It works pretty well in theory, not so well in practice. Too many issues with neighbourhood associations, land values, zoning, infrastructure, etc. It actually turns out to be very hard to increase the housing stock in a lot of major cities.

I'd say it's overwhelmingly due to the regulatory straightjacket these cities are caught in. Municipal and regional governments have made it extremely difficult to add new housing through increased density, and then they find that prices are climbing sharply, and wonder "how did this happen?!" Well, supply was choked off.