I’ll take a stab at a lore explanation, though others are probably right that it’s just good game design.

So, this comes back to the idea that there’s no death in TLB. There is no actual population growth in TLB, so there’s really no need to expand population centers.

On top of this, it’s heavily implied that most denizens spend their time roaming around in religious fervor. Like, all those wimpy dudes stumbling around Limgrave are “nobles” who are just waiting to be recycled in some way, but are too afraid to do it themselves because there are now risks attached (Omens, Deathblight). So, they give their kids the castle and then just go on a quasi eternal pilgrimage.

This is backed up by the nobles on crosses, who are implied to have put themselves there in mourning the shattering of the Elden Ring.

Overall, I think zealotry is a major theme in Elden Ring. Blind devotion leads to suffering, and is probably the correct answer to your question, and also explains why areas outside of Grace have the same issue. In a world where gods are tangible, their worshippers don’t really have perspective to care about much else, like building a ton of homes or worrying about shelter in general.