"This solution won't work in <ludicrously overextended case>, therefore let's do nothing!" -- common software engineering requirements management technique

Go read about the history of paris. One government minister bulldozed most of the city to create what the world now loves. At the time many people wept for the loss of what paris had been (described as a that commercial street in Harry Potter a quaint, magical village that stretched on in any direction). Paris has now created business districts in the suburbs. But even they are are building single family housing instead of the low rise blocks everyone loves in paris core.

... I'm talking about building new cities, which seems like the exact opposite of what you're describing?

Anyway, as far what happens when you make renting impossible (or just de facto not financially realistic), in Amsterdam it led to a lot of rentals being sold. The people buying had roughly 2x the income of those renting, on average. So, I guess that's a good thing, if your goal is to evict lower income renters so people can buy a place more cheaply. https://www.youtube.com/watch?v=t05cFv02pzY discusses this at length.

I live in one of the most populous metropolitan areas on the planet because it's the best place to live in the world. Increasing density and population is working great so far; maybe it won't scale all the way to 8 billion, but as and when there's a problem we'll deal with it.