The question isn't "Would people prefer to live in an SFH?", but "Would people prefer to live in an SFH if it were legal to build other housing types, changing the respective cost?" I would obviously prefer to live in a waterfront mansion within walking distance of urban amenities, but that would cost 20-50x what my house cost.

Some people would like the option to save money and buy less housing in an area - see micro apartments. Some people would be willing to spend as much as they can to live in a desirable area, but cannot afford a SFH there so they buy a SFH in a different area. Both of those options are limited by the near omnipresent restrictions on housing types outside of central cities.