What the Hell is a Land Bank?
How the “Get Rich Slow” option seems to be making wealthy people richer, pretty fucking fast.
Australia is big. We love big things. We have the big banana, the big prawn, the big merino, and we have your mother.
We boast about the amount of land we have, and love to tell people about how long it once took us to drive from Sydney to Brisbane. Personally, I add on another hour every time just to mess with tourists.
But despite our collective erection for land girt by sea, we all fight to live in the same 20km surrounding 5 city centers, and whatever sheep paddock the people of Adelaide congregate around.
With almost infinite land, why is it that housing seems to be more-and-more unaffordable? Supposedly, we are taught that greater competition in a marketplace will lead to cheaper products but despite the overabundance of five-foot seven property developers, with slicked-back hair and embarrassingly tight dress shirts to show off their steroid-induced gains, prices only seem to be increasing.
What is the main problem we constantly hear from these paragons of mediocrity and toxic insecurity? Supply. If only we had more supply of housing, all our problems would be solved.
Only problem is, this is horseshit.
Being a property developer is reasonably straightforward. If you want to be profitable, you buy some land, build the ugliest box you could possibly find using every square inch of space that you are legally allowed to use, and then cheat on your spouse.
But I have an even more profitable venture for prospective property developers. One that requires less effort, less notoriety and less morals: Land Banking.
Land Banking is where a company buys up a large swath of land, usually just on the outskirts of a growing city. This land is usually zoned by the government for some other purpose than residential or commercial property.
Maybe the land is zoned for agriculture, and little more than cow paddocks. Now that you own this land… do nothing with it. I mean, you can’t, right? It’s agriculture, you can’t just build a block of flats.
Next, begin lobbying the local government to rezone your land to be residential. Sure, there isn’t any infrastructure or public amenities in the area, and the government didn’t have any plans to build any, but a few dinners with the right officials and I’m sure you can highlight the natural beauty and value of your squalid little pasture. If this fails, you can always offer these officials some high-paying roles in your company, since there are no laws preventing officials from working for the land development companies that their policies just benefitted.
In the meantime, start paying the local newspapers for opinion pieces about the lack of land availability in the area. Talk about the need for more houses, the outrageous prices and the potential for new businesses, if only the city wasn’t so cramped and had more homes.
Really build up that sentiment that housing prices are all a supply issue, and you, with your dirt patch ready to go, are willing to solve this conundrum. Obviously, it’s the governments’ fault for not approving more residential zones.
Rezoning land is insanely profitable, as the land’s value is instantly transformed by the new declaration. A block of land that might have cost $100 million, could easily now be worth $400 or $500 million. This is without a shovel ever touching the ground. So why go to all that effort of buying a shovel?
Next, you portion out a small sliver of your land, and either sell it directly to other developers looking to build or start building houses yourself.
This number of houses will be tiny. No where near the number needed to meet the communities needs. But you will argue that you can’t possibly start building more, as you need more infrastructure and public amenities to facilitate the additional buildings.
The local government, now bearing the brunt of the public’s ire, will begin development of these unprofitable structures on your behalf, increasing the value of your land without any extra input on your part.
In response, you section off another sliver of houses for development, still not getting close to the number of properties needed. Each time the government comes to you, cap in hand for more properties, you can request various subsidies and tax credits in order to build the houses you were always planning to.
Since you know that there is more demand for houses than supply, you can afford to wait. Sure, you might not make $1 million on selling a house today, but why would you bother, if you could sell it for $1.5 million next year? Banks will be willing to lend you all the money you need to keep the company afloat in the meantime. Afterall, your land is now theoretically worth $500 million dollars, right?
You now hold the solution to all the supply needs of the entire city, with enough rezoned-and-ready land to build a house for every single human in the area. But there is no money to be made by solving a problem that is profitable.
Its like slicing giant portions of your game off and selling it as separate downloadable content, even through Protheans were the narrative focal point across the entire damn trilogy, BIOWARE, and selling the only Prothean character off separately destroys the entire plot, God damn you, it’s been 12 years and I am still upset… This may be a rather neiche example, but I am certain at least one reader will agree with me.
The Shire of Tweed has a housing problem. It needs more houses to satiate the demand from retired boomers looking for a Seachange. Why can’t they just rezone some land, and solve this obvious problem?
Turns out, they already did that… two decades ago. There are currently 13,000 plots of land that are owned by two developers. The supply shortage in Tweed is as artificial as the developer’s trophy wives.
We could build enough houses to meet all our needs almost immediately. But our perverted fetish for private sector development has allowed a small number of, what we can all agree are, the very worst dregs of humanity, to hold these potential houses for ransom.
This whole process, outlined above, can take decades. Even if there was zero corruption, and I think we can all assume that’s not the case, we are still guaranteeing that housing prices will never go down, by leaving land unused for decades. Afterall, why would a property developer ever build a house when prices are going down? And why would I ever build more housing than the minimum when prices are up, since I know I could get even more next year?
And worst of all, we blame our government for these issues, assuming they are slow and incompetent, and refusing to rezone enough land to solve our problems. Clearly, we should not let them build government housing, since that will also be slow and incompetent.
I should know, a local newspaper opinion piece told me so.
Further Reading:
moneysmart.gov.au. Land banking - Moneysmart.gov.au. [online] Available at: https://moneysmart.gov.au/investment-warnings/land-banking.
Australian Financial Review. (2023). Does land banking push up housing prices? [online] Available at: https://www.afr.com/property/residential/does-land-banking-push-up-housing-prices-20230525-p5db6s [Accessed 5 Apr. 2024].
Wheeler, C. Bourke, J. (8 Dec 2023). AN AUSTRALIAN FIRST: THE ACT PROPERTY DEVELOPERS BILL 2023 - IT’S HARD TO BELIEVE THIS IS REAL. [online] KWM. Available at: https://www.kwm.com/au/en/insights/latest-thinking/an-australian-first-the-act-property-developers-bill-2023.html.
FCA. (2023). Land banking investment scams. [online] Available at: https://www.fca.org.uk/consumers/land-banking-investment-scams [Accessed 5 Apr. 2024].
Smith, Y. (2015). The Great Land Banking Scam Exposed. [online] naked capitalism. Available at: https://www.nakedcapitalism.com/2015/05/the-great-land-banking-scam-exposed.html [Accessed 5 Apr. 2024].
White, L. Mackenzie, B. Herbert, B. Thousands of residential blocks sit vacant in northern NSW, as housing crisis worsens. (2021). ABC News. [online] 19 May. Available at: https://www.abc.net.au/news/2021-05-19/calls-for-sunset-clause-to-stop-land-banking-byron-ay/100148274 [Accessed 5 Apr. 2024].