In the case where society does take action to restrict development, then a land value tax does the right thing: the market value of the property falls since there's no potential for development, and the land value taxes owed are relatively small.
House price != land value, but the two are related:
Land value = House price - rebuild value.
So, if the price of your house is roughly what it would cost to rebuild it from scratch, your land value is nearly zero, and so is the tax.
In some places, the house price is actually lower than the rebuild cost; negative land value. (This applies to extremely remote and difficult to access locations).
In central London, for example, the house prices are far more than the cost of the buildings; because they are near the rest of London and its facilities the land value is very high.
That would mean a big crust of hostels/wealthy houses along the coasts and gradually seeing normal people live when you go further inland. It's already occurring, but I don't think that's a trend we should reinforce, and the State is has the power to meddle to prevent the market power from doing very bad stuff.