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If this is true, why is it illegal to build anything but low density suburbia in most places?

Well one example is infrastructure...if a formerly-rural area gets a gradual accumulation of homes, chances are they are all on septic systems...so people are using their property for waste water recycling, and there is a limit to how dense this type of living can be.

I grew up just outside a decent-sized city in Canada, now living in Texas...both places, on septic. Its not rare.

Right, but that's one of the reasons to make it easier to build infill development, which is largely illegal due to zoning, parking minimums, height maximums, etc.

I live on 3.5 acres and have a water treatment system and part of the reason is that there's a shortage of homes I _actually_ wanted, which are decent flats in the city where my kids can bike to school, so they're very expensive.

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