Prosper responds to land banking developers

By Leith van Onselen

Following of from yesterday’s claim by Australand that Prosper had exaggerated the extent of its residential land bank, Prosper has responded with the below media release, sourced from ASX company reports, providing an update of land banks held by Australia’s listed property developers:

Listed Developer Englobo Holdings

8 March 2013

Prosper Australia today issues its update of ‘Englobo’ holdings of listed property developers (attached), as revealed in their audited half year accounts recently released to the Australian Stock Exchange.

“Based on last year’s sales – the current pulse of activity – listed developers hold an average 20.4 years supply, up from 18.4 years a mere six months earlier,” David Collyer Campaign Manager Prosper Australia said today.

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

“Lend Lease holds a remarkable 33.7 years supply. Developer land holdings by time extend well beyond government planning time frames, the classic definition of ‘Landbanking’.”

This straightforward equation has been criticised by the industry as ‘simplistic’.

“The complexities of land development change nothing,” Collyer said. “This is their work-in-progress. It is a robust and valid measure.

“Withholding vacant land from use displaces activity and drives up land prices – to the great advantage of all existing landowners. While developers can rightly argue they are constrained by government planning controls, their complaints are like Brer Rabbit saying ‘Please don’t throw me in dat briar patch!’

“Developers have responded to the falls in sales volumes by further reducing the size of lots and offering non-cash incentives like new cars to maintain consumer ‘anchoring’ to peak prices. Previous land price downturns have been characterized by developer bankruptcies as banks made margin calls on this traditionally highly-geared industry.

“I note the relatively low borrowing by listed developers, likely secured on their income-producing commercial and industrial properties. They should withstand a major price correction, though shareholders equity will shrivel mightily.”

In the last half, Mirvac wrote down the value of their residential land holdings by $273.2 million and Stockland by $306 million, citing persistent weakness in the residential property market.  PEET added 13,200 lots with an end value of around $2.3 billion to its stock while Stockland’s shrank.

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

 Listed Developer Land Holdings December 2012

Lots Settled Lots in development Disclosed end value Av lot value Land bank Debt/ d+eq2
2012 Number $ billions $’000 Years per cent
Australand 16121 20 370 8.0 330 12.6 38.9
Sunland 4033 3 110 1.3 418 7.6 4.9
AV Jennings 10 581 33.6
PEET 2 150 47 263 8.5 179 21.9 45.8
Mirvac 1 562 31 130 10.6 356 19.9 26.0
FKP 3194 4 525 1.45 309 14.2 37.5
Lend Lease 2 062 69 561 13.05 187 33.7 26.0
Stockland 5 264 81 270 22.76 279 15.4 33.1
Totals7 13 134 257 229 65.8 246 20.4 38.9

Source: ASX Company reports

1 For Australand, ‘Contracts on Hand’
2 Includes net deriviatives exposure to recognise finance charge
3 Lots settled in 6 months to end 2012, annualized
4Total lots and built sales, excl. Mulpha
5 At 30 June 2012
6At 30 June 2012 less $306m impairment
7Excludes AV Jennings

Listed Developer Land Holdings June 2012

Lots Settled Lots in development Disclosed end value Av lot value Land bank
11/12 Number $ billions $’000 Years
Australand 1 108 21 300 8.0 531 19.2
Sunland 672 2 889 1.1 380 4.3
PEET 2 152 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 68 006 13.0 191 33.0
Stockland 5 388 87 900 23.0 338 16.3
Totals 13 496 248 607 63.3 246 18.4

Source: ASX Company reports

Media comment: David Collyer 0413 248 193

About Prosper: Prosper Australia is a tax reform lobby group and think tank that is now 120 years old. It seeks to move the base of government revenues from taxing individuals and enterprise to capturing the economic rents of the natural endowment, notably through Land Value Tax and Mining Tax

Once again, for my own views on land banking, check out 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.

[email protected]

Unconventional Economist
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  1. Thanks for all your work on this DC. Be prepared for further public attacks on you and your data from those with most to lose.

    There are probably more names to add to the list, ala AVJennings. Maybe the MB readership could assist with some research?

    The more light you shine into this shadowy world the better off we all are.

    • The Patrician

      Question re Stockland.
      Stockland reports that its landbank has reduced from 87900 as at June 2012 to 81270 at Dec 2012. A drop of nearly 7000 lots in 6 months.
      Yet the “lots settled” for the entire year 2012 is only 5264.

      Any thoughts?

    • The Patrician

      PEET really is a standout.

      In a 6 month period where its profits have fallen by 86%, it has increased its landbank by 39%.

      • Patrician, Stockland announced to the ASX 13 Feb: “13 non-core residential projects, one apartments project and two industrial land parcels are now more suited to wholesale disposal rather than long-term trade out and will require an impairment of $234 million, $3 million and $9 million respectively.”

        This englobo land on which it cannot foresee a profit, has moved to ‘available for sale’ or similar classification and their final lot targets have moved accordingly.

        PEET’s growth is… ‘courageous’.

  2. Why isn’t ANY of this a headline political issue leading up to a Federal election? Is DC the only lobbyist?

    Our immature candidates are still publicly fighting about boat people.. It’s a side-show!

    • Would you, as a property owner either want what David C writes out ‘in the open’, or vote for anyone who suggested lowering the value of you most cherished possession(S)? Don’t forget newspaper editors, politicians, economists etc are likely …all property owners!

  3. “Following of from yesterday’s claim by Australand that Prosper had exaggerated the extent of its residential land bank”

    My understanding of Australands claim is that DC underquoted its sales(rather than exaggerating the size of the land bank), having the effect of increasing the “years of supply” measure.

    • I commend DC for making this public. But the developers are right, his methodology is too simplistic. By example . Let’s say Apple sells 1million iPhone per year and they have 5 million in stock. That equals 5 years supply right? But what if some of the stock is iPhone 5, some is iPhone 4, and some still is iPhone 3. How many years supply do you have now? Hard to say without looking at the stock itself. Same with land banks. I think it was Lend Lease that had 18 years supply in Townsville, but about 3 years supply in Brisbane. Note I could have the wrong developer, but you should see the point.

      • I don’t find the iphone analogy helpful.
        We are not talking about outdated disposable phone technology. These are blocks of land. They are not going to the tip in a couple of years. The stockpiles will sit and grow and grow. This stockpiled “supply” is not going away. Each undemanded addition to the stockpile reduces the value of the stock in the market. It is just more convenient for those invested to ignore it.

        • Let me put it another way. 1000 lots in Brisbane is less years supply than 1000 lots in Meekatharra. So you have to look at the stock to understand the true nature of the years of supply.

          • But does that matter? If Lend Lease has 18 years supply in Townsville and 3 years in Brisbane, then arguably, they have the mix wrong, and should be selling their Townsville stuff off. Or…they know that Townsville will benefit from holding back the blocks, whereas Brisbane won’t. The point becomes a moot one if a Land Tax is brought in. Tax Land Banks, regardless of inventory size and location, and let’s see how long Townsvilles 18 years worth of supply lasts!

        • Exactly – a 500 loaves on the shelf of a busy supermarket in suburbia is a days supply, but 3 months supply at the general store in Thargominda.

      • “But you should see the point.”

        Not really, sorry.

        From where I am sitting, land developers have responded to Prosper’s study by saying: “It’s really complicated”, which is just a convenient way of them saying: “We don’t have a strong rebuttal, so we’ll just play the ‘you do not understand this as well as we do’ card”.

      • I see your point, but agree the analogy maybe isn’t quite right.

        A weighted average sales rate per project would satisfy this query would it not?

        It would be an interesting analysis indeed – but probably couldn’t be done from annual reports which are unlikely to go into detail on lot sales project by project. I haven’t checked but will.

        Very easy for the developers to do if the result was that it showed a more favourable outcome. That they haven’t suggests the outcome isn’t a good one.

        • Remember that annual reports need to look good to investors/shareholders. So 30 years supply looks good. But still down to the location of that supply and you will see that it’s not 30 years in locations like Brisbane, Melbourne, or Sydney (which would be huge tracts of land). Rather it’s Townsville (and similar) where 30 years supply might be one relatively small land holding.

          • Land Tax the suckers then..and see how long the inventory lasts! ( Sorry, couldn’t help repeating myself from above 🙂 )

          • 30 years’ supply is still 30 years’ supply – doesn’t matter where it is.

            The point is that it’s too much and a cartel exists which works together to keep prices above a market clearing level.

            If the information was available, a project by project supply analysis would expose the real dogs in their portfolios though.

            Land tax them and liberate the land to its rightful owners/users.

          • Rumplestatskin

            That could be true. Surely with some more digging this can be ascertained.

            But we can look to approvals data to see the stock of approved new land site or apartments in the capital cities. For example

            In SEQ I would guess that there is a very long ‘years supply’ of approved lots – at least 10 years. And of course there will be 10 years of new approvals in the means time.

      • This is rubbish – release the land in regional areas, lower the cost of housing there and more people will ditch the big cities. As I posted recently a drive through the new estates of Townsville where it’s eve to eve on a dog box block shows how disgusting and unaustralian the land bankers are.

        Tax them to death – use it or lose it.

        • Them or the Council who permits these controls? Easy to lay blame on one party but this is entrenched in the system.

        • As I posted recently a drive through the new estates of Townsville where it’s eve to eve on a dog box block shows how disgusting and unaustralian the land bankers are.
          Release 5 acre lots another 5km out of town. If all that land is already banked, then release land 10km out. If that is banked, go 15km. Once the cartel is broken the growth can continue in a sensible fashion.

        • AJ, one crucial thing there, is to get the jobs decentralising as well as the residences.

          The jobs do tend to follow the population if the free market is allowed to work, which is why commute times are so stable in the US cities with the least regulations and central planning.

          But in “The Woodlands” near Houston, the developer set out to ensure a balance of commercial and residential from the outset. This is excellent private sector planning.

  4. I want someone to take the whole “cost of living” issues and inject a bit of high cost of housing into them. Maybe then we will see a discussion.

  5. Stocks matter. Would the talented professionals running these big listed developers buy wool socks in bulk in late spring? Analysis – however broad – of stock-in-hand is instructive.

    At least we are now have a discussion about the largest asset class in any country: land.

    Over at Property Observer, Angie Zigmanis is thinking aloud about the consequences of Land Tax reform. You can’t smell the roses while you are holding your nose, Angie.

    Colin Keane is busily rejecting a straw man argument that I am saying the listed developers are holding us all to ransom. Reread the third par of my piece above, Colin.

    “In my opinion the least bad tax is the property tax on the unimproved value of land, the Henry George argument of many, many years ago.”
    Milton Friedman, The Times Herald, Pennsylvania, 1978

    • The Patrician

      Colin Keane’s statement about the insignificant size of the landbank to the market is completely unsubstantiated.

      Let’s test his theory.

      Each developer can nominate 10% of their landbank for a “super” auction (no reserve – one lot per buyer). Let’s see what effect that has on price.

  6. Cognitive Dissonance

    You can tell he is on to something by the howls of denial

    I care nothing of the ‘reasons’ howlers or the holwlees put up

  7. “Every proponent of housing during bubbles confidently proclaims that “this time it’s different,” and a decade later the dazed survivors shift through the financial rubble, wondering what went wrong with “guaranteed” fundamentals, trends, valuations, collateral and wealth.” (Charles Hugh Smith)

    • Every housing bubble has people saying “this time is different”.

      Every black bird has feathers. What is the chance a feathered creature is black?

      They are saying of Australian housing “this time is different”. What is the chance this is a housing bubble?

      • It depends on what the proportional of Blackbirds is to the ornithological world! And in the case of the % of housing proponents, they are in the majjority ( I’d suggest) and are so, likely to be wrong.

  8. Maybe they can define a bubble market as a market that crashes if taxes were introduced or land banking was made illegal.

    If I were to buy up all the AFL tickets to a game and sell just a few I could make a killing, but I would be called a scalper, why isn’t land banking classed as a similar thing, where land is held back yet people need it for homes.

  9. Bobby Fischer

    Required Englobo taglines:

    Beware of the Englobo! It creeps, and leaps, and glides and slides across the floor.

    Indescribable… Indestructible… Insatiable! Nothing Can Stop It!

    It eats you alive and shows no mercy! Bloated with the financial blood of its Australian victims!

    “Englobo Encounters” (The Blob, 1958):

    Phil [local resident, trying to get everybody’s attention]: Listen, now listen to me everybody, this country is in danger. Several people have been killed already! Now we – we had to make this noise so you would listen to us, so we could warn you!

    [Leiutenant DC arrives on the scene]

    Lieutenant Dave: What’s going on here Phil?

    Phil [agitated]: Dave make the locals listen to me. There IS a monster! We have seen it with our own eyes and it keeps getting bigger and bigger!

    Deputy Officer: Your story keeps getting bigger and bigger kid.

    Phil: Does it look like I’m playing a practical joke? This things eats everything around it and is insatiable. There… there… doesn’t seem to be any will to kill it either. With all the authorities thinking I’m crying wolf or laughing off the problem, ‘Englobo’ might just take us all. Am I laughing, or am I scared stiff?

    Lieutenant Dave: Phil’s telling the truth. What do you mean by Englobo?

    Phil: It’s a kind of all-devouring land mass. And it draws in everything around it; consuming everything in its path. It is mindless destruction, bottomless hunger and nature at its most savage and merciless. The dumb alien intelligence in single minded in its focus: taking all financial life as its own.

    Lieutenant Dave: You mean it has killed already?

    Phil: Yes. It even killed DrSmithy! I saw it with my own eyes. The amoeba-like jelly was on his hand and it consumed him… ate him alive. He did everything he good to scrape it off, but it was hopeless. And then… it got BIGGER. Before I could do anything or warn anyone, it had slithered off and out of sight! I wasn’t the only one to see it, Harry from across town…

    [There is a sudden large vibration through the ground. Buildings start to shake back and forth. Englobo has found the gathering. It needs to feed its dumb appetite for destruction. A large red amoeba-like creature begins to emerge from behind and over the top of a nearby store. Remnants of all kinds of material – both organic and inorganic – are silhouetted within the creature. Outlines of human bodies are visible.
    Everyone is horrified.]

    Lieutenant Dave: Lord… help us. What.. what the hell are we going to do!? It is just so BIG. Everybody, get the hell out of here! The situation is hopeless. Save yourselves!

    [The combined weight of the alien amoeba crushes the building that was supporting its hideous weight. There is a large crash as the human scatter in all directions. The Englobo is quick for its size and has already trapped several humans including the Deputy. They are quickly dissolved within the foul pinkish flesh; their cries for help quickly drowned by pinkish-red slime. Lieutenant Dave and Phil have avoided the creature and are observing it from a safe distance.]

    Phil [breathing quickly from exertion]: Believe me now Davo?

    Lieutenant Dave: That I do Phil. And I may just have some ideas on how we can rid ourselves of this monstrosity, but the solution will not either be easy or quick. We will experience many difficulties on the way and risk our lives in the process. Are you willing to take that chance Phil?

    [Phil nods. He has but one life to sacrifice against the beast, but he is willing to give it]

    Lieutenant Dave: In that case, here is my plan….

    • Thanks for not having me engulfed by the monster in your prophetic little story……I might have had nightmares……


      There should be a “Leith” in it too….

      • Bobby Fischer

        No worries Phil. If people have a laugh, then the aim is achieved.

        I hated to kill off the Good Doctor – it’s Dr Hallen in the original screen play. But if it is any consolation to Smithy, we all know that the good looking extras with symmetrical features, lean mesomorphic bodies and perfectly white teeth are cannon fodder for ungodly creatures in any formulaic horror script. 🙂

  10. What we need to see, besides the extent of the developer’s land banks, is the developers break-even selling price. The problem is, I believe, that the break-even selling price is at a level that only a trickle of buyers are biting.

    The developers are the meat in the sandwich between land vendors – developers must bid against each other for the supply of zoned 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 now “costing in” the taxes, and all the gains being captured by the original land vendors.

    Hugh Pavletich was not just morally honourable to walk away from the profession and go lobbying as this situation got entrenched in NZ – it was a wise act of self-preservation.

    Pity the profession thus taken hostage by the bureaucrats and the finance sector and “big property” in their butt-fattening little racket.

    • It absolutely is a racket, the land selling business.
      For a country like Australia with some of the most land per person (indeed some of the most arable land per person) to have the most expensive housing land, and to be forcing young people to do without independent housing or get huge debt and a dogbox is a DISGRACE.

      Supporting the racket are many useful idiots (useful idiot is a pejorative term for people perceived as propagandists for a cause whose goals they do not understand, and who are used cynically by the leaders of the cause

      Useful idiots include the greenies, BANANAs, CAVEs, NIMBYs and NOPEs.
      Another useful idiot is the new breed of analytical genius – the kind that can find two numbers on the Internet, divide one by the other, and draw stunningly moronic conclusions. Yes I am talking about the housing shortage-denier. The land racketeers choke-off the supply of housing and drive up the price in rather obvious fashion, and the shortage-deniers say “Oh no that hasn’t happened at all. Look at these two numbers I found on the Internet.

      • As a shortage denier ( I guess!) the only two number I look at are (1) what’s available for sale and (2) who can afford to pay the asking price. It’s got nothing to do with supply and demand as such, unless demand is seen for what it is – the capacity to satisfy desire. There has been and always will be desire for what we don’t have. It doesn’t make for shortage as such, if there is an alternative. And there are two alternatives to buying a $5m terrace in Paddo if you can’t afford it (1) Live with some one who can ( increase the dwelling density) or (2) Buy in Wollongong ( find a location that is affordable). Now location is what most ‘poorer’ people go for, so free up land supply…anywhere and everywhere…and eventually, that Paddo place will fall into a bracket that more people can afford. That’s how your solve the spurious ‘shortage’ problem.

        • so free up land supply…anywhere and everywhere…and eventually, that Paddo place will fall into a bracket that more people can afford. That’s how your solve the spurious ‘shortage’ problem.

          Freeing up land supply is a very large part to solving the shortage problem. So we are in agreement on the solution if not the single best word to describe it with.

          Why not describe the problem with a sentence, or perhaps a paragraph or longer?

          • Shortage = When there are 100 buyers with +$5m to pay in Paddo and there are only 99 house for sale at =<$5m. Now that doesn't happen in the real world does it! Why? Because those vendors move their prices up to meet the marginal buyers with whatever money/debt they have over, say, $5.5 million. When $6m becomes a resistance point, prices stop rising. There can't be a shortage if prices move, only an unsatisfied desire at a certain price-point.

          • This whole debate highlights why I hate the shortage/surplus argument and find it a distraction from the key issue. A better way to describe the current situation is an artificial strangulation of housing supply, which has helped make housing supply unresponsive to changing demand (increasing price volatility) AND reduced affordability (through artificial land scarcity).

        • Janet is right. The status quo, which was allegedly designed to “reduce commuting distances”, results in people driving historically unprecedented distances from low-housing-cost rural towns, to their jobs in the city, driving past tens of thousands of hectares of land en route that is banned from development.

          Indeed: “… up land supply…anywhere and everywhere…and eventually, those (efficiently located places) will fall into a bracket that more people can afford…..”

          Janet just summed up the creed of the forces of light.

  11. Just a thought:
    It seems to me that NSW has really scored an own goal by selling the airport and not building a second airport.

    Today’s growth businesses need connectivity, they need responsive available broadband telecommunications and physical connectivity options (meaning airports).

    IMHO Sydney airport is a pathetic money grubbing disgrace. Everything about its operation is wrong and indirectly effects the viability of regional NSW as an residential option. The latest changes to the pick-up being on the other side of the car park must be targeted at really pi55ing off the frequent traveler.

    Even the airport location is bad / inaccessible for most of Sydney’s population and god forbid they need to park their car for a day, that’ll likely cost them more than the flight. As I said a money grubbing disgrace.

    In the international terminal it is disgusting the way they funnel the passengers through the middle of the Duty-free store on way to customs, I’ve gotten in the habit of kicking over a couple of their delicately placed plies of rubbish and just continuing to walk, I hope the breakage bill breaks them!

    • drsmithyMEMBER

      In the international terminal it is disgusting the way they funnel the passengers through the middle of the Duty-free store on way to customs […]

      I don’t disagree with the principle, but it’s hardly a phenomenon unique to SYD. I can’t actually think of an airport off the top of my head that doesn’t funnel incoming and outgoing passengers through duty free to some extent.