In Australia at least local government rates are based on "improved property value", i.e. you get taxed more from building a house on your land. It absolutely does lead to land-sitting even in higher density inner-city suburbs.
Taxing improvements is a proxy for progressive taxation. ie. rich should pay more. LVT is effectively a flat tax on acreage normalized by community wealth. To the broad middle class, taxing improvements "feels" more fair.
