Right, so there needs to be incentive structure to force property owners to make the most of the land. If the house is old and crappy, then taxes should force them replace the building with something more useful/more dense in order to offset taxes.
But this can also be achieved in current property tax regimes by upzoning to allow more density. This will raise the value of the land (because it's now possible to build more density on it), which once reassessed, will also raise the property taxes.