But shouldn't current users be given the chance at housing too? It sucks I get that but with a shortage on housing they have to do something. It also has the effect of keeping the housing areas from looking less abandoned by doing this.

From what you wrote, you also had the chance to keep your house but chose not to. Having said that maybe They need to implement some system that deleted items get pushed to some sort of holding box that can be accessed and the items retrieved, LOTRO has something similar.