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It's done on rare occasions and in terms of permits it's a no-brainer. Any neighborhood that is already zoned for multi-family homes is already zoned for single family as well. Also - there are tenant safety issues that sometimes come into play in multi-family homes that are not applicable to single family homes.
These will vary by township etc. but in some cases a multi-family home will be required to have hardwired smoke and fire detectors either in the units and in the hallways and common areas (or all of the preceding), will require a separate means of egress for all second and third floor rooms, etc.
The biggest challenge is the cost and practicality of conversion. If the multi-family was purpose built and designed for that type of occupancy it will most likely have a floor plan, mechanicals etc. that duplicates many things in multiple units and makes conversion complex. It's when you try to convert a single family home into a multi-family that you'll encounter issues or obstacles that may be legally insurmountable.
That said.... I've always thought that if I ever got married it would be nice to buy a two family home so my wife could live on one side and I'd live on the other. We could visit back and forth and sleep over at each other's places but each maintain the idioscyncrasies of our given living habits and our privacy when we want or need it. Then again... crazy ideas like this may have something to do with why I'm still single....
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