Sure, more people would use them, but it doesn't mean that the majority of people would trade normal housing with dedicated bathrooms (that are used only for a fraction of the day) for that. Normal housing market didn't die when dorms were legal to construct.

The savings that can be made from living in a tiny box with a shared bathroom instead of a regular American house are extreme and are much bigger than savings from not owning a car. Do you seriously think that will convince people and we will see the death of dedicated housing units in the near future?