Or, to the extent there is a market failure (indeed, this is unclear) it's just because the landlords don't pay the cost of the externalities - reduced neighbor

Or, to the extent there is a market failure (indeed, this is unclear) it's just because the landlords don't pay the cost of the externalities - reduced neighborhood amenity, low competition / higher prices. These fall on the residents, and if they felt strongly enough about it they could stop it from being an externality by instituting a vacancy tax, buying the properties and renting then to artist at a loss, whatever.