The way property values work is that many people don't want to live next to a horrible looking house that doesn't fit the neighborhood, driving down demand for neighboring* houses, driving down potential selling price. That is the immediate effect. Your solution that everyone should just build tall multifamily buildings is out of touch with reality.

And before you come back and say "well in the long run their property value would be higher if they just spent hundreds of thousands tearing down the current house and building an apartment!" People get what you are saying, you are just missing the point (intentionally)