I'm not defending factory farming of chickens (I actually just adjusted our fencing to double the size of the chicken run), but the answer is: cost.

Chickens in modern factory farms are stacked deep. Each has < 1 ft^2, and their cages are stacked vertically perhaps 10 deep, so they get around 0.1 ft^2 of farm land each.

We have around 15 chickens in our flock. They share a 144 ft^2 coop and have a little chicken door that gives out onto a 400 ft^2 outdoor run.

That's ~550 ft^2 for 15 chickens, or 45 ft^2 per chicken.

That's 450 times as much space as a factory farmed chicken gets.

That costs money.

I understand that the space is the big thing, but that is the only additional cost. You may actually save on antibiotics and deaths to illnesses. I think you could maybe have your chickens slightly more dense than the example you mention. For example here in South Africa we have plenty of space, and I see vast warehouses go up.

Currently, the farmers are not paying for any of the externalities(1) of their operation, including harm to the environment from waste runoff, antibiotic resistant bacteria, and the overall health consequences of eating factory-farmed meat, which are still little understood.

This needs to change in order to make humane farming methods more viable, however, it is in direct conflict with the USDA's goals of reducing the price of food for consumers.

It's a tough problem to solve, but I've gotten to the point where I don't even know what meat to buy any more. So-called "grass fed beef" can be any beef, since all cows eat grass during at least part of their lives, even factory-farmed cows, and the rules are so lax that there is zero enforcement. This has to change.

1. a side effect or consequence of an industrial or commercial activity that affects other parties without this being reflected in the cost of the goods or services involved, such as the pollination of surrounding crops by bees kept for honey.

Chickens need to be protected from predators, need to be sheltered from the sun, need to be protected from the cold, need to be fed in a way that minimizes waste, need to be watered in the same way, etc.

Also, don't underestimate the cost of land. Even if it's just $5,000 per acre, if scheme one packs chickens in at factory farming levels, and scheme two packs them in the way I do (remember: 450 times less densely), then we need an additional 449 acres of land.

That's $2,245,000 in land costs.

Plus, how do you distribute food and water over those 450 acres?

Factory farming may be cruel, but it's not dumb. Farmers are smart micro-optimizers.

I'm just a grain farmer, but in the highly competitive agriculture world, fortunes are made and lost on seemingly small efficiencies. If the savings on antibiotics and deaths were actually greater than the alternative costs, someone would quickly exploit the gains, and everyone else would eventually be forced into that model to compete.

Which is the same reason why you see barns going up everywhere instead.

In the US, and for much of the developed world, you are touching upon a very messy, complex, inter-related mesh of issues, all revolving around land-as-an-asset. Throw in population pressure, how debt is used to acquire land by different economic actors, etc., and it gets...complicated. Basically, anytime someone says the cause of a set of ills is cost, and if you can tie it back in any way to land cost as an input cost, it will be a Gordian Knot-impenetrable intermingled mess of issues that prevents one from characterizing space as "the only additional cost".