Depends if property tax was appropriately high to encourage productive use of the land (rather than letting it sit empty).

That's true. Property tax can help, but at some other level of over-supply, it doesn't even matter what the property taxes are. Once there is far too much supply (perhaps to the extent that it would be a bubble), pumping millions of dollars into housing that will sit empty or rent at a low yield will not be a good use of capital.