When City AM says it isn't:
Hammond said the government will be commissioning a review of the gap between the number of planning permissions granted and the number of new homes being built. If developers are holding back land for “commercial, rather than technical” reasons, the government will intervene, Hammond said, using compulsory purchase powers if necessary...
According to analysis by Shelter, the current land bank of the ten largest listed developers could provide 404,040 homes. At the current rate developers build at, this land would take six years to develop... So, it is beyond doubt that developers own land they haven’t built on yet. But are they deliberately holding onto it to push up house prices?
Anthony Codling, a property market analyst at Jefferies Bank, says land-banking is a “myth”. He argues there are many other limiting factors behind the surplus land. Obtaining planning permission is difficult, there is a limited workforce, and there may be inadequate infrastructure at large sites. Utilities companies, for example, can also be accountable for a delay.
Alan Brown, chief executive of housebuilder CALA group says tying up capital in land with no houses on it “simply isn’t in our financial interests”. Instead, the delay is caused by cash-strapped local authority planning departments, he said. Housebuilders need evidence of cash-flow to drive investment; this is also a reason why they need to acquire land in advance.
They whitewash the issue by redefining "land banking" and as per usual blaming it on local councils.
Hammond, himself indirectly a land banker, defines it correctly as "holding back land for commercial reasons". House builders are profit maximising enterprises with a monopolistic position, so of course they keep new supply at whatever the profit maximising volume is - which Neal Hudson worked out was one new home for each nine existing homes bought and sold in the year. The ratio has been constant for decades, and was the same decades ago when there were lots of small home builders instead of today's oligarchy.
This is smoking gun #1. In 2008-09 when home sales plummeted, home builders mothballed a lot of their developments to maintain the one-to-nine ratio. They gave spurious reasons such as lack of finance, which is clearly a lie - if you have lenders snapping at your heels, the best thing to do is to get developments finished and sold and the debts paid off. Conversely, if you have agreed to lend somebody £100,000 to finance a project, you would be mad to lend them half the money to half-finish something and then refuse to hand over the rest. At that stage you've got to keep going.
As output is decided by external factors, if new planning permissions exceed this level of output (as they do), then these companies will accumulate land banks - the land banks are evidence of profit-maximising behavior (Hammond's "commercial reaons") and not a crime in themselves. If there were plenty of affordable housing, then it wouldn't matter whether the large home builders have land banks for one, ten or a hundred years' worth of output.
In a report on land-banking, the Home Builders Federation said: “A house building company will be judged by investors on the land that is available to it. If one considers land to be a housebuilder’s most important raw material, a company seeking investment with little or no viable land in its ownership would be unlikely to attract the investment required to finance construction and generally operate as a well-functioning business.”
This is a straight forward admission that his members are land banking, he just says it's for a different reason.
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