You could make an argument that people like traveling packed like sardines because airlines flight most people this way and it's also an expensive way to travel. However it does not follow, it's likely that people like convenience of air travel and value it more than the abysmal accommodations. To wit, the richest people travel in roomy private planes with plenty of room and the less rich go with business/1st class, also allowing more room.
Likewise, even the most expensive cities still have mansions in the middle of micro-apartments. If these cities really were valued for their density, the mansions would either be gone or would be cheaper than the surrounding dense dwellings.
It's not the density directly though that people desire, it's what the density makes possible. Having a large home close to this hub of activity is what many consider the best of both worlds, and you have to be very rich to have that combination.
If people do not desire density per se, they might not be desiring "not having to drive everywhere" either and that is just a side-effect of dense dwelling. E.g. the rich people living in the said mansions usually don't walk everywhere, do they now?
As I remarked earlier, I still feel that the analysis undertaken here is too simple and doesn't take into account, e.g., artificial constraints on supply that create perversions in consumer choice and demand.
We are in agreement, I too think that "we don't have enough high density accomodations because their prices are too high" is a rather simplistic implication that is very likely false.
I am applying the same reasoning the GGP post applies: the high price indicates desirability of dense accommodations. And I am explaining the GP's critique of this model.
I feel like there's some disagreement somewhere that's preventing reconciliation of what's going on here.
Does density imply micro-apartments? What's a micro-apartment? What's considered dense development?
Are we looking at this through a macroeconomic model or a microeconomic model? If microeconomic, have we accounted for everything that confounds consumer choice and consumer demand?
Given strict regulations on land use—the status quo today—is it reasonable to assume that mansions or villas within the city limits will be granted permits for denser development, whether that means interior renovations to convert them into multi-unit dwellings or razing the building and starting anew?