So what happens when the most crowded large city in the world forbids intense development? Prices get very high. The most expensive parts of Mumbai are more expensive than Manhattan; the least expensive are comparable to the American Midwest, but people's "middle-class" incomes are perhaps 1/8 as large in Mumbai.
A developer I spoke with last night told me that if FSIs were raised to 4 (still low by world standards), prices would fall by about 50 percent. While this is not an econometrically determined elasticity, it does make a certain amount of sense. It would be worth at least doing the policy experiment of raising FSI uniformly.
As for services, well, there are already plenty of people using services. The average person in Mumbai consumes about 30 square meet of residential floor space, so allowing more vertical development might, if anything, alleviate crowding, both inside and out.