Maybe I'm just not familiar with the specifics of that proposal, but I don't think tunnels solve the problem you presented either. If I need to go down a one lane street to get to my house, I'll still need to do that whether we have tunnels or not, unless for some reason the tunnel exit is right in front of my house.
Personally, I think the solution is to make only make certain large, predictable roads self driving and force a user to take over on smaller more complicated roads. As technology advances, you can slowly add more and more of the smaller roads to the self driving map.