Furore over land banking exaggerated

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Land banking is the latest scapegoat in the ongoing blame game over Auckland’s housing issues, but investor advocates are querying how prevalent the practice really is.

Wednesday, August 31st 2016, 11:00AM 1 Comment

by Miriam Bell

First, foreign buyers were to blame for Auckland’s sky high prices and housing supply shortage. Then it was the fault of domestic investors said to be speculating and on-selling properties wildly.

Now, land banking – where a land owner holds a block of land without developing it while it accrues value - is being highlighted as the reason for Auckland’s housing market woes.

The issue has gained prominence in the wake of the Auckland Council’s adoption of the Unitary Plan, which has a focus on increasing the city’s supply capacity.

It seems, at least partially, driven by the fact that sizeable amounts of land in the Government’s much vaunted Special Housing Areas (SHAs) do not feature any obvious signs of development activity.

It is thought that some developers have opted out of the SHA processes to develop under the Unitary Plan, which doesn’t require 10% of the housing to be affordable, or to simply sit on the land as it accrues further value.

However, property investor experts spoken to by landlords.co.nz are not convinced the practice is as common or widespread as is being claimed.

Auckland Property Investors Association president Andrew Bruce said most investors he knows simply don’t have the money to have big blocks of land sitting round and not producing any returns.

“You would have to be seriously wealthy to afford to do that. Investors tend to be driven by returns in order to maintain and develop their portfolios.”

The pending changes to the Unitary Plan might have led to a bit of speculation on the grounds that land in certain areas might be up-zoned, he said.

“But it would be just a select few who actually have the financial ability and horsepower to sit on large blocks and do nothing with them.”

If land banking happens, it tends to be large-scale developers who sit on land for a bit before redeveloping it, he said.

“This may not even be intentional. It can take a while to get a development under way.”

Positive Real Estate director Campbell Venning agreed. He suspects the idea of large scale land banking is probably more a media assumption than a reality.

“I haven’t seen that much of people or companies sitting on large scale blocks. It would be necessary to have a lot of money to do it because the costs involved in land banking are expensive.”

Most of the developers he knows are keen to get their projects consented and work under way as soon as they can in order to get a decent return on the development, he said.

Accompanying the chorus of complaints about land banking are demands for a land tax, targeted rates or even government intervention to force landowners to develop their land.

NZ Property Investors Federation executive officer Andrew King, who thinks the claims about the scale of land banking are doubtful, said such proposals are not just.

“You have to have property rights. You can’t just force people do what you want with their land. People have the right to do what they want with their land. The alternative is not fair.”

Meanwhile, specialist property accountant Mark Withers said you could argue that anyone land banking would already be taxed.

“If land is acquired for the purposes of capital gain, the landowner will be taxed on any profit they make when the land is sold.”

But, in his view, it would be a brave person who would buy and hold a block of land on the assumption that it would gain in value.

“It is not necessarily economic to land bank and not worry about getting any returns – particularly if you have funded the purchase with debt. There are also opportunity costs and holding costs.”

For this reason, developers usually want to make a profit on an investment in land while investors want to see returns, Wither said.

“Most people would have a practical plan for a block of land they owned, although it may be a long term one.”

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