The limitations are primarily one of physics (you can't have multiple objects occupying the same space). "Sensible" isn't looking at it from the right angle. This is the largest city in the world, so of course the average person is going to have less space than elsewhere. The inhabitants of Tokyo have a much smaller ecological footprint than those living in the suburbs since they almost all use mass transit to get around. How is this not sensible?
From what I understand, it is NOT a choice for the people of Hong Kong.