> And Sally may be providing more housing, but she is also making significantly more income and can do so subsidized by her neighbors. Her housing is also likely to go to higher income residents as it would be new housing in an expensive area - and those residents will have less space and no yard.
That sounds like a completely backwards way of thinking to me. Sally is increasing the community's prosperity (and tax revenue) while consuming a small amount of a limited public resource (land); if her actions mean people are willing to live in a smaller space that's something to encourage, and the opposite being subsidized by her neighbours. Meanwhile Bob is consuming 200 acres and not giving the community much to show for it.
That sounds like a completely backwards way of thinking to me. Sally is increasing the community's prosperity (and tax revenue) while consuming a small amount of a limited public resource (land); if her actions mean people are willing to live in a smaller space that's something to encourage, and the opposite being subsidized by her neighbours. Meanwhile Bob is consuming 200 acres and not giving the community much to show for it.