This is intended so in the program. Player use this to hedge in city's. Not growing into railway facilities.
But you can help the city growing over the blocking railway. Just build manual one house on the other side. There must be a road nearby the house.

in TPF2 any rail block town development too but if you build a streetcrossing over the rails the town will extend itself from there. Sad that Simutrans don't support that way, instead of being cheaty.
in Transport Giant you had no posibility to destroy any public building nether a road so there it was essentail to block town development, but here i don't realy see any issue by town development as it's damn cheap to destroy a building.
Is this a pak restriction or a base program one?

It is so desired by some players.
The rules for urban growth are in the file "cityrules.tab"
You can look in it and modify this. The house_x rules can only look max 2 tile wide.
You can test the other files in the config folder. Just rename it to "cityrules.tab"