It's yet another monopoly problem even though it doesn't look like it at first glance. Each house basically sits on a piece of mlonopoly for the parcel below it, preventing others from use.

It's not much of a big deal in general, but in congested big cities, it is a problem. It's the cause of high rents (by Ricardo's law od rent).

The solution is also a kind of monopoly tax - land value tax (LVT). You pay yearly percentage of the market value. Achieving almost optimal allocation instead of current hereditary one.

Establishing "market value" is the rub. Texas for example, does not make real estate sales prices public. This has a lot of perverse effects, one of which is deep-pocketed commercial interests have pummeled public assessors until commercial property is tacitly way undervalued for tax purposes, yet is openly sold for much more than the purported tax basis.

I've heard of a system I found interesting (but alas, can no longer find a reference to link) to competitively establish tax basis on commercial real estate (I wouldn't want this on natural person owner-occupied residential). You claim whatever tax basis you want. It gets published in the open. Whoever can put up completely unencumbered cash over the barrel for that basis + 7% or more though, can purchase the property. And by unencumbered, I mean not even investor syndication. Real, natural person, outright first and only lien on the cash, absolutely no liens tolerated against the property tied directly or indirectly to the cash.

Cash goes into government-controlled escrow. Current owner has one year to pay difference on one year's worth of new imputed tax basis represented by the escrowed cash, and continue from that point forward with the new basis. If the owner comes up with it, the bidder loses 6% of the cash (or whatever the real estate industry commission structure is at that time in that locality) to the local government as commission to facilitate the price discovery. Bidder can increase bid at any time by adding to escrow account, until either current owner "sells" to bidder (and escrow releases 100% to the current owner, no commission), or bidder walks.

I haven't sat down to really pencil it out, but I'm sure if someone did they'd find a way to game such a system, since I figured it otherwise would have been put into use.

There is one major consequence: investor/VC backed/mega-rich major chains would instantly drown out family owned and small businesses that can't compete with gentrification. This is already a plague with Walmart and Amazon absolutely flattening local economies, your proposal would make it an epidemic of yet-unimaginable scale.

Like I said, I found the entire idea of a competitive market in price discovery to establish tax basis fascinating, not the specific implementation details.

Land ownership is problematic because neighborhood improvements can be extracted via land ownership. The most effective policy against this extraction is to simply tax the land itself and thus turn it into a liability if the value of the land grows. Ideally, property taxes would be replaced with land value taxes.

If land is a liability the only reason why people would purchase it is to improve the value of the land and make it available for productive uses like renting it out to a large number of people.

If anything, this strengthens the argument. You can buy/rent/... a different parcel nearby, and this only affects you and your planned use of the building. But you can't switch to a different road network, and this affects everyone in their daily life.

That said, I also agree with the sibling post that this is also a problem, just of a different kind.