They don't reduce housing supply. The same number of people are living in that building as would be if the building had been sold to them.

If you want to get to the root of the problem, look at the development process. Start with your local zoning laws. It is insane how tightly prescriptive they are, usually, and they generally have lots of density-limiting provisions like mandatory parking, maximum floor to area ratios, maximum heights, minimum setbacks, etc.

And then there's the planning/approval process.

> They don't reduce housing supply

They don't reduce housing supply for living, but they do reduce housing supply for owning. Normal people being able to own the house that they live in seems like a reasonable societal goal to me, but the current economic climate is making that harder and harder as houses move into the hands of landlords (private and commercial).