Why so? It seems you are describing it as a softfork. With hardfork or extension block, a new rule could simply grant extra space when the tagged UTXO is spent. So if the usual block size limit is 1MB, when the special UTXO is made, the block size limit decreases to 1MB-700 byte, and the user has to pay for that 700 byte. When it is spent, the block size will become 1MB+700 byte.

But miners or even users may abuse this system: they may try to claim all the unused space when the blocks are not congested, or when they are mining empty block, and sell those tagged UTXO later. So I think we need to limit the reservable space in each block, and deduct more space than it is reserved. For example, if 700 bytes are reserved, the deduction has to be 1400 byte.

With BIP68, there are 8 unused bits in nSequence. We may use a few bits to let users to fine tune the space they want to reserve. Maybe 1 = 256 bytes

I think this is an interesting idea to explorer and I’d like to include this in my hardfork proposal.