I understand the idea and its great if they were able to do that but the world would look a lot different if they would actually do it differently

I don't think anyone has demonstrated that's true. If everyone but megacorporations stopped owning property other than the one they live in, I don't thin housing prices or rent would go down. In fact, it would have unexpected side-effects like increased rental rates (since you'd have to jump through even more hoops). Imagine if you will, the pre-flip car lease market. Owning cars was the way of the poor, leasing a new car every few years was the way of the rich. If only owner-occupied could be rentals, rent would skyrocket and the MANY people who want to rent would have to fight with each other. Consortiums would find a legal way to buy luxury rental buildings and have a dedicated "owner" live in them. As you implied, supply and demand. A lot of people don't want the liability of property ownership for reasons other than "being too poor to buy a house".

There would be more houses to buy and they would be cheaper, their money would need to be put in other things to collect interest

Yeah, it would collect more interest. So long as nothing happened to them (which it hasn't), they'd end up a lot richer. But it's a lot more risk because if something did happen to them, it would be harder for that money to be earmarked into a trust in the kids' name like the houses are. So they would have had to live with the real risk that their son would end up homeless, but yay they'd have a lot more money.

The problem with a lot of people suggesting real-estate reform is that they don't understand why individuals (not big businesses, that's different) buy rental houses. It's rarely about maximizing profit, it's about minimizing or mitigating risk.

To be clear: your extended family is not the problem imo and would not suffer from a law like this.

Except, it sounds like you just said they would not be allowed to do what they did, and would be stuck with riskier propositions. Those houses were purchased under little LLCs so that if they got sued into bankruptcy their kids would still have a home (they themselves are under Homestead protections like most homeowners in my state). Not that they expected to be sued, but it's called "doing anything to make sure my kids don't end up on the street". That's what happens when you grow up in poverty. And there really is no better, simpler, and more reasonable way to make sure your kid won't be homeless than to buy them a house. And if you're not filthy rich, that doesn't mean buying it cash and handing it to them on a silver platter. (technically, I think that silver-platter method would still be allowed under the plan I'm objecting to because the kids would have an owner-occupied house in their name... yay rich people I guess. My family isn't rich enough for that)