Land hoarding – really?

Various news sources mentioned yesterday that one of Britains political parties believes that the way to boost the housing market is by more regulation. According to these sources building companies ‘sit on the land’ waiting for it to accumulate in value instead of building on these land and selling them on. And the proposed solution? Just allow local governments to penalise ‘land hoarders’ for not using the land they own.

Mere intuition would tell me that there is something fundamentally wrong with this argument.

Developers may sit on the land because they expect that the future price of reselling the land or the redeveloped land may be much higher (i.e. higher than the opportunity cost of sitting on the land and the opportunity cost of not redeveloping already). But surely they can only do this because developable land is scarce. Shouldn’t the right solution would then be to liberalise land redevelopment and get rid of the administrative duties associated with it. This would mean that the price of developable land would go down and thus land hoarding would be a much more dubious thing to do. It would of course also mean a new supply of cheaper houses for those that cannot buy at the elevated price.

What will happen if developers are forced to build? Housing supply will increase but will the reservation price of buildes drop? If it was low enough they would have built and sold already in the current market conditions. Forcing them to build will mean that there will be many overpriced properties. Of course they might be expected to sell on but if that was a rational thing to do they would have done it already.

The bottom line is, if the supply side is too slaggish then the solution is not to introduce further regulation but the opposite, to get rid of all of it.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: