Red Brick

By Dave Treanor*

The business model on which housing construction is funded is broken. It is slow to respond to rising house prices by increasing the supply of new housing, and stalls at the first sign of a downturn in the housing market. At the heart of the problem lies a failure in the market for potential building sites.

Construction companies have responded to the unpredictable nature of our planning regime by acquiring land banks so as to ensure a steady supply of sites to develop.  Land banking enables them to increase their market share in housing construction and limits the supply of new housing from competitors that might undermine the prices they can obtain.  As a result, the availability of building sites barely responds at all to rising house prices.

Developers profit far more from speculative gains in land values than the construction of housing. The reason is…

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