Are homebuilt aircraft allowed to operate over densely populated areas?
In most cases the answer is yes, once the initial flight test period is completed, a homebuilt can be flown over densely populated areas and in congested airways.
The operating limitations that are issued to a homebuilt aircraft as a part of its airworthiness certificate will usually contain the following or similarly worded limitations:
“Except for takeoffs and landings, this aircraft may not be operated over densely populated areas or in congested airways.”
“This aircraft is prohibited from operating in congested airways or over densely populated areas unless directed by Air Traffic Control, or unless sufficient altitude is maintained to effect a safe emergency landing in the event of a power unit failure, without hazard to persons or property on the surface.”
Taken together, these operating limitations allow for flight over densely populated areas in most situations. The first limitation allows a flight over densely populated areas during the landing or takeoff phase of any flight. The second Limitation allows the pilot to fly over densely populated areas in accordance with ATC direction or so long as sufficient altitude is maintained so as to meet the stated requirement to avoid hazard to persons or property on the ground in the event of a power failure.
You want to fly your homebuilt into a non-tower airport surrounded by densely populated areas. You can fly into the area at sufficient altitude to allow for a safe emergency landing (second limitation) until it is necessary to descend for landing (first limitation).
You are flying into a tower-controlled airport surrounded by densely populated areas. Before talking to the tower you should maintain sufficient altitude to allow for a safe emergency landing (second limitation). Once you are talking with the tower and complying with their instructions you can fly over the densely populated areas as directed by the tower (also the second limitation). Once you are in the immediate airport area and need to descend to land, the first limitation also comes into effect.
Remember that the FAA does not specifically define "densely populated areas", and there is no clear direction on this definition to be found in FAA legal opinions or court precedent. This being the case, you should use your best judgment and stay on the conservative side when deciding whether or not an area is "densely populated".