Look at airbnb and the detrimental effects it has on cities. Residential areas are residential for a reason. It must be horrible to wake up one day and find that your neighbour has decided to turn into an unregulated hotel.
Secondly if the prior taxi system is evidence of regulation i think it's a safe assumption to make that regulations helped neither the consumer or the providers. Uber in SF is doing 3-4x what the entire taxi system was doing prior, that's evidence of demand not being met. Artificially restricting supply is never a good idea.
Uber is only doing so well because people prefer their service to the alternatives, people aren't stupid, they can do what is best for themselves.