"If it is, then you must understand that the credit for that on-paper increase in value is to be completely given to the local government"
No. The value assessments are made by potential customers and suppliers in the area. Sure governmental actions have been one part of the causal chain, but only one of many. The fact that the building stands ready, not decrepit enough to bring down the general attractiveness of the area, is partial credit to the landlord and her choice of tenant.
"because of its zoning laws which have resulted in a dramatic undersupply of housing in the area."
Might the rent-control laws have had something to do with it too? (After all, zoning laws aren't easily effectively changed on an area that's already filled in.)