> The nice thing about indoor space is that we can make pretty much as much of it as we'd like.

What? Have you ever been in Lisbon? The city is pretty dense as it is. You could mostly just build higher, and that has its limits too, depending on the structure and foundation.

Adding more housing outside the core of the city might not be attractive enough. And increasing the density of people also means you need to increase the density of services (public and private) and utilities, which also comes with its own problem.