Boarding houses filled a need, but modern safety codes say every bedroom needs a window. I bet people would rather have a roof over their heads, without a window, than sleep outdoors.
Want to do work on your house in Seattle? Touch the roofline and you'll need obscene amounts of rework and basically a band new roof. There is a serious shortage of space, so let's make increasing the # of bedrooms in the city as expensive as possible!
We need regulation, but regulations need to be created balancing out real world needs.