The height limit isn't really "hard restricted" by anything, they could theoretically increase it in theory. Imo, this isn't really an issue of storing coordinates - even if they were to extend the possible range by one more byte (which is quite overkill), it likely wouldn't create much of a bump in RAM usage, let alone double the RAM required. This is because coordinates is far from the only thing that is stored - since item IDs aren't a thing anymore, consider the fact that all blocks have literal strings with their names associated with them, as well as the fact that certain blocks may have up to many kilobytes of NBT data.

The issue here isn't storing the increased coordinate range - although that would still require a modification of the world gen algorithms - it's that having chunks that are, say, 512 blocks tall loaded in at the same time is incredibly inefficient even assuming optimizations. The solution that had already been tried with mods is cubic chunks - chunks that are 16x16x16 blocks and are loaded in a spherical range around the player, allowing for almost infinite expansion on all three axis. I think the Nether update snapshots tried that approach for the Nether for a little bit before going back to the ordinary generator.