Apologists for land bankers at work.

More nonsense from Centre for Cities, the first 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?

They trot out the usual bollocks about seventy percent of homes in Austria being ‘self-built’. They are nothing of the sort! It’s a tax reduciton strategy – instead of buying land-plus-house from a builder as a 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 know nothing. 

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. They all have the same incentive, to drip it onto the market – it’s like having money in the bank which is earning interest, you only withdraw what you need to and leave the rest. You don’t earn interest when you withdraw it, you earn money by not withdrawing it. In the same way, landowners maximise their long-term wealth by not selling it.

So in their fantasy world, let’s assume they grant 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? To continue drip-feeding their existing land bank onto the market.*
Once Barratts et al have used it all up, 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 bottle-neck just moves up one level. It’s not a cartel or collusion, each has the same incentives and they all behave the same.

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.