Regarding your last point, I think you're overestimating how much rental income is subject to California's income taxes. For real estate investors expensive areas like most of CA have a reputation for being profitable in a different way than most other places.

Often rent alone isn't profitable in CA if you have to get a mortgage and even if you don't - the rent you would get is a low ROI, so investors rely more on appreciation. For some it's considered a win if the monthly cashflow is around break even, but some investors bet so heavily on appreciation and rely on the low property taxes that they find having a renter isn't worth the risk. They just want to own something that's going up in value $100,000 every year with minimal hassle.

On top of this, when they go to sell, it will often be through a 1031 exchange where they can sell the property and not have to pay taxes on the appreciation right away as long as they quickly buy another-like property within a short period after. Eventually they will have to pay the capital gains if they ever just want to sell and keep the money, but they've spent years with a negative cashflow (especially if they just let the buildings stay empty) which will help out with those capital gains taxes.