Englobo: the shady world of land banking

Please find below an interesting article from David Collyer entitled Englobo, published yesterday on the Prosper website. The article discusses the practice of land banking and land speculation on Melbourne’s fringe. Enjoy!


Let me introduce you to a beautiful word that loops off the tongue, sweet soft and round. Englobo.

It is “an undeveloped lot, group of lots or parcel of land that is zoned to allow for, and capable of significant subdivision into smaller parcels under existing land use provisions.”

Land developers are an odd bunch. Always sniffing around local government trying to juggle a swift rezone, braying to the world about how every quick and sharp subdivision is an ‘Estate’ and every estate somehow a ‘Master Planned Community’, whining about the ‘red tape’ introduced to stop previous abuses, constantly calculating which infrastructure project will be approved next by government and whether it will deliver them an unearned capital gain.

Residential subdivision is a game for the very patient. From a developer’s point of view, the ideal is to buy cow paddocks ahead of rezoning, quietly sit on it for a few years while the city grows out around it and infrastructure develops, manage a subdivision plan through a compliant council, build roads and pipes and then dribble it out to builders and buyers, lot by lot.

Sharemarket-listed developers are a minority of developers. Their lot sales last year were around a tenth of building approvals, but their behavior is publicly visible – and instructive.

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

The biggest by far is Stockland, followed by Lend Lease. The eye opener is the size of their landbanks – calculated as last year’s lots sold divided by lots in development. Lend Lease holds a staggering 33 years worth of undeveloped land; the average is 18.4 years. Estimated end value a massive $63 billion.

In one sense this is farsighted corporate behavior. In another, landbanking developers hold us to ransom by limiting supply to drive up prices. They have land – hundreds of thousands of lots in development – but choose to ration it.

All this causes trouble for government. They want to limit sprawl, yet they need to house a growing population. Developers sail happily between these competing objectives and make their unearned increment. Melbourne’s urban boundary has grown 96,775 hectares since 2003 in an attempt to curtail developer rationing. Sadly, this has not suppressed land prices and developer margins – another worthy government objective.

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. Developers would turn their holdings as quickly as possible, rather than hoarding it.

Land in Australia should be dirt cheap. Outstanding access to land ought be a national advantage, generously conferred by a loving government upon the citizens it represents. And it could, with a decent Land Value Tax.


Leith here. 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.

Unconventional Economist


  1. I read this yesterday on David’s site. It is a bloody disgrace what the developers are doing and there should be something done about it.

    They are holding generations to housing ransom…..

    • 💡 David Collyer 💡 is a great Australian. One of the few to point out the Emperor’s lack of clothing. 😀

    • Just to put the above numbers in context, these companies represent 10% of the vacant res lot market…

      ..and then there is the growing stockpile of unsold vacant new dwellings…

  2. “The (Reserve)bank (of NZ) said any credit-fuelled expansion in house prices would also undermine the country’s financial stability and could expose households and banks to sharp falls in house prices.” Cut the price of land and that risk diminishes; for us and for you.

  3. That is a lot of money tied up in empty paddocks with some token livestock for land tax purposes.

    I think i will invest in some quality ear muffs if any of the state govts actually do what they are claim they intend to do – stimulate housing construction by pushing through much lower cost development blocks direct to home buyers and builders.

    The squealing from developers would be too much – even for Agent Starling.

    • Watch the video linked from HERE:


      That is a doomsayer, “preserve the planet”, anti-sprawl video, aired on TV in the USA in 1959 – yes, 1959.

      And it was produced by – drum roll – the “National Association of Home Builders”.

      By this time, the Levitt Brothers and others were seriously eroding the unearned increments of the incumbents club, simply by “leapfrogging” their land banks.

      “Automobile based development” largely eliminated unearned increments and “planning gain” for several decades – until the vested interests and their devil’s alliance with Greens triumphed again via urban planning.

      While urban planners might argue that there is “10 years supply” of sections available, the whole point is, who already owns them? 10 years supply of land might be less than one km of spatial growth beyond a city’s existing fringe. Levittown style “leapfrog” development is perfectly rational because it only involves another 2 or 3 minutes drive past the incumbents land banks.

      Trying to “corner” the supply of land to prevent Levittown leapfrog is next to impossible – the amount of land is simply too much and the returns on investment would not stack up. There is no urban economy in the world with an absence of “planning” restrictions, where there is a land banking racket and a housing affordability problem.

      Land taxes are a good idea, but there is no rational justification for growth constraint urban planning in the first place. Trip-to-work times in the affordable-housing, unconstrained urban economies (all in the USA) are LOWER than those in the model “growth contained” urban economies of, say, the UK. There is not even the alleged “gain” from containing urban growth.

      The cost of infrastructure in the unconstrained cities is not higher, local taxes tend to be lower, and overall debt, public and private, is many times lower. Economic productivity tends to be higher for a number of reasons. “Splatter” development is more efficient because the best use of land is more clear after some of it has already been developed; there is space and affordable land for potential new participants in new agglomeration economies; and households and businesses are not “priced out” of efficient locations.

      Only three things really matter for commute times: the dispersion of employment and jobs-housing balance; the price of urban land and the flatness of the urban land rent curve; and the capacity of the road network where the most travel is occurring i.e. inter-and-intra-suburb.

    • pfh,

      “..pushing through much lower cost development blocks direct to home buyers and builders”

      Do you have any evidence of this intent?

  4. Just another interesting snippet. The majority shareholder for Australand is actually the Singaporean government.

  5. thomickersMEMBER

    i guess the karma is that the ASX listed property development companies have had a disastrous 5 years for shareholders and the returns for last financial year dismal.

    One small hiccup in land prices and the business model of stockland group for example will be broken…

  6. Interesting stats. Thanks.

    If all these developers are making obscene profits why isn’t this reflected in the share price?

    Has any one looked at or tried to calculate the ROI on the land development activities for Stockland ,for instance?

    • If you’re buying (say) Stockland shares, you’re essentially buying a chunk of their business, including future earnings… current share prices are reflecting the outlook for the next 5, 10, 15 years of earnings. Not good. Sub NTA share prices can give the wrong impression, especially as some of the muppets out there performing valuations are smoking the same stuff as the Andrew Wilsons of the world

  7. Land subdivision valuations are hugely sensitive to minor reductions in end values and sales rates – both of which under major pressure.

    Hands up anybody who believes any REIT’s reported NTA levels….

    • One thing we don’t know: how much did these developers PAY for the land, to the incumbent owners of it?

      Perhaps there is not that much profit in it for them unless they sell sections at the prices they only get if they drip-feed them onto the market?

      Developers are forced, by urban planning, into a kind of gladiatorial contest or cage fight to the death with each other, to outbid each other for “banks” of the available land. Of course pro-regulation, pro-planning people love it when the “meat in the sandwich” victims of their meddling, get blamed.

      Hugh Pavletich is a rare example of a developer who saw the writing on the wall, got out of it and went lobbying.

      • Please provide some real world evidence for your theories and I’ll listen. Otherwise, you can rant all you want until the cows come home from the cow paddocks land banks.

        UE – this is a warning Mav. Any more aggressive comments like this and your comments will be sent to the trash bin.

        • As it were, I agree with Philbest on the supply constraint, UGB and disagree on the effect and the one-dimensional view ignoring the role of debt. Just frustrated at his long-winded theories which don’t explain what is happening in the real world.

          • There is a tragic lack of investigative journalism or even government inquiry, of what IS happening in the real world. However, Alan W. Evans’ book “Economic and Land Use Planning” certainly describes exactly what I am arguing, in the UK.

            That is, in unconstrained markets, developers tend to just watch out for farms coming up for sale as farms, somewhere within a brief drive of the existing urban area. The turnover of farms tends to be high enough to allow for developers to NOT have to go door-knocking and begging land owners to sell.

            But as soon as there is some regulatory boundary established, the turnover of farms within that boundary is nowhere near enough to allow for developers to just watch the rural real estate ads. They have to door-knock. What, then, happens to the price expectations of the incumbent land owners?

            Peter Hall et al pointed out way back in 1973, that land under these conditions, switches from being regarded as a resource to be allocated to best use by the market, to a speculative commodity where the incentives are often completely the opposite to “allocating it to the best use”; because once the prices have started rising, the incentive is to hang onto it while prices rise some more.

            This is actually not rocket science at all. How the heck do YOU think the real world works?

          • This is why I say that planners make the mistake of thinking their planned rationing of urban land is a “flow control valve” whereby the pressure on price can be carefully controlled; but the reality is that they have an on/off switch for a nuclear chain reaction. This is why there are no urban economies that are just “slightly unaffordable”; data sets of median multiples tend to cluster around 3, and then around 6, with a tail going up to 12.

            Furthermore, publicly listed property developers can easily be seen to NOT be making massive profits, in fact they are at risk of getting wiped out every time there is a small decline in the market. It is patently obvious they have NOT purchased their land at true rural values or close to it, and it is not THEM who have the padding of a few hundred percent uplift in value to give away.

          • Then I have got to ask Phil and UE…..

            How is the massive land value rort unfolding?

            Why are developers banking generations worth of supply?

            And what is the way to break the current outcome (Massively overvalued land)?

          • One thing we don’t know: how much did these developers PAY for the land, to the incumbent owners of it?

            If you don’t know, why do you speculate that perhaps there is not that much profit in it for them unless they sell sections at the prices they only get if they drip-feed them onto the market?

            This is what I meant by lack of evidence for your theories, which provide a fig leaf for oligopolic behaviour of the big developers.

            There is a tragic lack of investigative journalism or even government inquiry, of what IS happening in the real world.

            Well, the tragic lack of investigative journalism didn’t stop David Collyer from finding out how much land developers are banking, did it?

            But instead of doing some digging to support YOUR theorising about lack of profitability, you quote some more pages from some obscure books yet again. Do you want me to do the digging for you by reading through the annual reports of these listed developers?

          • Just allow leapfrog development.

            Developers are not exactly “….banking generations worth of supply….”, they are having to fight a bidding war with each other just to stay in business. Any developer that does not do it, ends up locked out of the market completely by those that do.

            This is what a “quota” scheme does. It is not some radical new idea I have had to explain the problem, it is an old established principle in economics. It is not necessary to restrict supply to some level that is totally inadequate, to end up forcing prices up; all that is necessary is to restrict supply to some amount at which participants in the supply process HAVE to out-bid each other for the available supply, just to stay in business.

            You could do the same thing with wheat, and then blame the bakers for the price of bread. You could do the same thing with forestry, and then blame the big timber millers for the price of timber. And so on.

            NZ did something like this with car import licensing in the 1980’s. The amount of license was “enough” for the annual need for cars in NZ – but importers went crazy out-bidding each other for the available license quantity, and ended up unable to break even on the cars, at the prices the NZ public could actually afford to pay for cars.

            The market participants in the middle of the supply chain are squeezed in between “the selling prices the market will stand”, and “the necessity to out-bid each other” for the supply.

            The problem is that the existing land bankers, and indeed thousands of recent first home buyers, are like hostages who will get killed when the authorities finally deal with the terrorists. Meanwhile, all the policy approaches have resembled appeasement of the terrorists by giving them more hostages.

          • THIS guy is onto it: (above)

            December 7, 2012 at 8:08 am

            “I guess the karma is that the ASX listed property development companies have had a disastrous 5 years for shareholders and the returns for last financial year dismal.

            One small hiccup in land prices and the business model of Stockland group for example will be broken…”

            Developers have been going broke left right and centre in NZ, and prices have really only fallen 15% in REAL terms over 5 years.

          • Philbest, contrary to your expectations, listed developers in Australia have not been NOT going broke left, right and centre. Maybe you can now stop extrapolating the NZ/US situation to Australia?

            But as I said the other day, there is a limit to planning gains made on the supply side – slack on the demand side. Now that overseas investor demand is drying up, very few locals are buying the overpriced piece of land/dogboxes because of debt constraints. So developers are offering “discounts” in order to boost sales and consequently also have to write down the value of their land bank assets.

      • dumb_non_economistMEMBER

        In Landsdale Perth a 5 acre block would sell for 2M, this is back in 2005, not long after another 5 acre lot sold for 3M to “Mr 10 Percent”. As far as I know still undeveloped. Most were subdivided fairly quickly by small developers.

  8. Well done DC

    FFS Stockland has a stockpile the size of the total demand for a year for the entire country.

    This anti-competitive price-fixing cartel has to be busted.

    Tax the billlionaire squatters.

    End vacant possession without penalty.

    oh.. and..Don’t Buy Now!

    • I agree with your sentiments. But policy must also ensure that developers cannot corner the market by ensuring that land is contestable – i.e. there is always the opportunity that someone further afield can undercut you. Planning constraints, like urban growth boundaries, reduce contestability and the ability for competition (or the threat of competition) to drive down prices. They effectively allow oligopolistic returns to me made by confering market power to the land holder.

      • Thanks for posting this Leith.

        Cartels are born and thrive where there is lack of transparency, limited access to data and easy windfall profits to be made. As you say, free and open competition is at the heart of the problem. The more we can expose the dimensions and gross inefficiencies of this contorted market the more productive we will all be ….well, maybe not everyone.

        If it quacks like an anti-competitive duck then…

        Calling David Collyer

        Please join your discussion.

        • DC,

          Just a few of questions on your table of data.

          1.Is the $531,000 av lot price for Australand correct? Its seems crazy high.

          2.In the “lots settled” column for Lend lease it looks like you have a rogue “2”?

          3.Is it possible to calculate/estimate the total lots held by developers in Aus?

          • Hi All!

            @Patrician 10.07
            1. The Australand number suggests they have many apartment sites skewing their result. All the REIT results will be distorted to a greater or lesser degree by this factor.

            2. The 2 is me swearing – Number Two! Number Two! I spent an hour fiddling with HTML to make that table.

            3. No. For many private owners, subdivision is an option to exercise at retirement or in a low tax year. Our current tax laws mean they can park their butts on land indefinitely.

            Anyone expecting the listed REITs to go bust is in for disappointment. All sold down heavily and took their losses after the GFC. They now have gearing around 25% debt/debt+equity and are so heavily backed by permanent equity (by which I mean shareholders can’t ask for their money back) as to be institutionalized. I don’t see them making a profit on landbanks for years.

          • Thanks David

            Re the total vacant lots question

            Would it be reasonable to extrapolate the ~250k figure (for lots held by listed public companies) to 1mil+ for total vacant lots held by public + private, given that listed companies comprise one tenth of the annual sales?

            Would there be any way to find out the vacant lots held by..say..Meriton?

      • Leith,

        I support your calls on planning constraints and UGB’s but what is to stop this newly “freed up” land simply adding to the growing stockpiles of our big developers?

        Surely the priority must be to motivate the cartel of landbankers to release their unproductive and anti-competitive stranglehold on the hundreds of thousands vacant residential lots they hold.

        What about a max 10 years of supply able to be held by any one developer?

        • What is to stop the developers from land banking? Competition and contestability in the land market. Allow others further afield to develop land at lower cost (rather than excluding such activities via UGBs etc) and the ability to profit from land banking is diminished. Land taxes would also help greatly as would sunset clauses, etc that you mention. The answers lie in my articles linked above.

          • Do you see any downside to capping the stockpiles at 10yrs worth of supply?

            (where 1yr supply = no. of lots sold by the developer in the previous year)

            Sales would only be approved to those developers who could show their current holdings were under the 10yr supply limit.

    • Urban restrinta need to go, I am thoroughly conviced of that now.

      Housing… is (for the time-being) a non-tradable manufacturing industry.

      It is low skill, and it shouldn’t draw a lot of capital or skilled labour to operate it.

      Planning laws that we currently have, are an EXTREMELY HIGH barrier to entry, and for a low-skill sector it should have the lowest.

      Stockland should be taken out of the market place by competition, not taxes.

      • Stockland does not need to be taken out of the market.

        Its “stock” needs to be in the the market

    • alwaysanonMEMBER

      Most of Stockland’s land is on the Sunshine Coast though. They were talking about having enough to build a new city the size of Darwin on it.

  9. Well thank goodness that they do land bank, otherwise we would have no supply whatsoever.

    Good on them.

    • Land banking is the result of government policies and the developers response to those policies. I dont have a huge issue with it except for the fact of land sitting idle for 10 year + with nominal income generated. I agree with the broad based land tax and that it should be at local government level.
      What get me riled up more is when politicians get land rezoned that benefits themselves or their mates aka NSW Labor.

      • So long as there is some penalty or an incentive to produce an income or contribution to GDP from fringe land that will be developed in the future I dont have a problem with it. Make the developer open the land for agistment or lease it to chinese market gardeners.
        The other aspect though is (particularly on the east coast) the loss of productive agricultural land to development.

    • I’m a bit puzzled, how does that work? If they weren’t landbanking, wouldn’t that land be available generally, at lower prices, and wouldn’t there be better supply as a result?

      • ronfire – they buy pastoral land in most cases, and that land doesn’t have any development consents, although it is probably situated within a zone that is designated for development now or in the future.

        It’s a bit like raw stock that a manufacturer might buy and then turn into a value added product, except the production method is painfully slow.

        The problem is really the uncertainty of what can be developed from the land, if anything at all. They sometimes make mistakes, although the professional shouldn’t. Nimbyism is a major problem, and simply time to market is a huge holding cost for the developers.

        If they didn’t landbank they would cease to be a market player, so they are forced to, and it costs, which of course is borne by the end buyer of the land.

        • Ok, I think I understand. If they weren’t in the market to buy up such pastoral land, there probably wouldn’t be development consents coming through. Therefore, since such land is then zoned for development, it makes sense to land developers to buy them up and keep them in their landbanks.

          Did I understand correctly?

          So, rezoning of pastoral land is tied to ‘demand’ for land from developers. That sounds weird, like there is an understanding between developers and governments to rezone land….

          Also, if all this pastoral land keeps getting rezoned for development, what will that be doing to our agricultural output? Or is there way too much pastoral land?

          • I don’t know all of the zoning terms for each state, but broadly councils plan ahead by releasing “Future Town plans” which tell people what they intend to rezone into lots for highrise development and land for subdivision, retail areas etc. After a community discussion period those plans are put into practice, with perhaps some adjustments if strong objections are made.
            Councils create the zonings, but it’s up to developers to then lodge their plans for their developments and after some discussion, enviromental surveys etc, hopefully they receive approval for their project.

            The mere rezoning of land increases its value, because the “best use” has changed. Obtaining a Development Approval again increases it’s value because the element of uncertainty has been removed, the land now has approval for X number of subdivided lots on an approved plan of subdivision.

            Buying at that stage decreases the time to market, but it increases the cost of the land by a huge amount, so developers try to buy Pastoral land that they are fairly certain will be rezoned later – that could take 5 or 10 years.

            As for you question about pastoral land use – outside my experience I’m afraid, although I know a rural economist who consults to government over food supply and security – he was quite happy with our future capacity to provide that for our growing population last time that I talked to him, although that was about 6 months ago.

            Essentiall developers are opportunists, who often have to create their own opportunities.

        • “they buy pastoral land in most cases, and that land doesn’t have any development consents, although it is probably situated within a zone that is designated for development now or in the future.”

          This is the exact problem we have in Woodend (Vic) at the minute with Villawood, they have bought a huge parcel of farmland just north of town (Population 3,000) and the want to develop 650 new lots, We of course objected and now Villawood are back with a watered down version of 300 lots, of course all the real estate agents in the area want it, but no one else does, not even the local businesses. We have a growth of another 3,000 people forecast over the next 25 years and there is already enough land in town to accommodate this but Villawood wont let the bone go.

  10. Cal me stupid but I cant see how Land banking is a problem. I call land banks by another name “private property” and the right to manage private property, as I the owner chooses, goes to the core of any well functioning economy. Remove that right and you trample the holy grounds of all economic theory.

    It seems to me that the system is failing to provide alternate routes for potential buyers to acquire their lot. This looks like a form of “regulatory lockin” to me. Basically the land development process is SO complex that no individual would even consider doing it themselves, so both the regulating agencies and the land developers are motivated to make the approvals procedures more obscure.

    From what I have seen and heard, obscure length release processes and unknown time horizons are at the core of NSW land price problems. Of course it does not help that farmers on the fringes also want to be paid a premium (but that has always been the case)

    • You are thinking along the right lines. See my comments above about what actually happens to the price expectations of farmers when boundaries are imposed and they start getting developers begging them to sell.

      • Hugh Pavletich always says that it is the possibility that developers CAN just buy farms a bit further away at true rural prices, that “disciplines the greedies on the fringes”.

  11. There would be a lot less need for constant housing development if the country did not have such high population growth.

    • Australia had far higher population growth in past decades. Melbourne was once the world’s fastest-growing city. The pioneer generation was “can do”. The contemporary generation is “can’t do”.

      Texas cities are growing at rapid rates without any problem with affordability or infrastructure provision.

        • Mining BoganMEMBER

          Australians seem to be one extreme or the other. The ‘can’t-do’ types end up afraid of the world and the ‘can-do’ types usually end their affairs with the phrase “Oh, I didn’t think that would happen!”

          Where’s the balanced approach in this country?

      • Having spent a good part of my adult life in North Texas I’ve see first hand how an efficient land development process really works.

        As Phil said above one of the key elements is the ability of the developers to leapfrog the fringe “land bankers” and overly greedy farmers.

        When Far North Dallas developed it was not linear. It occurred exactly as Phil said wrt (Levittown), growth occurred along existing Interstates (75 to Plano/Allen, Tollroad to Frisco, and the other main road out through Wiley. In the process there were large sections of “land-banked” pastures that simply got bypassed (Richardson around UTD comes to mind). TI’s big antenna farm was another spot.

        It is worth pointing out that wrt Texas housing the quality of most starter home new builds was very low. Consequently after about 10 years the houses were in need of major repairs. (A new Plano 2500sqft home costed about $200K in say 1995, but the same size 10 years old home closer in to Dallas (say Richardson) could be bought for about $120K. Repairs might cost about $40K to fix-it-up but that had to be weighed against the fact that the whole neighborhood was in a similar state and likely to continue declining in value.

        IMHO the older houses became undesirable because employers followed their workers ever further North, and congregated along US75 (the so called telecom corridor). So the commute from Richardson (South of Plano)to work was worse than the Allen commute (north of Plano). From what I have seen Australian businesses do not have this flexibility, maybe this is a land use allocation issue (I don’t know) but IMHO businesses moving with workers was absolutely key to the leapfrogging process.

        BTW it also helped that Land bankers often saw their property values decrease if the held on too long. Once the neighborhood around the undeveloped land was fully developed the clock started ticking on the regional decay that would require them to discount their remaining land.

      • As a long time North Dallas resident I can assure you’all that there are much better to manage the housing problem. So I would implore those that want to see change in Sydney RE to study the allocation / development processes for land in North Texas, particularly during the high population growth periods (say 1993 to 2001).

        • Phil is right, we had the same sort of growth rates in Australia netweeen 1949-1972, as we do today.

          But the primary economic objective as to provide shelter and infrastructure.

          Today, as in ALL Australian business, is to fleece to mug.

      • I would say slurring the contemporary generation is misguided.

        I’d view Gen Y, particularly the males, in a very positive light.

        They ‘can’t do’, because there are so many barriers to entry, that ensure consumer capitivity to the incumbents, is what they ‘can’t do’.

        • dumb_non_economistMEMBER

          In my early 50’s and sick to death of the continual slagging of each up and coming generation. I have 3 mid to late teen daughters and their work (study) ethic is second to none as is their friends and I’d not hesitate to say far better than those in my age group when they were back at school.

          I hear the same continual carping on about “what ever” generation at work constantly, and IMO it’s nothing but BS. My experience is that those from the teens up to the 50’s are no different. I’d say most “older” folk have no patience and have forgotten what they were like and the attitudes that they held when younger.

          Those whom complain about “can’t do” mentality would just like to do whatever they wish without restriction and don’t give a shit about the broader impact.

  12. Agree that the choking off of supply is stuffing the market, however I don’t believe the developers can do much about it.

    The land they are sitting on was likely purchased at a price that factored in the final lot prices (funded by debt), and to achieve those lot prices they need to drip feed – releasing the whole bunch at once would torpedo the lot price and leave them with negative equity in the development and in the case of all but the largest it would sink the whole business.

    I wouldn’t exactly shed a tear for them, but they’re another symptom of the broken land price market rather than a cause for mine..

    • Its also more cost effective to release stages, as you only have to develop that particular parcel until its sold, then onto the next lot (pardon the pun)

  13. What is the land currently being used for ? Is it sitting there empty or are the previous owners still there, farming or paying rent ?
    If the landbankers are currently earning some income then it makes it easier for them not to sell and just hold on to it.

    • I think this would be worthy of a seperate article. Just what is all of this fringe land surrounding our cities being used for.

      One of the main justification for anti-sprawl policies is to protect valuable farmland from being wasted on housing. A cursory examitaion of Sydney’s surrounds on Google Earth suggests to me that whilst there is certainly considerable agricultural activity, much of the land also appears to be ‘big back yards’.

      This contrasts to something I observed on holidays in Europe, Germany especially, the absence of these large transitional zones. Urban areas would give way immediately to active farmland.

  14. There is also a “shortage of land” in Alice Springs. Don’t laugh, it’s true.

    A little anecdote to show why we here in Australia are “special”, as in Special School:

    I went to Alice Springs in 1992, thinking about buying a home there for the winters. I love wild, empty places, and could use the Alice as a base. On approach to Alice, I was struck by the vast empty spaces as far as the eye could see from the airplane window. The plane flew on and on, and the sea of empty land seem to go on forever.

    What a gigantic, empty country this is.

    Anyway, here’s the point of the story: when I got to Alice I found the house and land prices were astronomical, on a par with my home in inner Canberra. I was told that, wait for it, “We’re running out of land in Alice Springs”. I kid you not. Excuses ranged from aboriginal land claims to huge ranches that butted up against the borders of the town. Needless to say, I bought nothing.

    It seems clear to me that the authorities could have annexed or appropriated ranchland for the expansion of the Alice if it were in their interests, but they’d much rather see the supply of land constrained and land values, and therefore land taxes, rise. It’s a complete joke. The Alice is a dot in an infinite sea of land. Only Australians would fall for the bullshit line of land shortage in such a place. It’s like going to Antarctica and being told that there’s a critical shortage of snow.

    But wait, here is a press report from 2010, just for shits and giggles, to show nothing has changed:

    House prices in The Alice were up over 22% in FY10. They’re up nearly 50% in four years. A shortage of land and development means the average house price now matches that of Adelaide, and is not far behind Brisbane.

    • Phil has the best solution.

      Colusion between many youth to occupy some land and build an entire village, or even township with disregard to zoning laws, then dare authorities to knock it down.

      • Yes – could be an interesting project for getup or occupy.

        Though breaking the madness of land use regulations is probably not hipster enough.

        Perhaps the perfect project for some idealistic engineers who tire of digging up mountain ranges in the north west.

    • Darwin is the same. The land prices in these remote, and lets face it, small communities is laughable, fringe land should almost be free somewhere like Alice Springs.

  15. Well done to Leith, PhilBest and, in this article, David Collyer for exposing the severe problem in the supply of extra residential land in Australia.
    Of course the tiresome Shortage/Yes/No question comes up. Buyers are clearly suffering a shortage of residential land and clearly these landbankers have an abundance of it.
    Government is to blame for this landbanking problem in that govt sees the problem and allows it to continue. There are many possible solutions. Collyers land tax is one. Another would be a “use it or lose it” policy to resi zoning. If the land is not used in say 5 years, then the land is rezoned to farmland and neighbouring land gets the resi permission. Another thing is that govt will often sell huge chunks of land to developers who then trickle it to market. Govt should instead develop the land itself and sell the blocks individually at public auction.
    Abusive FIGJAM type posters have plenty to say on the matter. Yes Mav, fiat currency inflation and debt do also play a part in landbanking.

    • Landcom is the NSW gov land agency and they’re in it as deep as the private developers.

      While vacant block sold by Landcom have gradually reduced from 1/4 acre to 1/8th acre, the Landcom price for one of these postage stamps has been steady at 300k+ for the last decade at least.

      Landcom would have to be the ultimate landbanker! How does that work into the Land Tax debate?

      • Landcom would have to be the ultimate landbanker! How does that work into the Land Tax debate?

        If what you say about Landcom is true then the situation is quite simple. Government invites in many immigrants and then directly chokes the supply of essential land. Govt is screwing young people who require housing. In this case land tax would not be a great solution. Govt would then screw all land owners rather than home buyers.
        What is needed is a decent government.

      • Yep – Landcom has been a nice little spinner for the NSW State Government and aligns govt policy perfectly with the interests of the land bankers.

        Unless they are serious about replacing that milche cow with some alternate ‘little earner’ there will be little change.

        What might force their hand is an economic downturn that can only be alleviated by some housing construction activity.

        Landcom could, if given appropriate direction, in combination with new land releases have a role to play in lowering the cost of new residential housing in NSW.

  16. “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”

    I like what you stand for David but this is an emotional article with no real point. What valuation methodolgy would you employ given residentially zoned englbo land would already be valued on the basis of its highest and best use i.e housing development? and what astute tax ideas do you have in mind?

    The very existence of land tax should discourage the speculative holding of land, amongst a number of other outcomes.

  17. Nice work David C for having more than a rant and getting out and bringing up some facts.

    There might be all sorts of ways (and views) to try and address it, but the biggest issue we have is speculators using absurdly freely available debt to bid up existing property during a debt based asset boom.

    What we need to watch are the forces that would seek to resume the role of speculative debt in asset bubble.

    • aj, No one single factor got us into this mess. Debt, zoning, tax, land monopoly and speculation all contribute. All can be fixed with far-sighted political leadership. Meanwhile:

      Don’t Buy Now!

  18. I love the solution.

    “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.* Developers would turn their holdings as quickly as possible, rather than hoarding it.

    Its a simple and elegant solution. The benefit in sitting on a land bank is reduced and it would create income for the state governments, something I’m sure they would love.

    I’d also like to see a sliding scale of increases for every year the property is undeveloped, for example if its not developed in 3-5 years the rates go to above the standard residential rate and every year after that.

    That would discourage developers from sitting on large parcels of land for long periods and artificially constraining supply.

  19. Interesting post with some interesting suggested “solutions” to land-banking (i.e. land taxes, leap-frogging etc). To respond properly would take a long post, but in a nutshell, the reason developers have to land-bank is because of the enormous costs associated with bringing on developments. This is often out of reach for “mum & dad” developers sitting on a farm. Land-banking is one way of bringing some economies of scale to the development process. One of my 20-year projects is nearing completion and we are STILL amortising up-front infrastructure costs against lots we are producing now (at Year 18). So until the infrastructure and planning reforms that UE constantly raises, land-banking is almost a necessity to bring any meaningful development to the urban fringe.

  20. Nobody did their homework. LVO outlined reasonable suggestions to address land-banking in this article here based on solid evidence:



    “In a nutshell, land banking and rent seeking are symptoms of regulatory (or other) restrictions on land supply, cumbersome planning approval processes, and inadequate provision of housing-related infrastructure. Therefore, the first best policy response would be to address these issues directly.

    Of course, a broad-based land value tax wouldn’t go astray either…

    For reasons outlined above, land banking – an especially baneful form of rent seeking at the current time – is more prevalent in situations where land supply is constrained and planning approval processes are slow and uncertain. Land banking is also only profitable where the value of land is rising faster than the cost of capital. And in the absence of physical barriers to land supply, land price increases above the level of inflation are driven primarily by policies and regulations that artificially restrict the supply of land.

    It stands to reason, then, that the removal of regulatory constraints on the supply of land, along with more permissive planning policies and infrastructure provision, would increase competition amongst both developers and land owners, thereby driving down the cost of land/housing. The existence of high levels of competition would, in turn, make land banking particularly risky, as another nearby owner would always have the opportunity to move to the market ahead of the land banking firm.”

    This quote from the NZ productivity commission is also worth repeating:

    “The long delays associated with bringing both brownfield and greenfield land to the market suggest that a fifteen or even twenty-year pipeline written into plans is likely to be inadequate in practice, particularly if subject to short-term constraints through plan-based staging of land release. When supply is over-regulated in this way land banking becomes a rational commercial response, further undermining the calculation of future capacity and promoting high land and housing prices.

    Sufficient competition in the supply of land for development will assist in placing downward pressure on land prices. Therefore, developers are competing with each other with respect to the sale of construction ready sections, thereby helping ensure that land is offered at affordable prices. Where competition amongst developers is limited by land availability constraints, this can lead to high land and house prices.

    The effect of adopting these policies will be to substantially reduce the opportunity for speculative investments by individual land owners and developers.”

    Land bankers are not ‘needed’. They artificially constrain supply and push up prices. They are parasites full stop.

    What is needed is good policy and government finding ways to speed up approvals, have a positive presumption of residential use of land, have innovative ways to fund infrastructure etc as outlined above.

    These factors plus a land tax forcing people to use vacant land they are squatting on will go a long way to solving the problem.

  21. Landbanks imply very low long term risk with very high longer term rewards. It seems to me that reversing this low risk high reward long term view is essential.

    As I said above, exactly this happened in Dallas Tx because older estates became undesirable quickly and as they became cheaper the “quality” of the local schools fell further depressing the land values.

    However, there are other ways. One that comes to mind is locking out a certain percentage of the land for greenbelts BUT letting the private market decide which farms become greenbelt. I believe this is what happens in Germany. This creates a use-it-or-loose-it time horizon that puts developers in competition to not be the last man in an area with unsold land.