That addresses one issue, but I think you end up with similar (or worse) problems we have now w.r.t. housing density, where someone keeps their dingy old single story house in a valuable up and coming downtown neighborhood because they gain nothing by leaving it (at least in our current system they can sell the property for a big profit if they aren't stubborn). This might even slow down densification more, since the only way people will leave land of increasing value is dying.

Overall, I think there are so many impracticalities and second-order problems with implementing LVT that it seems like nothing more than a fantasy mental exercise.