As an instance owner, the amount of overhead to support that would be nuts for me. Each subdomain would have to have DNS routed to it, or a wildcard which isn't the best supported. On top of that I'd need to somehow manage certs in a way where when the software detects a new community it'd have to ask for a new cert and broadcast the new domain to everyone. Then what do you do about communities from other instances on your instance?
What is being done is the right way. We use DNS to tell us different services/hosts. We use the path to tell us a subsection of the same service