I'm sure if we built new universities, there would be plenty of applicants to teach it in, given how fierce the competition for academic positions already is.

If capacity at existing colleges is the problem, we could start new ones.

Where exactly would you propose building them? A competitive university is going to require around 2,000 acres of land. Where are you going to find that in today's California? No doubt there is plenty of open space left, but it's not in very desirable areas.

The university does not need to be whole separated city nor include amusement park and catering.

It can be an institution integrated into a city.

Supposing that’s true for the sake of argument: Where?

Take a random hotel and make a uni out of it?

That doesn’t sound like it’s going to attract quality faculty.

GDP sure has, if the tax base doesn't reflect that it seems like that's a taxation problem.

Assuming you’re using “overpopulation” to refer to California’s housing shortage, this is not a “too many people” issue or a “not enough land issue”, but rather a “land isn’t being used efficiently” issue. Efficiently housing and moving large numbers of people is by and large a solved problem, with plenty of examples to learn from (see: any megacity in Asia).

California hasn’t solved the issue because some percentage of residents or other interest groups don’t want to solve the issue and have had the political means to block attempts at resolution.