It can be more than one thing, and no that does not necessarily follow, e.g. a smaller set of larger homes may be most efficient for a development company in terms of cost and potential revenue, regardless of whether or not material cost rises. Especially if costs of hookups, basements, licenses, etc. are non-trivial.

Land values play a major factor in home values, but there are other factors that could lead to the increased cost of building homes, such as the price of raw materials and the price of labor. Higher interest rates are also having an impact, since it costs more to borrow money.

There are of course many factors, but the largest driver of cost increases in recent years have been materials and contractor profits. There aren't enough contractors and they can name their price. Unfortunately labor isn't really part of the cost driver, and basic laborers like carpenters are still under-paid compared to the wages that would attract people to the trade. Basically the American economy is now rigged to direct all earnings to middlemen and "thought workers" so nobody wants to just swing a hammer.

I often think about it like this - what job would you prefer for your child - work on building a road, or be a lawyer arguing whether or not that road should get built?

>If it was just build costs wouldn’t we see more starter, smaller homes

Sort of. Smaller homes also use less land, so it doesn't really matter which it is; you'd see more smaller homes either way.

But zoning forces lots of land per house (with required house and lawn minimums), which squeezes land supply. So yes, it's land values, but only as a symptom of the core zoning issues.