[quote=no_such_reality]
The rental market for 3 bedrooms or more is pretty lean. Selling those properties that have low tax rates will disporptionately hit the higher bedroom count of the rental market.. Essentially, you will see slightly less competition for significantly less properties in that property space.

Where today you may essentially have 11 people vying for 10 SFR rentals, after stripping the tax basis, I suspect you will end up with 9/10 vying for 6 or 7 available SFR properties. More competition on those properties will put upward pressure on rents there. While eventually the number of renter at a given property type balances back out, you have more people substituting a lower end good for a higher end good because the higher end unit isn’t available. That in turn actually pulls those rents up on the better quality lower end units which in turn pushes more up.
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I’m not sure why you think there would be such an impact on supply of rentals. Ask yourself what is the alternative? If you have a house the only way for it to be removed for the rental supply is for it to be sold to an owner user (could be a new household/former renter/or move up buyer). It’s not like you are going to leave it empty or tear it down.

Vacancy is what kills the mom and pop landlord in the SFH space. Big apartment complexes just look at vacancy as a cost of doing business and even they make adjustments based on the vacancy rate. If you try to adjust the rent up $50-100 because of increased expense but it ends up sitting vacant a month or two because of that it can take years to recover that lost revenue. So most single family home landlords will take whatever they can get in order to get that revenue flowing in again.