If it was a true free market, housing wouldn't be an issue because developers wouldn't be forbidden from building density.
Capitol hill is a disaster for city living as most of it are single family homes, whereas they should be 5 story condo buildings.
Capitalism and free markets are not synonymous, and you can have the latter without the former (indeed, that was the case for most our history as economic species).
Capitalism is detrimental to free markets because it has inherent positive feedback loops that concentrate capital. Concentration of capital inhibits competition, and a market without competition is by definition not free, regardless of the amount of government regulation in it.
It could be, in principle. The problem with monopolization of capital is fundamentally caused by our overall conceptual take on private property as an abstract concept. Within that framework, you need regulation to keep the market free. But it's not the only framework that is possible; e.g. consider the situation where all capital is commonly owned and held in usufruct by its actual users ("everything is a co-op").
Market will move instead to where it is reasonably cheap and labor is available, leaving a ghost town behind. Ultimately this results in high concentration.
There's literally no force compelling it to invest in a failing area, or one perceived to be failing.
If it was a true free market, housing wouldn't be an issue because developers wouldn't be forbidden from building density. Capitol hill is a disaster for city living as most of it are single family homes, whereas they should be 5 story condo buildings.