Using up land is an externality, and thus should be taxed accordingly.
Also, even when not a necessity, taxes are often just more efficient than the alternative.
Think about taxi licenses before Uber. The government thought there were too many taxis. They made a limited supply of medallions therefore. The government gave them away to existing taxi drivers for free. Eventually they reached $1,000,000.
Eventually there were too few taxis. Existing owners complained about trying to expand the supply because maybe they just took out a loan to buy one. People were even renting out medallions. Something the government handed out for free.
The whole mess could have been avoided if the government just taxed taxis until the quantity matched what they wanted.
In a way, you'd end up in a position similar to just handing out the medallions for free. The differences are the government is getting the money and the rate can be more easily changed.
This is a pretty close metaphor for land value tax. All LVT really does is instead of paying the prior owner or a bank for land, you pay the government in installments.
For some people that’s a house full of crap that their kids need to clean out after the funeral and for others that’s a dilapidated apartment building that’s soon to be condemned and will require asbestos abatement and demolition.
Georgists want to tackle this with a Land Value Tax, I tend to think it would be difficult to make this robust against highly motivated attack and the better approach is long-term leases with similar duration to building depreciation schedules. In either case, the idea is that capital appreciation of the dirt (which is really capital appreciation of the right to exclude others from the dirt) goes to public coffers, improvement value goes to the people who made the improvements. That's fair.
Of course, there's also the question of how to get there from here, and one way to do it without guillotines would be to tie the extraordinary tax treatment of property to conversion into a 99 year lease (and then, after 99 years, new issuance could target the ~30 year range). "Sure, you can have your 1031 capital gains tax exemption and pay no tax on the money you obtained by holding on to the right to exclude others from an increasingly popular rectangle of land, but only if you sign up to eventually be part of the solution rather than part of the problem."
I don't think this is a reasonable deformation of the notion of ownership nor externalities.
Use of owned assets, within legal boundaries, allows exclusive of use.
If you're complaint is about the current asset allocation, that's wildly different than either Georgism/LVT or externalities. There is a philosophical there-there, but I really don't grok a feasible defense of your claim; your supporting points are reasonable under a Rawlsian veil defense.
If you make the legitimacy of property rights over land foundational to your philosophy, then of course they can't be challenged within that framework, but that's tautological and uninteresting -- I simply challenge your framework instead. Why should I accept it? In centuries past, a structurally identical framework -- ownership over human beings -- was used to rationalize and administer the institution of slavery, so unless you want to defend slavery then you must accept that the legitimacy of property rights is contingent on their specifics.
Further, relaxing land ownership doesn't make current occupation an externality, which was the original claim. It's a categorical error to mix externalities with morals.