I don't know about the Bay Area but it seems to me that most places already have this. My property tax includes a component that is based on the land value. Also a component based on the value of the improvements.
Right -- the distinction is that the LVT taxes only the land.
The argument for not taxing the improvements is basically that the value of the land is created collectively, while the value of the improvements is arguably created by the property owner. One could argue that this isn't entirely true, and perhaps there's a case to be made for taxing the improvements at a lower but nonzero rate; but then you have to go to the trouble of assessing the value of the improvements. Assessing the value of just the land is easier.
Another point is that by taxing only (or mostly) the land, you encourage denser construction as soon as the demand supports it. Tearing down a three-bedroom house, or a few adjacent ones, to build an apartment complex, is more financially attractive if the total tax bill doesn't change.
Thanks, that explanation does help. Sounds like it would also do away with the fights that businesses get into around here about whether they should be paying property tax on the value of the "dark" building (e.g. as if it were vacant) or based on the value as an occupied and active business.
On the other hand, dense development incurs more social costs. There will be more demand for emergency services, utilities, traffic control, etc. that generally are at least partly funded by the increased property tax on high density improvements.