I like you have called it out. I see a lot of skirting around the edges through denial of, or anger toward land banking. A question - How does adding in more competition (i.e. new developers) have a material impact on house prices? Or despite any number of developers (or competitors), we will still be stuck in a two-lane race? Is there a number of competitors that change this (i.e. increase the number of supermarkets to feed the hungry teenagers, or will all supermarkets continue to offer their minimum returns and we are just skirting around the edges?).
Separately, you may have seen the new Sydney region plan talks to sequencing and staging. Based on your article here - I am a little pessimistic for how effective a sequence or staging will be. How would you overlay the market dynamics of staging and being able to fund infrastructure in a timely manner.
Population growth can come from only a few sources:
1. The birth rate - which mainly impacts the need for more bedrooms, but essentially young people entering the housing market when they leave school, or can afford to move out, or have to relocate to take a job.
2. Immigration - net immigration really, though some students and temporary workers are not in the normal housing market but may live in dorms or crowded conditions.
3. Migration within a country - rural to urban, or from poor to richer areas.
There is short term and long term land banking. A developer who has staff and contractors should be creating an assembly line in effect with multiple projects on the go, much as a craftsman will have enough inventory of supplies to not run out. BUT longer term land banking is when the returns from holding land to be developed are higher than other returns.
What turbo-charges land banking are limits on land nearby. These can be legal barriers like green belts, they can be water - particularly on islands or peninsulas, or it may be land that is not possible to build on easily - mountains, parks or environmentally protected areas. Another one might be servicing - roads and highways, but also planned water and sewer mains and areas that will not get these soon have to be held longer.
What is missing in this analysis? Simple. RISK AND RETURN. The more construction a developer has at any given time, the more capital or debt it consumes, but also the risk. Real estate is cyclical, and of course, more supply does also depress prices. But similar to the highway lanes analogy, capital can be deployed in construction to generate cash and profits, or it can be invested in property where it may require cash flow if rents don't cover the opportunity costs.
Not to mention that the supply curves for skilled trade labor goes nearly vertical pretty quickly as construction activity increases. Developers know it. If they were not attentive to this, we would see the landscape littered with half-built projects on which developers ended up underwater due to underestimated construction cost.
Perhaps you could reframe this observation by saying that feasible change-of-use cant truly be analyzed at the individual property level, because feasibility depends on input costs that in turn respond to feasibility and profit potential of other properties in the same market for inputs.
Housing debates suffer from YIMBY's lack of exposure to finance concepts. You dont believe in land banking? Do you also not believe that there exist in-the-money American-style call options that remain outstanding long after the price of the underlying is above the strike price? Because I can show you plenty of those.
I like you have called it out. I see a lot of skirting around the edges through denial of, or anger toward land banking. A question - How does adding in more competition (i.e. new developers) have a material impact on house prices? Or despite any number of developers (or competitors), we will still be stuck in a two-lane race? Is there a number of competitors that change this (i.e. increase the number of supermarkets to feed the hungry teenagers, or will all supermarkets continue to offer their minimum returns and we are just skirting around the edges?).
Separately, you may have seen the new Sydney region plan talks to sequencing and staging. Based on your article here - I am a little pessimistic for how effective a sequence or staging will be. How would you overlay the market dynamics of staging and being able to fund infrastructure in a timely manner.
ALL of this assumes high population growth.
Population growth can come from only a few sources:
1. The birth rate - which mainly impacts the need for more bedrooms, but essentially young people entering the housing market when they leave school, or can afford to move out, or have to relocate to take a job.
2. Immigration - net immigration really, though some students and temporary workers are not in the normal housing market but may live in dorms or crowded conditions.
3. Migration within a country - rural to urban, or from poor to richer areas.
There is short term and long term land banking. A developer who has staff and contractors should be creating an assembly line in effect with multiple projects on the go, much as a craftsman will have enough inventory of supplies to not run out. BUT longer term land banking is when the returns from holding land to be developed are higher than other returns.
What turbo-charges land banking are limits on land nearby. These can be legal barriers like green belts, they can be water - particularly on islands or peninsulas, or it may be land that is not possible to build on easily - mountains, parks or environmentally protected areas. Another one might be servicing - roads and highways, but also planned water and sewer mains and areas that will not get these soon have to be held longer.
What is missing in this analysis? Simple. RISK AND RETURN. The more construction a developer has at any given time, the more capital or debt it consumes, but also the risk. Real estate is cyclical, and of course, more supply does also depress prices. But similar to the highway lanes analogy, capital can be deployed in construction to generate cash and profits, or it can be invested in property where it may require cash flow if rents don't cover the opportunity costs.
Not to mention that the supply curves for skilled trade labor goes nearly vertical pretty quickly as construction activity increases. Developers know it. If they were not attentive to this, we would see the landscape littered with half-built projects on which developers ended up underwater due to underestimated construction cost.
Perhaps you could reframe this observation by saying that feasible change-of-use cant truly be analyzed at the individual property level, because feasibility depends on input costs that in turn respond to feasibility and profit potential of other properties in the same market for inputs.
Housing debates suffer from YIMBY's lack of exposure to finance concepts. You dont believe in land banking? Do you also not believe that there exist in-the-money American-style call options that remain outstanding long after the price of the underlying is above the strike price? Because I can show you plenty of those.