Just think about the general issues of a HOA gone bad and how hard it can be to deal with it without great personal cost. That is the problem of micro government in a nutshell.
Scalable government is a hard problem in general.
You would need a way to make local law not geopgraphically local but ideologically local. I would love to hear ideas on how you could ever manage that, but my proposition sacrifices some of the humanity potential (if you are voting STV for a local council in a town of 3,000, and have 10 members, in theory each member represents 300 people but nobody will personally know all 3,000 and thus is limited in candidate to whomever they do know, or worse, someone they take at face value like they do today). You lose quite a bit of democracy there, in that some people probably will not have a candidate they like - there are certainly more than 10 distinct political viewpoints in 3,000 people.
But I'd also think such systems would promote people to live with the like minded. If you disagree strongly with your neighbors... you are probably in a bad neighborhood for your own good and happiness. Surrounding yourself with enemies in your daily life provides a fulfilling life to few. But that goes down a deeper rabbit hole of people not considering nuance in where they life - they place work and profit ahead of all else, and will prefer a trash bin in the Bay Area over less lucrative ventures elsewhere they can have a more fulfilling life in general.
While we're at it, could we make this hypothetical government's legislature use a fractional (or maybe one-citizen-one-vote) tally, with representatives acting as proxies that individuals could override for specific votes?
As we see here: https://en.wikipedia.org/wiki/United_States_congressional_ap...
It is constitutionally provided for to have ~30k citizens per critter. But congress is left to determine how many critters there should be. Providing more critters, and thus less people per critter would reduce the amount of power they wield individually, thus there are absolutely perverse incentives at work to keep our congressional representation as citizens to a minimum.
Unrepresented -> Corruption -> Money -> Corporate Influence -> Gerrymandering / First Past the Post / Term Limits -> Whole election system is fucked
The way the US, and most other governments, are organized is broken because of a lack of humanity. If you try having one person represent millions, those millions will always be numbers to anyone, and that person will just be a name on a ballot to the numbers. Real representation requires a personal relationship, and that means you need to build government on the foundation of your community first. I generally see every position added to the ballot as a failure of a republic, because what you really should be doing is electing, say, a regional council (using STV or other proportional voting systems) whom then both nominates higher offices and appoints everything you would normally have on the ballot. Because that is their job, and you would not be picking between the lesser of two evils on a ticket but one of a few hundred of your neighbors who is exemplary who would do the best job.
Most people I know, at least in less dense neighborhoods (and community interaction in cities and dense living always has been problematic) can name someone who lives around them they would want to represent them in government. And you are much more likely to have reason to trust, and hold responsible, your neighbor than some guy who lives in the richest part of the city, state, or country and whom you will never meet in person, and they will never know you to give a damn about your liberty.