So they're losing out on a few dozen new units, but it is made up for by renters across the board having to pay less rent and thus having more money to put into the economy? Seems like a good trade to me?

Because then the units fall into disrepair (because they no longer make sense to maintain) leading to less supply leading to lower availability of units leading to higher cost of housing.

See what happened in NYC regarding the consolidation of housing units.