What? How? If the renter is paying less than the property tax, then the owner is losing money just on the property alone and not accounting for the likely mortgage payments. Nobody would ever rent out a place if that was the case.
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.