[ta1243]

They would only buy it they felt the return was higher than other investments

If the capital appreciation is zero, then it's just the rental income, which is offset against the cost of maintaining the property and the opportunity cost from the capital outlay on the property. That's not a major problem though, as the rental price won't be able to get too high as people will simply rent or buy elsewhere (as you've reduced the other barriers to building more property)

Of course you can get rid of the appreciation by simply taxing the land (which is the thing that mainly appreciates -- the building itself typically depreciates), and get most of the way there.