One of the problems with housing is that local governments get less revenue from housing than business. That gives them every incentive to approve commercial construction and deny residential.
Take away the financial perverse incentive., and there is a lot of money to be made by approving badly needed dense residential housing near existing commercial buildings.
Rescinding Prop 13 is unlikely to change anything because assessed values will be even more if developers can build bigger, multifamily dwellings in the neighborhood. So, yes, taxes would go up, but the local pressure to restrict zoning won't change as the incentives still line up the same way relatively.
To take the example that you just latched on to, if rezoning the land makes it worth more, and therefore increases local taxes, this becomes an incentive for the city to balance its budget by rezoning. And some of that rezoned land will get dense residential living. Which will reduce traffic congestion. And make everyone's lives better.