[randomdata]

Why is that disincentive not already present? Multiple people building a town home should be able to outbid one person building a single family home every single time, and the sky is the limit for a large condo building. Their combined capacity to pay more than outstrips the additional cost to build the structure. It is clear what is a better deal for the construction crew.

I expect the answer is because nobody actually wants to live in such dwellings. They might accept rent in a place like that if they see it as a stop-gap until they can move into their "dream home", but it is not the home they are willing to commit to and build (obviously there are exceptions).

[naasking]

Zoning regulations limits what you can construct in any given location, so it's not even about who has more financial capital, but political capital in many cases.

[randomdata]

Not so much an issue anymore, though. Want to build a tiny house? No problem. Multiple houses on a single lot? Go for it! These would have been unthinkable 10-20 years ago, but have been given the green light in more recent times. Council knows that they can't get away with ignoring housing any longer. Of course, it's easy to accept because they also know almost nobody is going to do it.