This is also why capital gains taxes don’t get priced into equities and securities.

I see what you are trying to say about capital gains taxes not being in the "price" of securities. But they are in aggregate because taxes inevitably have to be paid. The whole market can't go up without transactions pushing it higher. And all transactions that make profit get a portion pulled out for taxes. They quite literally act as a damper on how fast a market can move.

Prop 13 already locks people in. With this law they'd have an even bigger reason to bank land forever.

Since a high ROI in the short term promotes speculation (and not development), it seems like this would reduce speculation and the likelihood of bubbles forming.

Of course that's a ridiculously oversimplified view. There are a zillion different ways to stack this, which is what would happen in any case. To spur development and not just buy-and-hold, the law might be written to exempt certain kinds of improvement costs.