Not only should they not be allowed to "hold back", they should also be made to build on purchased land within a reasonable time frame, otherwise they forfeit the land. Apparently some mainland cities have such conditions on some of their land sales. This will prevent large developers from building up land banks which they can use to manipulate prices to maximise their already obscene profits.
In an interview a couple of years ago, a developer gave a ballpark figure of about $5000/sq ft construction costs for a regular HK flat. I don't work in the construction industry but I find it hard to believe that the cost (per unit area) of constructing a high-rise building costs more (much more) than a 2 storey brick house typical in Britain. A couple of years ago was looking at a new build in an expensive part of London, 3 floors with a total area of about 2000sq ft, cost just under £500K, which works out to £250/sq ft (remember this includes cost of land and cost of construction etc) which at that time would be about HK$3000/sq ft. The number of shared parts (roofs, walls, pipes etc) in a high-rise should dramatically reduce its cost compared to a house. But apparently this is not the case in HK. Recently I've spoken to various people about the cost of building a typical 2100 sq ft village house, and the ball park figure is around $2M, which works out to around $1000/sq ft.
Plus it's not as if HK flats are anything special. With a few exceptions they all seem to be made with the same cookie-cutter. The flats in Shenzhen, Zhuhai, and even in 3rd tier cities like Zhongshan have much more variations in design and looks. The only thing local developers seem to be competing on is who can make the biggest, flashiest "club house" and common areas so they can charge a bloody fortune in management fees.