Just because you are allowed to build 100 stories into the heavens doesn't mean you will when its cheaper to build flat across an empty swath of land. When you hit capacity on that empty swath of land, like in the LA basin, but aren't allowed to build high to meet demand, like in the LA basin, then you have a supply problem.

Imagine the mess that NY would have looked like if Manhattan was limited to single family homes. The city would sprawl across half of NY, NJ, and CT easy.