Supposedly, the big selling point was that seniors on fixed incomes were getting priced out of their homes. But that would only happen because they have a substantial, appreciating asset. These aren't poor people who deserve our sympathy; they're relatively well-off people with a cash-flow problem! We could have solved their cash-flow problem without destroying our cities' tax bases by allowing them to defer some of their taxes [0] until their property was sold.
Here's a great article from 2014 that talks about it: https://techcrunch.com/2014/04/14/sf-housing/
As for cities profiting from allowing new housing, this might interest you: http://www.henrygeorge.org/pcontents.htm
[0] For example, the amount of tax due immediately could be allowed to grow at 2% annually, following the Prop. 13 formula. Also, the tax due at sale could be limited to, say, 70% of the gain on the sale. That limit would probably never take effect, in practice, but I've learned from previous occasions where I've proposed this that people tend to get hung up on the possibility that one might owe more in tax than one stood to make on the sale. In fact, if you run the numbers, it takes some very strange assumptions to make the deferred tax even approach getting that large; but this rule should assuage that concern. (Basically, you'd need several years of strong price growth followed by a sudden, huge collapse.)