Some local authorities won't allow conversions of bungalows to 2-storey dwellings in certain areas, but I think they're in a minority.
Volume developers certainly aren't building the amount of single storey housing that older people or those seeking to downsize want to buy - which is nuts, because many of those potential buyers are cash rich and would pay as much as they would for a 2-storey dwelling if it had all of the facilities and features they wanted. Developers are already building homes that most local people can't afford in many areas, whilst roundly ignoring the older generation who DO have the money from downsizing their larger properties, but aren't catered for at all in the design of the properties being built.
In the UK, there's a growing interest in people considering 'co-housing' as a viable alternative to lone or older-years living - although people of any age are getting interested in it, including families with young children. The idea is that a group forms to buy a piece of land, build individual dwellings (with their own kitchens and bathrooms), but share common spaces and facilities such as a communal kitchen, food growing space, car share, gardening and DiY tools, bicycles etc.
Some older people really love this idea as it also combats isolation and loneliness, whereas others would think it's the worst idea ever! It's cited as a solution to high land prices, especially in the south of the country, and a way of creating secure, perpetually affordable housing.
It depresses me when I see lovely big plots with pretty bungalows re-developed into houses as big as the plot will allow, with tiny gardens, all hard landscaped and built with shit-loads of polluting concrete and non-sustainable materials. The driveway space is always huge, though - because we British are weirdly obsessed with it.