Apologists for land bankers at work.
More nonsense from Centre for Cities, the opening sentence contradicts the headline just to warn you that you are about to ride the rollercoaster of flawed logic:
No, landbanking does not cause the housing crisis – here’s why
Landbanking is caused by the current discretionary planning system. A new flexible zoning system will end landbanking and the housing crisis.
So, er, landbanking does not cause the housing crisis (which is not a crisis, it’s deliberate); but the planning system causes landbanking… which in turn causes the housing crisis?
The key paragraph appears to be this:
The rational strategy for developers is to build at a slow rate which maintains high prices for their product and avoids swamping the local market with new supply. Crucially, this behaviour is possible because every other competitor faces the same bottleneck on accessing land for development. They are not able to swoop in, buy another piece of land, and quickly build and sell homes for a cheaper price… If a new flexible zoning system were introduced those behaviours would disappear.
Land is land, whether it is owned by a farmer, a speculator or a home-builder/land banker; whether it has planning; is likely to get it or is just a long shot. Whoever owns it is the landowner. They all have the same incentive, to drip-feed it onto the market.
It’s like having money in the bank which is earning interest (those were the days!). You only withdraw what you need when you need to, and you leave the rest in the bank. You don’t earn interest when you withdraw it, you earn interest by not withdrawing it. In the same way, landowners maximise their long-term wealth by not selling land while it is steadily increasing in value (earning interest).
So in their neo-liberal fantasy world, let’s assume the government grants blanket planning for all land within a mile or two of each town or city, enough to build tens of millions of homes.
What is the profit maximising strategy of Barratts et al now? It is to continue drip-feeding their existing land bank onto the market*. No change there.
Once Barratts et al have used up their land banks, they’ll have to go to farmers and speculators to buy more. And the farmers and speculators will adopt exactly the same profit maximising drip-feed strategy. So the ‘land’ bottle-neck just moves up one level and the ‘labour and materials’ bottle-neck is unchanged.
It’s not a cartel or collusion, all landowners have the same incentives and they all behave the same. If one landowner breaks ranks and decides to sell all his land and buy a Ferrari or a yacht, it will just be bought by somebody else with exactly the same drip-feed incentives.
* It’s not just that new-prices fall slightly if they build ‘too many’, it’s also that their inputs are very inelastic, a small increase in demand for labour, bricks, timber sees wages and prices shoot up. I remember chatting to plasterers and electricians in east London in the years after Canary Wharf was completed and they reminisced fondly about earning silly amounts of money at the time.
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They also trot out the usual nosense about seventy percent of homes in Austria being ‘self-built’. They are nothing of the sort! It’s a tax reduction strategy – instead of buying land-plus-house from a builder as one package and incurring stamp duty and VAT on both elements, people buy the land from the builder as one transaction (stamp duty, but no VAT) and then get the same builder to build the house (VAT but no stamp duty) as a separate transaction. And it’s not like houses in Austria are cheap either. So they haven’t given it much original thought.