Every study I've seen indicates that there is a lot of unsatisfied demand for housing in dense walkable neighbourhoods with mass transit. Most of it isn't for Manhattan levels of density, but even there, far more people would like to live in that kind of environment.  This is reflected in housing prices - compare class normalized per square foot prices in urban neighbourhoods in cities with mass transit and their suburbs. Think of your own neck of the woods - what's the per square foot cost of an apartment in an upper middle class area of DC vs. the same type of area in the burbs. At the extreme you've got run of the mill two bedrooms in Manhattan going for the same price as nice houses in tony inner NYC suburbs.

Or even not class normalized. I live right next to Bedford-Stuyvesant. It's definitely no long the Bed-Stuy of 'do or die' fame, but it's still pretty high crime, has lots of poverty, and has crappy schools. The commute to Midtown is about 30-45 min. A townhouse will run you about a million bucks - for that price you've got a nice large house and yard in a low crime affluent inner suburb with great schools and not much more in commuting time (southern Westchester or the closer parts of suburban Jersey are about 45 min).  One doesn't have to be a market fundamentalist to wonder if the prices are telling us something.