Does a new house next door increase the value of your house?

AV1 asked me:

There is a new construction custom built home being built right next to mine. The builder is asking for $579k. My house is an older single family home which I have updated over the course of the last year. I purchased my home for $328K and put in about $50k between a new kitchen, updated electrical, security system, refinished hardwood floors, fresh paint and new roof. I was just wondering if this house sells close to it's asking price, what does that mean for the value of my home or how is that utilized in terms of comps?

When I do a Comparative Market Analysis (CMA), I look at all the objective features like size, lot size, number of bedrooms, etc. Then I check for more subjective judgment items such as the overall quality of the home. Good, old construction which is updated in a conscientious way is as good as, and sometimes better than, brand new. The style of the house can matter. Some additions wreck the flow of the house and make it less valuable; some additions enhance the flow and usefulness of the home. I think that the house in question will probably benefit in value, as long as the new one doesn’t dwarf it.

So what about the value of the neighborhood? Does one million-dollar house on a street increase the value of all the others? Does one million-dollar house on a street diminish all the others to tear-down status? In my opinion, one doesn’t make any difference. When several are built, the older housing will begin to gain value, especially if it has average or above average square footage for the town. The smaller, poorly maintained ones may become tear-downs.

I have corresponded with a couple of appraisers. They say that AV1’s home will probably increase in value because there is a newer, quality construction next door.

So, do you welcome new construction on your street? Is it really improvement?