This is key. A land value tax would have to go hand-in-hand with measures to allow density to increase. That would mean changes in planning laws, and also building of infrastructure like transport, doctors' surgeries, schools, etc. The former can be done at the stroke of a pen, the latter can be funded from the increased tax receipts that come with higher density.
You seem to equate "densification" and "better using the land". That is a narrow definition of "better using the land".
In strictly utilitarian terms any change that increases total utility would be "better using the land", so if a tax increase on land makes some current residents reprioritise their money and decide to move, giving space to other people who value the location more, then that is "better using the land".
Preventing bubbles is another problem. I think in London the problem is that brits have this curious obsession with owning property and be willing to bid as much as they legally can, burrying themselves into debt, in order to achieve that. This is compounded with the lack of supply and foreigners using London property as a safe. But unless this obsession ceases, adding taxes or limits to borrowing isn't going to prevent bubbles. In fact the recent increase in stamp duty on expensive properties does not seem to have any effect.