> How exactly is forcing owners to actually improve their house supposed to make the housing problem worse?

This law makes renovations more expensive. That means use conversions, expansions and safety improvements all happen less frequently.

> It’s an insignificant dent in the profit margin

Limited supply means suppliers own the cards. There is zero chance these costs are born by landlords.

> Limited supply means suppliers own the cards. There is zero chance these costs are born by landlords.

Landlords are already pricing their rentals as high as they can so who else would bear the costs? If they could extract more, they would already do.