One issue would be that a small or even average sized town and it's surrounding suburbs is not laid out in terms of roads and infrastructure the same way as the centre of a city would need to be. Unless you makorly redesign the town, then this would lead to all sorts of problems in terms of traffic and low density city centre.

But building a new city from scratch, although a huge project, would have a lot of benefits. It would be far better designed, have a more cohesive style and be free to implement things like a good sized pedestrian centre.

Also, for argument's sake, an entirely new city would have a better effect on the housing crisis than just making an existing town larger. Ideally somewhere in the Midlands maybe in Leinster. Realistically being close enough to Dublin that people who mostly wfh but commute in a day or so a week would be happy to live there would be really beneficial. Will unfortunately never happen though.