setbacks are about reducing FAR so people need to buy a lot more land than they need to build a home to live in. It helps keep property values high and land as a scarce resource.
I don’t see how you can avoid street canyons otherwise.
What is wrong with that?
Don't you have to seek municipality approval for structures? At least where I'm from we have to seek approval from the municipality to build anything bigger than a certain size on our own land. Anything that is close to a public street or neighbor also have to be approved.
When you say seek approval, in the US at least there is 'by right' zoning. Meaning that anything can be built by right as long as it follows certain rules. The approval is generally not an approval so much as a check to make sure it is following the rules. Anything not in the rules usually has to go through a special approval of a planning commission and neighbors may need to ok it.
Is a street canyon a bad thing? I don't think so. Perhaps if the street is only for cars,
but many of the most treasured streets are 'street canyons'. See https://en.wikipedia.org/wiki/The_Shambles for an example