Allowing existing homeowners to increase their revenue by densifying housing will drive prices down. Although developers for single family dwellings will not be as happy about it, if you have a 1/3 Acre lot 10 miles from downtown S.F. which you can turn from a single family $3000 a month rental into a multi-unit $30,000 a month rental then you will be happy to do so. Even if it drives down the value of your $800/month rental in the middle of nowhere.

Imagine if you are currently owning and occupying a house and have a chance to pay your mortgage by building a rental property on the unoccupied half of your lot. A lot of people would be very happy to do so if it were legalized.

Edit: But you are totally right that socialized housing would be an excellent solution.