I checked the house I grew up in, and its property taxes are the same from when it was first sold in 1974 (or whatever the upper adjustment based on prop 13 has limited it to). It has never been sold by the original owner. They pay $2,300/yr in taxes and homes in that neighborhood rent for $5,000 - $8,000 per month. That's a net difference of between $57,000 and $90,000+ (every year) that those owners reap due to a law that gives them leverage which is not available to other people. In other words: it gives them legal, permanent arbitrage.

And while it's true that you identify the loophole has been "closed" for rental properties, if you dig into specific properties and look at a random sample, you will notice that a non-trival number of homes' legal owners are trusts - i.e. ownership entities that undergo no reassessment - ever. So while some rental homes may be reassessed, in practicality it is far, far short of "all." The guilded class knows what they are doing.