I would hate to be the local agency property tax assessor in charge of enforcing this taxation structure.

Let's say we buy a house jointly with my sister and her family - result, four adults and seven kids in one house. Under your plan we would be allowed a 2800 sf home at a 1% tax rate. My sister and her family move back to Illinois. Now only four of us live in the house - but the house is still in all of our names (i.e., we all own it). What's an assessor to do?