but it's hard to then build the services that this many people need

The idea is that there are the same amount of people on the island.

Island 1 might need 2 small schools to serve the top and bottom of island.

Island 2 could put one large school in walking distance of living building.

One large school is much cheaper than multiple smaller ones.

Same with things like fire stations. You only need one around the living building on island 2. One station on island 1 might not be in range of all the homes.