They are but they build and then sell off, developers develop, they tend not to own those units long-term. I believe this to be true regardless of market direction. Generally in the case of condos for sale, developers manage the complexes for a couple of years until enough units are sold off and the HOA takes them over.

If someone wants to run the whole building for rental, they can certainly still do that. You would just factor in that your rent would grow with inflation instead of geometrically when you're planning your building.

2) How do you avoid a race to the bottom in terms of housing quality when you allow said micro-apartments? Do we want a culture where the poor are living in barely livable wage slave pods while the rich are living in abundant villas?

Indeed, that is a risk, however the current solution of not providing these folks a place to live is a punt.

Re: government operation model, I actually agree with you wholeheartedly. Singapore's model where something like 80% of housing is built and managed by the HDB and 20% if totally free-market has worked very well there. I didn't want to bring that into the already-long-enough post as I felt it might distract from my point shrug. [1]

[1] https://en.wikipedia.org/wiki/Public_housing_in_Singapore