real estate so I don’t think that argument bears any scrutiny at all.

This really depends on how you measure real estate prices. Long Island can have very low price per square foot of ground land compared to Manhattan, even if the unit price of housing or price per square foot of interior space is similar.