When the player zooms in to street level on a building it's worth the performance hit to load in more details and do so in a better looking way. When it's zoomed out to view large portions of the city (or the whole thing) then sure, you have to trade off graphical fidelity for performance and usability as the user builds out the city and wants to watch it grow. The amount at a given zoom should be based on the graphics settings, and low should allow for low detail even when zoomed in.
It's quite possible to do all that. Most AAA titles do by now. But creating all that detailed content at multiple levels of detail is a big job. GTA VI cost between $1.5 billion and $2 billion to produce. When you do those big zooms, vast amounts of data has to be shuttled in and out of the GPU. VRAM is too expensive to keep it all live.
There are some other current problems. GPU prices have not come down. If you want a big, high-detailed world, you need a few hundred dollars of GPU. GPUs on laptops tend to be underpowered, and if you make the GPU work to its full capacity, it runs down the battery.
One of my interests is technology for large metaverses with high detail and good performance. Everybody who made metaverse noise during the boom failed at that. Second Life, which is a large metaverse with good detail but slow performance, is about as good as it gets. (It's been improving recently; they've hired some good graphics developers.) Improbable's Morpheus/M-Squared [1] looked promising, but the site hasn't been updated in a year and the Discord community seems to have died. They usually run with "cloud rendering" (each user ties up a dedicated gamer PC in a data center), which is too expensive except for special events. Roblox is probably the only other serious US player working on this. Unreal Engine 5 can do big, static worlds that have lots of instancing, but that's achieved using large amounts of preprocessing, optimization, and performance debugging.
The underlying problem is that good simulated cities are about as interesting as real cities. Kind of boring. Second Life has a terrible problem with new users. At the start, you're in a big world the size of Los Angeles with about 40,000 people spread around. You don't know anybody. You have no idea what to do first. There is no obvious goal. There is no built in game. The system itself is completely indifferent to you, like real cities. You can explore the huge user-built world freely, but only when some users organize an activity does much happen. There's a lot going on, but it's hard to find. Those seeking passive entertainment give up quickly.
LOD (level of detail) techniques are used by practically every game ever written. It doesn’t mean that the developers can ignore the poly budget.