> One way out could be to tax the value gain at the time of sale, or when the house gets rented out, thus no longer being “owner occupied”.

My local government put exactly this on the ballot: a small percentage transfer tax on the sale price of the home, which would offset some of the costs we currently pay in ad valorem property taxes.

The local real estate community had a meltdown and poured hundreds of thousands of dollars into defeating it, which my neighbors obliged and did.

A major problem with decoupling property taxes on owner-occupied housing from market prices is that it removes the biggest incentive for a homeowner to vote for policies that keep the local real estate market in check. An owner occupied house in a desirable area where there is no disincentive to politically engineering a supply shortage becomes a financial investment. Any increase in housing value becomes profit for the owner (or their descendants). This leads to supply restrictions and escalating prices and an increasingly unhealthy society as the young and the poorer are pushed out of the city, county, or even state.

This is essentially what has happened in coastal California over the last 60 years.

The issue with that is the disincentive to sell (or buy), which leads a lot of people to stay put in their oversized home during retirement, for example.

In the UK, 'stamp duty' is something that buyers pay (as opposed to sellers), but sellers also have to buy, so everyone pays to move and everyone stays put to avoid paying.

(And of course no one builds, which is the biggest issue).

I'd say it's OK to defer your property taxes until you sell (or die), but it shouldn't be the default, only something you apply for if you're in a vulnerable position.

I think it's a great idea to let land taxes create the incentives to build efficiently.

I disagree. In my country we are currently in a inheritance boom. Everyone who has parents is getting free money.

> Any gain in value cannot easily be realized since it’s not a liquid asset.

Reverse mortgage

Or just loosen supply side restrictions so much that houses typically don’t go up in value.

That's basic Econ101: households optimize for (subjective) utility, not for profit on some balance sheet. Taxing households for non-realized gains doesn't take into account liquidity nor the (subjective) negative utility and opportunity cost of selling your home and moving away.

This will drive rent up, punishing people who lack the credit to purchase.

> One way out could be to tax the value gain at the time of sale

This is how it works for sales in Sweden, via the so called "reavinstskatt", or profit realisation tax. Funnily enough, it is mostly applied to individuals in practice. To avoid the taxation, companies package properties in subsidiaries, which can then be sold and traded like any other stock. The tax is then postponed until the de jure sale of the property, which never occurs. Individuals are not eligible because the loophole is closed if the legal owner also occupies the property they own.

> One way out could be to tax the value gain at the time of sale

Stamp duty in the UK, horrendous tax. It's better than nothing at offsetting the unearned increase in house (land) value, but far worse than a regular tax.

If you live somewhere for 10 years, then move, then repeat for 40 years, you pay far more than if you never move. This encourages people to live in less suitable houses for longer.

As to your worry about land values increasing -- the owner is deriving benefit. The higher the land value is, the more benefit the owner gets from the land.