The same reason everything in California is screwed up: Proposition 13 prohibits fixing it.
On the side for demand, it's clear California's coast is the "chic" place for people to be. Not to mention relatively safe investment spot to stash foreign money away.
On the other hand, if the OP is talking about foreign non-Americans, I'm not sure I automatically believe that they have an absolute right to access or participate in the US real estate market.
But of course they can - in your view - participate to it, as long as they are willing to pay a premium surcharge.
I'm not nearly knowledgable enough on the topic to know what the overall effect on the RE market would be if such a foreign tax was instituted, but assuming it was found to be favorable, I wouldn't consider such a tax to be some great injustice.
The US has already huge geopolitical advantages (the dollar for starters, and massive stock-holding in companies around the world, some of them acquired with doubtful means - read "wars"). You have elected a president with the explicit goal of increasing the game-rigging in your favor, now that you are not winning (I expressly do not write "loosing") as much as you used to.
We have now other countries which are starting to profit from globalization, fact which has been used a selling point of capitalism by the US in order to secure neo-liberal agenda in international organizations for decades: "capitalism is good because it allows everybody to improve their life standards by working hard".
If the US continues on this course of "our way or the high way", I guess we will all loose, but the US has a lot to loose too. International trade can be closed by other parties too, we can expropriate ownership of foreign nationals on companies operating in our territories, we can increase legal burden of foreign companies operating here, ...
Keep on playing the game, even when you are not winning, and stop changing the rules mid-game - rules which were written mainly by you and your cronies.
Do not wine, and stop being a bully.
I would expect that any legal resident of the US would be exempt from such a tax, not just citizens, if they weren't, I would have a problem with the tax even if it had the desired affect of lowering housing prices. But again, I want to stress that I don't have the knowledge to determine this.
As to what other countries should do, I have no idea. Certainly I believe they have every right to determine that for themselves. I believe some countries do have varying requirements or limits on foreign land/RE ownership. Perhaps I am mistaken.
The only thing inherently wrong with that is that the US has been advocating, and profiting, from the policy of relaxing rules for foreign investors for decades, to the point that most of the world is now partially owned by US interests.
So, while the US actors were the only ones which were in a position of profiting from those rules, since other economies were not developed enough to really expand into foreign markets in a massive scale, lax rules for foreign investment were perfectly fine.
Now that most of the world (thanks in part for the progress in IT) is in a position of profiting from those lax rules, the US is turning inward and tilting the playing field, again.