You need to find a way to convince the owners of that inefficient housing to sell it to a developer so that they can demolish it to build the efficient housing. That will add significantly to the unit economics of the efficient housing.
Legal issues are more of a hindrance.
At the start you might be adding a few million in land costs and building taller, but that quickly deflates the housing market. Pushing people to sell before their homes become ever less valuable. Further cities outlive people, reluctant homeowners eventually die.
City infrastructure similarly has real costs, but an infrastructure tax on every net new unit isn’t going to see anywhere close to current prices.
Instead walk around most expensive city’s and you see single family dwellings /row houses in sight of high rises / skyscrapers. That’s not economic efficiency that’s people who can afford high housing prices likening the system the way it is.