In December, David Collyer from Prosper published a cracking article entitled Englobo, which discussed the practice of land banking and land speculation on Melbourne’s fringe, and included the below table showing the large land banks held by Australia’s residential housing developers:
| Lots settled | Lots in development | Disclosed end value | Average lot value | Years of supply | |
| 2011/12 | No | $ Billions | ’000 | ||
| Australand | 1108 | 21 300 | 8.0 | 531 | 19.2 |
| Sunland | 672 | 2 889 | 1.1 | 380 | 4.3 |
| PEET | 2 052 | 34 000 | 6.2 | 182 | 16.5 |
| Mirvac | 1 807 | 29 787 | 10.6 | 356 | 16,5 |
| FKP | 410 | 4 725 | 1.4 | 287 | 11.5 |
| Lend Lease | 2 059 2 | 68 006 | 13.0 | 191 | 33.0 |
| Stockland | 5 388 | 87 900 | 23.0 | 338 | 16.3 |
| Totals | 13 496 | 248 607 | 63 238 | 254 | Av 18.4 |
Source: ASX Company reports
Today, developer Australand has hit back at Prosper’s reports denying that it ranks among Australia’s leading residential landbankers and claiming that it only holds 8.5 years of supply. From Property Observer:
Property developer Australand has denied claims it ranks among Australia’s leading residential landbankers – a claim made after a study of housing lots around Australia undertaken by activist website, Prosper.
The property developer had less than 8.5 years of supply compared with 19.2 years estimated by Prosper, Australand advised Property Observer who sought a response from all seven leading developers.
The overall claim of land banking went un-rebutted by the six other publicly listed developers.
Prosper claimed Australian land developers were holding onto land and thereby keeping or pushing up residential land prices.
Using data from the company annual reports, Prosper’s study endeavoured to calculate total lots held by developers divided by the amount sold over a recent twelve month period to arrive at their conclusion.
Prosper concludes that “this selfishness can be changed by astute application of land tax. Broadacre land zoned residential ought be taxed as if it were already in use.”
However their approach – which found an average of 18.4 years of supply per developer – was labelled as overly simplistic by industry participants.
The McKell Institute advised Property Observer that they had endeavoured to undertake a similar study but concluded they couldn’t get access to all the requisite data to make conclusions with confidence.
“I would not know where to start in picking this apart – the land development industry is far, far more complex than this simplistic analysis suggests!!!” commented one industry expert.
“The subject at hand – affordable land supply – involves a significant and complex matrix of issues such as regulatory intervention, delivery timeframes, and infrastructure coordination…not to mention commercial realities including financing, costs and risks.” the Housing Industry of Australia (HIA) chief economist, Harley Dale told Property Observer.
Australand was the only developer to actually rebut the figures in the Prosper article, while Stockland gave a response on the complexities of development.
The amended figures received were quite different to Prosper’s as the lots sold were 2,536 as opposed to 1108 as mentioned in the article which severely effected the calculation of years of supply and as a result Australand had around 8.5 years of supply compared with 19.2 as claimed by Prosper.
Stockland gave Property Observer a brief response outlining the complexities of development and the time required to ensure a project is completed at a high standard. The Peet spokesperson said the “issue is quite a complicated one.”
“As part of our approach to developing sustainable residential communities, we schedule development to ensure local private and public infrastructure, including transport, telecommunications, energy and water supply is available to meet the growing numbers of residents in each community.” Stockland representative.
Lend Lease had no opinion on the matter, and the remaining developers did not offer any response.
Following the late 2012 publication of the article by Prosper the claim of landbanking did not prompt any response from the seven developers to Prosper.
“The nil response from developers and real estate lobbyists was an insight in itself… their silence in response to this was deafening,“ commented David Collyer, the author of the Prosper article.
Prosper argue that taxing rezoned ready to sell land would speed up the turnover of land from paddock to subdivision.
But Angie Zigomanis from BIS Shrapnel told Property Observer “a land tax for zoned land may also encourage developers to turn over their land quicker if they are holding zoned land. If more land is forced onto the market in a corridor, then it could also result in price competition.”
However, Mr. Zigomanis believe there may be some “unintended consequences” as developers would delay rezoning land to save on tax, potentially placing supply pressures and driving up prices.
“It is clear that the topic of land banking is far more complex than the Prosper article defines it.
“Simply resolving the issue with higher taxes will only increase the cost of the development, which in turn is passed onto the purchaser.
“In circumstances where developers are competing on price, it could impact on the type and quality of the product being offered,” commented Mr Zigmomanis.
For my own views on land banking, check out my December 2011 post, Why developers land bank. And for some possible solutions to the problem (in addition to tax reforms, such as introducing broad-based land value taxes), check out Look to Texas to solve Australian housing supply.
unconventionaleconomist@hotmail.com
“… If more land is forced onto the market in a corridor, then it could also result in price competition.” No kidding…
Translation: our only excuse is to claim the [indefensible] practice of landbanking is so complex that any criticism of it is ipso facto simplistic and therefore easily dismissed.
Wow, 4 months to get a response..and why now?
Where do you start?
DC do you have a response?
The listed developers are too tall, too handsome and too important to respond to the likes of me.
My comments show I do not understand the complexity and risk and delay in subdivision.
I say foolish things like
Don’t Buy Now!
What about the issue with the Australand 2012 “lots settled” number?
Australand is probably being frank. They are looking to sell their assets or be taken over by a larger suitor, so the details will be known eventually. It wouldn’t serve their interests to make an incorrect statement on what they own.
The other developers won’t comment, what purpose would it serve.
I like this one
“Keane maintains the volume of land under control by the major developers is small – and not enough to influence pricing strategy across the market.”
So 250,000+ lots are not enough to effect the market. That kinda says it all.
ok…this weekend, let’s auction 20,000 lots (no reserve – one lot per buyer) and test the theory.
a land tax for zoned land may also encourage developers to turn over their land quicker if they are holding zoned land. If more land is forced onto the market in a corridor, then it could also result in price competition …
Simply resolving the issue with higher taxes will only increase the cost of the development, which in turn is passed onto the purchaser.
So let’s make this perfectly clear.
A land tax will:
1) result in price competition – LOWER PRICES
2) increase costs which are passed on – HIGHER PRICES
Clearly these developers understand the impact of things such as taxes. Let us not change anything and just trust these developers to do the right thing by consumers (ie house buyers).
With State government on light rations as property transactions slow and transaction taxes like stamp duty stop being the gifts that keep on giving, it is no wonder that the land bankers are getting worried about people putting ideas into the heads of increasingly revenue hungry pollies.
Their worst nightmare would be a modest land tax – especially on undeveloped land zoned for development.
Increase holding costs while driving up supply to the market.
Plenty of demand for housing at lower prices and plenty of revenue to be had from construction activity and land taxes.
Low hanging fruit to state governments with soft economies.
+1 Encouraging the developers to get their stock to market and tranparently compete for sales on price, is the key.
Let’s find the price where buyer demand is stimulated.
BTW, HRH Triguboff is busy buying up land zoned for industrial use off another land banker (Goodman), with a view to magically transform it for residential use and build dog boxes..
Harry Triguboff celebrates 80th birthday with proposed $100 million inner Sydney site acquisition ….. and calls for more rate cuts
The three hectare site is adjacent to the Mascot railway station and is currently zoned for commercial mixed-use purposes and has yet to receive residential development planning approval.
Note the supreme confidence in his ability to wangle a favourable rezoning out of the council..
Oh..and he urged RBA to oblige him one more time.
What?…no call to increase the immigration intake? HRH must be slipping in his old age.
I blame councillor mates, drinks, dazzling fireworks, and synchronised swimmers.
http://www.goldcoast.com.au/article/2013/03/05/448177_gold-coast-news.html
“no call to increase the immigration intake?”
Triggy has figured out that he doesn’t need buyers to be even physically present. Doesn’t he make 75% of his sales to foreigners?
There is no magic required. Before he made any moves on the land he would have had talks with council officials to see if they were amenable to the idea of a zoning change. It’s done all of the time and anyone can do it – you don’t have to be Harry T.
In fact the current owner has probably already done that, and Harry would just go through the motions to satisfy his own due diligence.
Any contract of sale is likely to be subject to that zoning change and development approval.
I don’t know the area around Mascot railway station, but if it needs regeneration and gentrification, this would come as a god send to the local council, and they would grab the opportunity with both hands.
They would mesh their plans in with Harry’s to upgrade streets, gardens etc for the betterment of local amenities.
I had some contact with a new development in my area also beside a train station. My client asked informally if he might be able to get permission to build something unusual, and the answer was “could you build that five storeys high instead of a single storey development?”
All levels of government are looking to drive revenue, see people employed, and bring tangible benefits to their area of interest.
After making some compromises to the council Harry will get his DA unless it angers the local community, and it probably won’t.
Zoning change! Nothing a few lobster dinners and an envelope full of cash cannot fix!
.
Local MP’s must have been clambering over each other to get a piece of the corruption pie!
Good luck to Harry.
If Goodmans could get a rezoning through but dont have the skills to develop why not sell to Harry who can and has the nerve to take the risk.
If we get rid of most of the zonings any special skills Harry may have in that department would be redundant anyway.
If we had a less dysfunctional market he would still be very successful.
We really only need 3 zones. Mixed uses can be in any zone, heavy is restricted to heavy. Theme parks can be used in anyway sympathetic to a theme park.
Heavy/ noisy/smelly Industry
Mixed use. covers residential, retail, office, commercial
Theme park. for all those streets that people want to pickle in aspic
Most of the metro area would be mixed use with pockets of theme park and heavy industry. No role for council beyond basic checks of building safety.
Peter, you have changed your stripes in a matter of hours!! First, you tell us a lil corruption smoothens the wheels of development.
http://www.macrobusiness.com.au/2013/03/government-to-increase-melbourne-land-supply/#comment-221255
Now you tell us any man or woman off the street can get the council to rezone without any “magic”.
Which is it?
Next, you’ll tell us that a alleged murder of a man who came between a developer and $400 mil in planning gain was an accident.
http://www.theaustralian.com.au/news/badgerys-creek-rezoning-plan-could-net-medichs-400m/story-e6frg6n6-1226580673109
Well Mav that’s where you let your personal beef with me get the better of you. What I said was “A little cronyism is probably less costly for a society than being strangled by greenies”
I made a comparison between to issues that affect development. Of course you may disagree, but I didn’t say “Open the Gates of Rome and let the Vandals loose”
Lots of men and women make applications at the local council for Development Approvals or rezonings. Every council is different so you would have to check your own local government to get a grasp of their unique town plan and rezoning application requirements.
Some councils are pro development, and some are anti development.
I’m sure that Harry can pull more rabbits out of his hat than you or I, but it’s still not magic.
Sorry I don’t know anything about murders and I won’t argue over a strawman, you can have that one on your own.
You do know that people can read what you have written this morning, right? Let me quote you again..
in fact greed and corruption is more likely to bring land to the market early by speeding up approvals.
and is that factually inaccurate?
First, you tell me what is factually accurate – Has the current planning system entrenched corrupt behaviour or can any ordinary person off the street get land rezoned?
Your argument that we get more land releases because the planning system has been greased into with corruption is factitious and beneath contempt.
As for greenies, you are conflating NIMBYs with greenies. Most of planning monkey wrenches get thrown in by loud NIMBYs in Liberal voting suburbs (at least that’s true for Sydney. Barry O comes from the biggest NIMBY council of them all).
As UE keeps repeating, what we need is a planning system ala German or Texas system, that levels the playing field and eliminates planning gain via political influence/corrupt means.
Sorry, but there has been a new LEP coming from Botany Bay Council for a long time which will change the zoning of MANY industrial properties around Mascot, Green Square, etc, to mid-rise residential. Everyone in commercial and residential property in Sydney knows about it. Goodman are the largest owner of industrial property in South Sydney. They know all about it. They have statements in the media in the recent past about working through their non-core assets for change of use. Just part of the lifecycle of real estate, particularly industrial property in desirable, inner city locations with very good transport connectivity and low density.
The development of obsolete industrial property into residential, big box retail or office property in South Sydney has been ongoing for years and there is no scandal to be found there.
Exactly.
Just log on to the commercial part of realestate.com.au to find the hundreds of vacant sites all over Sydney that formerly found an industrial use. A lot of these sites are well located to transport and other ammenities. It makes zero sense to keep them zoned industrial when there is no use for it.
Really there seems to be no way of pleasing some on MB. Is there an oversupply of housing and a crash just around the corner or a conspiracy by those evil developers to keep returns high?
By the way would love somebody to point me to a single listed developer currently making an economic profit (i.e. above the required rate of return – let’s call it a 10% return on equity).
Really there seems to be no way of pleasing some on MB. Is there an oversupply of housing and a crash just around the corner or a conspiracy by those evil developers to keep returns high?
Too many crashy bears and spruiky bulls here. Too little common sense.
The planning system is to blame, in my view, not the developers (as explained here). Developers are largely just another pawn in the game.
Unconventional economist, I agree with you wholeheartedly.
The planning system is a disaster from go to woe (mostly woe):
-> Lack of State and Federal foresight for new urban agglomerations and the infrastructure to link them;
-> Density limits that are far too low to allow for the efficient build out of infrastructure within cities.
-> Urban growth “corridors” that dramatically increase the cost of infrastructure vs. an unrestricted expansion of built up areas (e.g. check out how little of Sydney is actually available to residential construction due to the enormous areas taken up by national parks).
Agree UE on the first part. But the current planning system has made land development an area where angels fear to tread…
Ehhh… you do know that developers must show banks their feasibility that their development will return 20%. If they can’t there is no funding…
Labyrinth there is a massive difference between a 20% return on costs and a 10% return on equity invested.
You can have a 20% return on costs but if it takes you 12 years to get it there is no way on earth you will earn a 10% return on your equity tied up (i.e. a compound 10% return).
Given the required return on equity in Australia has averaged 11-12% historically then development looks like a mug’s game.
Social housing policies in NSW apply in non-residential zonings provided the site is close to transport (400m to bus, 800m to heavy rail from memory).
The developer can also I think get the development approved by state government without local council involvement if the development is state significant. (I thought that had changed, maybe it only applies to land bought before the changes over the last 18 months.)
A 3 hectare $100m site is likely to qualify if the state govt is so minded.
http://www.botanybay.nsw.gov.au/index.php/update-on-draft-botany-bay-local-environmental-plan-2012
OC: development is indeed a “mug’s game”.
As I said on another thread earlier today:
“…..regardless of the mechanism, the developers are the meat in the sandwich between land vendors – developers must bid against each other for the supply of land just to stay in business – and the ability of the consumers of housing to pay. Hence the prices will always find their level at the point at which the population’s ability to pay for housing, is maxxed out; and developers are being sorted into winners and losers in the gaming of the land supply, with some going broke and the rest making a killing.
Setting time limits on land banks won’t change this. Neither will land taxes or capital gains taxes. The process will still end up with housing prices maxxed out, developers playing a gladiatorial game, and all the gains being captured by the original land vendors…..”
Do read my whole comment:
http://www.macrobusiness.com.au/2013/03/government-to-increase-melbourne-land-supply/#comment-221278
Hugh Pavletich in NZ is a rare example of a developer who quit the industry and went lobbying for reform rather than submit to becoming a “prisoner” of the system (in a “game” of “prisoner’s gambit”).
Totally correct on all points me boy.
All youse East Asian millionares better get your arse down here before the gates close, wink, wink, nudge, nudge. ad nauseum.
They ain’t makin anymore but yours is reserved for the pension funds of former Australian xxxxxxx.