Answer: First, it is not true, as is often claimed, that human beings “all must live together.” There are far too many examples to the contrary—for instance, hermits who have survived in a state of total self-sufficiency—for this claim to hold water. Human beings cooperate and live together because they can significantly enrich and extend their own lives by doing so, not as a matter of necessity for momentary physical survival. Having recognized the substantial benefits of living and trading with other human beings, however, the question then arises, how can this best be achieved?
Objectivists advocate laissez-faire capitalism because it is the only sociopolitical system that bans the initiation of force from human interactions. If individuals are to be left free to produce and use reason in the only way possible—independently—they must be secure from the criminals who would use force and fraud against their lives and property. Objectivism advocates capitalism because it is morally just as a political system, but that does not mean Objectivists must like every single outcome that obtains under a capitalist system.
Since human beings have a wide range of highly personal tastes and esthetic inclinations, no individual will ever be completely satisfied with the cultural and artistic products of a nation of free citizens. Personally, I feel acute distaste for bubblegum pop music or the bands that build highly successful recording careers by throwing loud temper tantrums. The beauty of capitalism is that I can pick and choose the music I listen to; I am not subject to the whims of central planners dictating which music is subsidized and which is censored.
In fact, capitalism is the only political system that leaves the dissatisfied free to organize their own communities and associations, and to build their own subculture. When the Transcendentalists became disenchanted with 19th Century American life, they established Brook Farm, a utopian enterprise dedicated to realizing their own spiritual ideals. Note that one never observes a capitalist version of such experiments arising under socialism; by their nature, socialist societies must quash such dissent.
Disapproval of others’ tastes, lifestyles, or (in your case) living arrangements does not inhibit one from pursuing happiness—unless, that is, one defines “happiness” as life in a world where everybody else conforms to one’s own vision as to how they should live. This other-centered version of happiness is false (because true happiness is an individual achievement) and impossible (because the rest of the world will never fall perfectly in line with one’s own desires).
You claim your pursuit of happiness is “inhibited by the logic of capitalism.” The various interventionist measures of our current mixed economy notwithstanding, the only thing capitalism inhibits is the initiation of force. If you find the use of force to be essential to pursuing happiness, I would encourage you to reexamine the premises that have led you to believe that such a psychological state can be attained by assaults on the rights of your fellow human beings.
In our relations with others we face one fundamental choice: we can coexist with them on the basis of trade, or we can steal the fruits of their effort (whether by coercion or parasitic dependence). If you are repulsed by cities, move to the countryside. If you dislike having to purchase food, grow your own. The only alternative is to beg or steal your means of support from those who have produced it, or to have the government steal it for you.
For instance, you mentioned that land is expensive. This is because so many people recognize and wish to exploit its productive potential. The only way to make land cheaper would be for government to establish price controls or ration land in some other way. These sorts of measures erode property rights and undermine ability of people to use nature for their own productive purposes.
Objectivists can and do disagree over capitalism’s esthetic outcomes. I find most cities to be beautiful and inspiring, and plan to live in one someday, but that is a personal evaluation, not an objective one. One cannot, however, be an Objectivist and despise the system of capitalism itself, because capitalism embodies the values, virtues, and political principles of the philosophy. Condemning rational self-interest, trade, or property rights would be a repudiation of essential elements of the Objectivist philosophy.