Anecdotal, but I share office space with some architects/builders... and the number one thing I hear them bitching about are the delays/roadblocks in terms of permits, environmental assessments, and the slow back and forth with whatever bureaucrat is assigned to the file. I hear zero complains about construction methods not being innovative enough.
I'm no big-city urban planner, but it kind of seems like the best thing governments could do is look for ways to make the existing rules, endless consultations, and permitting processes more efficient on their end. Otherwise, let everything else (design, technology, price etc.) be handled by free market forces. If modular construction is the answer, then the market will figure it out (it probably already has, but came to a different conclusion).
The path towards efficiency/affordability in any field rarely involves more government involvement. Set the framework, make them efficient as possible, and then get the fuck out of the way.