Luxury developments can create local rent increases and displacement even if they reduce overall rents relative to where they would be without the development, and it's not surprising that tenant groups tend to resist simple upzoning. What's more, they are wasteful of resources and space, since luxury units are much larger and tend to have a lot of square footage-eating amenities. Inclusionary zoning (mandating some percentage of affordable units in new building) is an improvement, but doesn't generally create remotely enough units to satisfy demand.
Upzoning advocates argue that if we simply went on a wild private building spree, we'd eventually burn through all the luxury demand and actually reduce the price of midrange and affordable units (as opposed to only slowing the rate of increase). But that could take easily take decades, if it even works at all.
It's not a bad idea? But it's not a complete idea.
Municipalities finance things with ten and twenty year bonds all the time. If a municipality were to build a development with the intent of operating it for twenty years, then sell the property and use the proceeds to finance additional projects, you'd get most people to agree to it (particularly if the operation and planning were put out to bid, rather than operated by bureaucracy). "Luxury" generally means better finishes and bigger rooms; finishes need to be changed out every 20 years or so anyway and if you design the floorplans so you can mash two 800sfs into a 1600sf you've got a ready-made "luxury" remodel when you go private market.
Rent control isn't a solution, it's an externality. You're taking the problem of supply and demand and forcing it to squish somewhere else. The traditional method of dealing with rent control is "fuck you we're condos now, buy in or move out." You will never get anyone to sign off on the idea that the owner of a property can't convert it from rental to sales.
Magically waving your hand and abolishing setbacks and parking requirements is fucking stupid, however. These are vital to the livability of any neighborhood. If you want parking requirements to relax, you have to build viable mass transit so that people don't need that many cars. Solve that problem first - if there's plenty of street parking on a block with 20 houses, build a 4-unit apartment and watch it all disappear.