A Boring Dystopia

Rental income is considered income, and taxed assuming reasonable tax brackets much higher than investment income

Depends on how the income is structured. You can own shares in a REIT that manages properties and count the dividends paid out as investment income.

The cost of maintaining a livable home, property taxes, insurance, property depreciation, and renter interactions eat into the supposed windfall that landlords make.

We had interest rates as low as 2.8% APY within the last three years. States have been lowering property taxes steadily for the last decade, as prices skyrocketed. Depreciation doesn't lower the land-value, which is where most of the price inflation has occurred since the first big real estate booms of the 90s. And "renter interactions"? I don't even know what this is attempting to imply. Is cashing the checks costing you money?

Some of the biggest investments hedge funds have made since the COVID crisis have been in residential real estate. This, in a market where The Magnificent Seven stocks have performed 20-30%/year for several years. Someone who works for Warren Buffet clearly sees a windfall in landlord-ism that you're not seeing.