> If they could afford a regular-sized car, they would probably upgrade.
Cost is a major factor, but so is the convenience of driving (and parking) a car with a small foot print. Plenty of people who could afford a larger car opt to go with a kei car for that reason. My family has one large luxury car and one kei car, and for a lot of day-to-day stuff the kei car gets more use because it's more convenient to park or drive on narrow streets.
And modern kei cars like the N-Box/Tanto/Roox have gotten pretty nice and cost upwards of ¥3,000,000 with lots of bells and whistles - more than some regular cars. Definitely not luxurious by any means, but very roomy inside and well-suited to city driving and even light highway driving with a turbo.