Hypothesis: investors rent out their investment housing (to make a profit) so it doesn't really reduce housing supply, it just shifts supply from owned to rented.
Yeah, and it will depend a lot on the regulatory structure in the local environment, plus national things like interest rates. With prop 13 locking in below-market taxes, you'd have to be crazy to sell property in CA. With a different structure, you'd have to be crazy to keep it!
It reduces supply for people who exclusively want to own. I'm not going to tell people what is the better financial decision for them, but there is a segment of society that wants to own a home regardless of whether renting is more financially beneficial.