I think the problem is not with new loans though. As property value is reduced to structure value in the new system, many individuals will be able to own property without mortgages at all given the far lower cost of doing so. Some may still need mortgages and banks will have to provide a viable vehicle for doing so for the fraction of the population that needs them.

The bigger issue is what happens to current mortgages. If I paid 25% down on a 1.5 million property and have paid my mortgage down further so that it's now sitting at $1 million and the value of my land is $1.25 million and the value of my house is $250,000 when the government adopts Georgist policies the value of my land goes to $0 which means my property is now worth $250,000 and I owe $1 million on it. I'm obviously going to walk away from the loan so the debt holder for my mortgage gets an asset worth $250,000 instead of the $1 million of money they were owed, a loss of $750,000. I also lose the $500,000 I had build up in my home since I walked away entirely.

Yes, the transition would be pretty horrific both for property owners and banks, and therefore for the entire economy (see 2008).

I think that would be true for any reform that's actually effective in driving property values down.

I think the effect size is far far larger than 2008 which would look like a minor correction compared to this change. If the effect size was only as bad as the 2008 correction we'd have an easy time doing this.

You're comparing a roughly 80% reduction in house prices with a promise that taxation will absorb further rises in the asset price of land to a 30% reduction in house prices with a promise that the market will eventually recover and grow to new heights. The first effect is nearly triple the second one, the change in future conditions makes it even more extreme.