Property tax would just be passed on to the renters wouldnt it?
I live in Tel Aviv, where property tax is paid by occupants, not by owners. On the upside, this allows the government to give tax breaks to protected classes (e.g. the elderly, so that they're not kicked out of the apartment they've lived in and owned for decades just because property tax became unaffordable) directly. On the other hand, the carrying cost for owning real estate in a highly desirable market that you rent out is practically zero, so most apartments are owned by people who inherited them and are uninterested in selling, because a) urban renewal plans will eventually give owners a big financial windfall when their older buildings are chosen to be replaced with subsidized new construction, and the replacement apartment they will receive in the future is worth far more, b) people have children, and there is a huge value to being able to provide your children with housing in a desirable market when they get older, so owners rent their properties out in the interim.
Ironically, property taxes paid by renters creates a landed class.
Welcome to California.
That's just the law of supply and demand. Renters pay the market rate. If an owner can't afford to rent at that market rate, then as you noted, they go out of the renting business. You'll find if you run the numbers on properties in SF, landlords are banking on property appreciation. The market rents don't pay the ownership costs, usually by a huge margin.
You just said "If the landlords can pass on 100% of the property tax, then the supply is way out of sync with the demand". For growing areas, why would any investor develop any land to increase housing supply to rent out if the property tax alone would cause them to lose money based on the money they could make renting out places?
Edit: I see where you might be confused - I'm talking about passing on 100% of the property tax. In an ideal scenario, landlords would have to cut into their profits to pay for the property tax that tenants wouldn't. But in California, we obviously don't want a market where buyers have lots of options, so apparently everyone is ok with landlords passing along 100% of the property tax cost to the tenants.