Time is money: How landbanking constrains housing supply

Abstract

Many housing policies aim to increase supply and reduce prices through rezoning, relying on the assumption that increasing allowable densities automatically accelerates the rate of housing supply. However, the existence of landbanking (land hoarding), where land able to be profitably developed for housing is withheld from the market in anticipation of future gains, undermines the logic of such policy changes. We expose major limits of the static housing supply model behind these policies by looking at the degree to which landbanking behaviour is consistent with model predictions. To do this, we assemble a new dataset of home sales and landbanks from the annual reports of Australia's top eight publicly-listed residential developers from 2001 to 2018 and use complete state-level planning approvals and lot production data in Queensland, Australia. In contrast to the static model prediction that landbanks serve the function of inventories, and are hence minimised, we find that (1) over 200,000 housing lots, or 13 years of new supply, are held by the eight largest housing development companies, and eight years of these landbanks are held in housing subdivisions that are approved and already for sale, that (2) the amount of zoned supply in a region is unrelated to the rate of new housing supply, and that (3) housing developers routinely delay housing production to capitalise on market cycles. Dynamic incentives to maximise total returns, including capital gains in the option value of undeveloped land, could be related to observed behaviour.

The Width and Value of Residential Streets

“…Requirements for wide streets are effectively a development tax, and so the literature on the incidence of impact fees also provides insights (e.g., Ihlanfeldt & Shaughnessy, 2004). The timing of land release (Murray, 2020) and the extent to which an increase in supply reduces housing prices (Been et al, 2019) will also affect the economic outcomes.…”

Artificial Scarcity in Housebuilding and the Impact on Affordability: The Return of Absolute Rent

“…The cost of maintaining a bank of land is assumed to outweigh any benefits and residential developers are expected to maximise construction and sales and minimise their inventories of land. When Cameron Murray (2020) put this efficient market model to the test in Australian states, he found none of the anticipated patterns. Reviewing the land holdings of the transnational housing developer Lendlease and another seven Australian based housebuilders, Murray found they held over 13 years’ worth of potential housing supply, with eight years of that approved for construction.…”

“…Reviewing the land holdings of the transnational housing developer Lendlease and another seven Australian based housebuilders, Murray found they held over 13 years’ worth of potential housing supply, with eight years of that approved for construction. He concluded: “Instead of landbanks being costly inventories that are minimised with rapid housing construction, as static models assume, the evidence suggests that they are instead capital investments that earn a return even without housing production” (Murray 2020:7). The cost of land banking decreased in relation to the growth in the asset value of the land, providing incentives to housing developers to delay construction to capitalise on market cycles and profit from increasing rental yields.…”

Impact of Spatial Regulation on New Housing Supply in Czechia

“…Proto se nezdá být pravděpodobné, že je cena pozemků navyšována jejich spekulativním skupováním, tzv. land-bankingem, který byl v zahraniční literatuře identifikován jako důležitý faktor na straně nabídky (Kania, 2014;Murray, 2020). Zde je ovšem nezbytné dodat, že výpočet bere v úvahu podlažní plochu bytu a průměrný počet pater, ale nebere v potaz regulatorní omezení hustoty zalidnění, jako jsou limity indexů podlažních ploch.…”