Property values aren't set by the Government; they're driven by -- surprise -- supply and demand. There's only so much land in the nicest parts of the state, and since the residents of those areas control zoning ordinances through their local governments, they have every incentive to restrict supply as much as they can to protect their own property values -- typically under the guise of "protecting neighborhoods" from those who would build more dense housing.
Proposition 13 (1978) was also a big win for incumbent homeowners. It forces property tax assessments to be based on the initial purchase price, regardless of the current actual value. This incents longtime residents to hold on to their homes, even if a smaller home (or a home otherwise more convenient to them) would better suit them in the present, because moving could result in significantly higher property taxes. This starves the housing market of liquidity and also restricts supply.
TL;DR: Property owners' selfishness, codified into State and local law, is the real cause of middle class misery in California.