Time Is Money: How Landbanking Constrains Housing Supply

Abstract

Landbanking (land hoarding), where land able to profitably developed for housing is withheld from development for future gains, undermines housing policies that aim to increase supply and reduce prices through rezoning. We shed light on the problems with the static economic models of housing supply that inform these policies by looking at the degree to which landbanking behaviour is consistent with the predictions of these models. A new dataset of home sales and landbanks from the annual reports of Australia’s publicly-listed residential developers, and complete state-level planning approvals and lot production data in Queensland, Australia, are used. In contrast to the static model prediction that landbanks function as inventories, and are hence minimised, we find that (1) over 200,000 housing lots, or 13 years of new supply, are held in landbanks owned by developers, that (2) nine years of landbanks are held in housing subdivisions that are approved and already for sale, meaning planning delays are not the reason landbanks are held, that (3) the total zoned supply in a region is unrelated to the rate of new housing supply, and (4) that housing developers routinely delay housing production to capitalise on market cycles. A dynamic model that accounts for capital gains of undeveloped land, including an option premium, is consistent with these empirical patterns. In this dynamic model there is an incentive to delay development when prices are rising to earn landbank value gains, which includes the value of the option to develop to higher densities.

Keywords: Landbanking, Land Hoarding, Housing Supply, Housing Policy, Dynamics

JEL Classification: R14, R31, R52