As Atrios says, the problem with lot occupancy rules isn’t that there’s something terrible about backyards (or front yards or side yards or rows of bushes in front of buildings or what have you) it’s just that land is a valuable commodity. Think about something else. I like television. And most Americans like television. If we had a rule mandating that every new housing unit include a television, it’s not like people would be sobbing in the streets saying “oh noes, this television is ruining my life.” Most people would just watch TV and some minority of cranks would maybe smash TVs in back alleys or whatever.
But this would still be a stupid policy and inefficient allocation of televisions! In a world where TVs are not mandatory, most people buy TVs. Some buy expensive ones, some buy cheap ones, many households own several, and some households own none. Lawns should be just like that, available to those who want to pay the market price, but not cross-subsidized through arbitrary rules. There’s no collective action problem posed by contemplating a world in which most houses include some green space many do not. There’s no adverse selection issue. There’s nothing.