It's more an issue with increased expectations. For example rollback netcode is now expected in fighting games and implementing that will lengthen development time though that's completely worth it due to the benefits it brings. Features like that that are taken for granted now all add up to making big games take longer to make than before.

If anything hardware getting more powerful will help reduce development times going forward with increased assistance from AI and eventually games with photorealistic graphics becoming easy enough for even tiny indie teams to create.

We're in this weird territory where game development got very complex and time consuming, but we don't have enough sophisticated automation tools (AI) to help speed up the development and debugging processes. Worry not as this will change in the near future.

Not in my opinion.

No, because one could then start to argue for any old arbitrary cutoff on what was "good enough." A crusty old Gen X-er like me could argue that consoles should have never advanced beyond the 16-bit era, that the games were good enough, and that the fact that the era produced so many classics is sufficient to demonstrate we didn't need anything more than that. I could then argue that the move to 3D just produced a flood of ugly games with terrible controls (which is an opinion I actually held regarding the vast majority of Gen 5 games back when they were new, and still hold today), and caused budgets to balloon year after year as games became more complicated.

In the same vein, one could apply these arguments to other media that have benefited from advances in technology. One could argue that the effects technology was good enough in the 80s and that the advent of CGI was just too much, providing all sorts of examples of CG that looked terrible even when it was new as well as old movies with practical effects that still look great today, and further arguing that ever more advanced CGI is just causing movies to become too bloated in terms of budget and ambition. One could even revert to the absurd position that the downfall of cinema came with the talkies, and that all we ever needed was a camera, the wacky antics of someone like Charlie Chaplin, and the backing of a classy orchestra.

The problem isn't technology. The tech will always advance. I'd even argue the tech should advance, much the same way as special effects in film shouldn't have stagnated where they were 20 or 30 or 50 or 70 years ago. Graphics in video games do matter, despite what some people might say. Graphics vs. gameplay is a false dichotomy, and sometimes graphics do matter for gameplay.

The problem is what people do with the tech. All this computing power is routinely thrown at things like rendering ever-larger worlds filled with a whole lot of nothing besides repetitive copy-and-paste objectives that exist simply to give players 60 hours worth of things to do in a single playthrough. There are games that show off what newer systems can do, but far too often the industry is content with churning out either uninspired open-world games like those I mentioned, or always-online multiplayer experiences that are designed first and foremost as platforms to sell microtransactions. AAA devs could easily make smaller, more focused single-player titles that have top-shelf graphics and play smoothly, but many of them choose not to. There are some current-gen games that do just that, though few of them are big-budget AAA third-party titles.

From my POV, it advances too slow.

I've been waiting patiently for games like Teardown, that has whole of its gameworld being destructible, for so, so long. Sure, it's not that big, base unit of volume ( I think it uses voxels, not 100% sure on that) is still way too big, it's small indie title, but it's something different.

Now imagine big budget open world RPG that has everything made with similar tech, with each voxel being very small, with every point in space having physical properties, being interactable with in consistent way, and being permanent (so doors you just broke with your axe, with pieces laying on the floor will be the same if you come 2 days later and nobody messed with them further).

Now add to that a sophisticated AI trained to serve as Dungeon/Game Master.

No, hardware just can't get that powerful soon enough, from my POV.

Peoples expectations on what makes a good game "good" has gotten more complicated over time.
We expect game mechanics to be more intricate and engaging.

Go back to 1990 where you could play an entire game with 2 buttons and your only function was run and jump. - Compare that to today where you could explore a galaxy, use motion controls and more, it's chalk and cheese on the complexity of game mechanics.

Not all graphics improvements increase the length of development time either... Tessellation reduced the need for building highly detailed environmental landscape geometry, we could use "n-patches" and scale it to the hardware instead.

We no longer need to bake details like lighting and shadowing anymore into the art assets, it can all be dynamic, massively reducing the work load there.

The two above examples are purely thanks to increases in hardware capability and they reduce development time.

At the moment I would argue the cadence of hardware improvements has slowed, we aren't getting that doubling of performance every year.

This mirrors my opinion.  Games are too big and too often filled with fluff.  FF7 remake literally has Cloud herding cats.  Games need to be more focused.  I still think 10 to 15 hours is perfect.

Elden Ring, for me, is a great example.  Too much copy/paste of caves, dungeons and bosses.  Something like Demon is just better because of the focus.  

Some of you have mentioned how some games get too ambitious for their own good to the point where they lack focus or vision.

There is something to be said there. That's the catch-22 w/ just about any major AAA title, especially as hardware gets more and more advanced. Devs get excited thinking about all the difference ways they can push said hardware to its limits to bring the most out of the game, down to every minor detail, but if they're not careful, they can end up putting too much effort into something that ultimately doesn't contribute to the game and they end up losing sight of the purpose of the game. All the while, time and budget has been eaten up and they have to spend that much more either pulling it back to refocus on their original goal, or doubling down and going "more! More! MORE!"

Lay off the caps man. But seriously, no. Playing FFXVI rn and not come across one bug. And it could've done with much better hardware.

Don't blame the hardware for devs who can't do their jobs. Or publishers that push for games to release, even in unfinished/unpolished state(s). There are many games Capcom has released the last few years and Square Enix that have been solid. And more from others. First party from Both Sony and MS have been a little slow (especially the latter) but still Playstation still coming up with bangers and Nintendo well they've been killing it since this generation started.

The only way that hardware is conceivably getting "too powerful" is in terms of TDP, which results in bigger and bigger hardware. Consoles have kept getting bigger (just compare a PSOne with a PS5 for size), and PC parts, especially GPUs, are getting too big for some cases; while you need water cooling to get the most out of CPUs, especially those from Intel right now.

Neither is a problem for software development, so it's not a problem for game developers.