Don't forget that apartments are a thing. And are far far cheaper than houses. Both in terms of direct rental costs, and in terms of upkeep. Heck, the plumbing and electric are probably magnitudes cheaper to maintain for an apartment block than for a subdivision.

Directly to your first, though, most people stay in dorms for college because that is the best that they can afford. New students moving to a city to go to school almost by definition can't afford a house. I don't imagine that would be easy to ever change.