>A first order effect of increasing a stock is that price/profit decreases, driving holders of that stock to diversify into different client bases:

You know what would result in "driving holders of that stock to diversify into different client bases" (ie. long term rentals) even more? Forcing them to do so eliminating all demand from the short term rental side. Moreover, doing that would convert almost all of those units to long term rentals, not some marginal percentage your model implies.