The Difference Between Governments and Private Property Developers
He's alluded to part of the answer by mentioning having to physically leave if you want to switch providers. The amount of competition in an industry depends partly on how easy it is to switch. You can see this by considering that if it is impossible to switch providers, there can be no competition. As it becomes easier, it takes less and less of a quality difference to get you to switch, and the industry becomes more competitive.
Well, if I own a home in a property development, it is significantly easier to switch providers than it is to switch governments. In the former case, I must move all my physical possessions and get a new home. I do not necessarily have to change jobs, to leave my friends and family, to acquire new citizenship, to maybe learn a new language and culture - all part of the costs of changing governments, because they are so huge.
So the cost of leaving a smaller property developer is much lower, so competition is higher, so they serve your needs better. The cost of leaving the private developer is still significant, hence we wouldn't expect them to serve your needs as well as an insurance company, where it just takes a few clicks and a printout to switch providers.
In addition, lets consider the barrier to entry to these markets. How much does it cost to compete with a government versus a private property developer? To compete with a government, you need to run a government, which requires winning a revolution or an election. This is one helluva barrier to entry! Whereas anyone with a few million can start off as a private developer. Therefore, there will be many more private property developers, therefore the market will be more like perfect competition and less like an oligopoly.
So there is a big difference, and it does not depend on any "magic smoke of government" or hand-waving. We simply observe some different cost structures in the two industries, and that tells us that one will serve customers poorly. If the private property development industry shifts so that developers become government-sized, and they don't allow small competitors, then I would expect them to do a governmentally-poor job of serving their customers. Hence an alternative system like market anarchism must be careful to keep this from happening.
My alternative is to live on floating cities. The costs of switching are lower because when you switch countries, you can take your home and office with you. The barrier to entry is lower because the ocean is huge and relatively homogenous, so there is always undeveloped real estate. You don't have to take over from some existing owner like you do on land - just homestead some new aquatory.