What you need to keep in mind is that those people willing to live in small apartments or row houses are competing with other housing - including the millionaires that like having a backyard and all of that.

Most of the housing problems in western countries, from my point of view, seem to be that people want to live in places where they can't afford to live at.

I agree that housing is ridiculously regulated in many of these places, but I'm not sure that that's the only problem you have to deal with.