I ended up doing this which worked, but I still want to know why the original way doesn't work.

import SwiftUI

public struct ExpandingTextFieldView: View {
    @Binding var text: String
    let placeholder: String

    public init(
        text: Binding<String>,
        placeholder: String = "Enter your text here..."
    ) {
        self._text = text
        self.placeholder = placeholder
    }

    public var body: some View {
        TextField(placeholder, text: $text, axis: .vertical)
    }
}