"Various alternatives for extending the 8080 address space were considered. One such alternative consisted of appending 8 rather than 4 low-order zero bits to the contents of a segment register, thereby providing a 24-bit physical address capable of addressing up to 16 megabytes of memory. This was rejected for the following reasons:
Segments would be forced to start on 256-byte boundaries, resulting in excessive memory fragmentation.
The 4 additional pins that would be required on the chip were not available.
It was felt that a 1-megabyte address space was sufficient. "
Ref: page 16 of https://www.stevemorse.org/8086history/8086history.pdf
Credit to mschaef for finding this.