It will still force density eventually as the home's structure value depreciates (demo costs are the same no matter how much the home is worth). Any new structures will be pushed into higher value uses.
BUT let's say we instituted a blind land value tax tomorrow: many people would be forced out of their homes AND could not sell the home for what it was worth: a buyer would still have to either live in the house and pay the higher land value tax or tear down the structure and build something more profitable...the haircut they would otherwise have to take in either case would be reflected in just paying less for the house in the first place (assuming they've done their homework).
This could even happen after the land tax is implemented. That the land value rises above the point of its use but below the point of where the land could be re-developed into the higher value use case. Then....you are kind of stuck in a bad spot until your situation changes or you go bankrupt.
We actually already see this in the market: land with a tear down will cost less than land that is completely clear. The costs to develop are just less in the latter case. Also, people are forced by the construction market to settle for less valuable structures on high value land because there is just a shortage of material and talent to redevelop everything that we want redeveloped already.
Instead, we might imagine a State shifting from 10% income tax to N% land value tax, by lowering the income tax 1% per year, and raising the LVT 1 * (N/10)% per year, until a decade later, the State's income is land value tax, not income tax.
That should give everyone the opportunity to make plans, and adjust over time.
