But there are SO many ways in which the-powers-that-be
do not "let the markets drive what is possible". Density, use, and height restrictions are foremost among them. These sort of things we exercise a shitton of "oversight" over, and what we end up with is far from what an unrestrained market would produce.
Some aspects of development and design draw a huge amount of attention from the public and the regulatory authorities that represent them, while other aspects get little to no attention.
The issue is not that we let the market dictate development, the issue is that we let the market dictate some design decisions but not others.
This is particularly pronounced in the suburbs. In the 128-belt town where my parents live, developers are given carte blanche to buy up charming and affordable pre-war ranches and colonials, tear them down, and put up soulless
McMansion Hell-style 5-bedrooms in their place. There's a market for that, and just about anyone can do it with little municipal resistance. But god forbid a developer seek to build more than one housing unit on a single lot, which there is also a market for. Then they're chased out of town by the regulators.