Developers are hoarding large tracts of land and delaying construction in a bid to shore up prices, a new study has claimed.
Authored by the University of Sydney’s Cameron Murray and based on the annual reports of Australia’s publicly-listed residential developers, the study claims that developers are gaming the planning control system by limiting supply levels and otherwise delaying construction.
“They all pretty much do the same thing. They’ve found their recipe book, and they’ve all learnt over time that that’s how you make the money,” Dr Murray, who is a visiting scholar at the University of Sydney’s Henry Halloran Trust, told The New Daily.
According to Dr Murray’s analysis, there are currently more than 200,000 residential housing lots, or 13 years of new supply, in land banks owned by developers.
But each of these developers only sold an average of 2464 lots per year between 2001 and 2018.
Of the 13 years of supply held in land banks, nine are held in housing subdivisions that are already approved for sale – “meaning planning delays are not the reason land banks are held”.
“Just because you allow people to supply new dwellings on their land doesn’t mean they will do it immediately – or ever,” Dr Murray said.
“In fact, there are many incentives for them not to do it – when you start giving away the value from higher-density planning rules.”
In his analysis, Dr Murray refutes the claim that planning regulations are to blame for rapidly rising house prices.
Instead, he says that developers choose to hold back supply from the market – either so that they can sell units when dwelling prices have increased, or so that they can pocket profits from asset revaluation once land has been zoned for greater density.
“They’re just making money by getting government giveaways to increase density, and they’re getting the price growth as well, while they wait,” Dr Murray said.
“Planning delays at best explain two or three years of inventory. They cannot explain 13 years of supply held in land banks.”
Dr Murray said there were plenty of policy options on the table for governments interested in tackling housing affordability by boosting supply. But he said there was a lack of political will to solve the issue.
“You can tax their land, you can add charges to the additional density that they might get given in the future so that they don’t want to delay so much because it’s more expensive,” he said.
“Or when you rezone infill areas, you can offer incentives for fast-tracking developments. There are dozens of options, but it’s a political battle … we, as a political class, want high house prices.”
University of New South Wales housing researcher Laurence Troy agreed that land banking was a widespread practice that had fuelled house price growth.
But he said that developers, operating within the confines of the market and with a duty to shareholders, couldn’t realistically be expected to behave any differently.
Which is why he believes governments and not-for-profit actors need to build more housing.
“It’s not just that they’re wilfully banking land, it’s – well of course they’re not going to develop when the market’s going into a downturn, because they can’t guarantee that they’re going to be able to sell units or houses in 12 months’ time at a certain price,” he said.
“There needs to be more government and not-for-profit development as part of the housing supply story, so that we’re not just relying on the whole private sector development space to deliver everything.”
Stockland, which Dr Murray calculates has 13 years of stock in its land bank, denied that it was purposely holding back stock.
The company’s CEO of Communities, Andrew Whitson, told The New Daily that release of housing was slowed by the planning approval process, agreements with governments and other authorities, and the delivery of infrastructure and services.
“We seek to bring all our projects to market as quickly as possible, and where land is zoned and services are connected, we release lots as quickly as possible to meet market demand,” Mr Whitson said, adding that the company’s house and land packages started from $365,900 – well below Melbourne’s median house price.
“The majority of our residential communities are in key growth corridors within close proximity to rail and transport links, helping connect our residents with education, jobs, health and medical services, parks, recreational facilities, shops and entertainment.”
The New Daily also approached Lendlease, PEET, and the Property Council of Australia for comment, but none responded by deadline.