"So why do developers sit on land with planning permission? A tragically under-read blog by the ‘Unconventional Economist’ has the best explanation I’ve seen. He argues that planning risk is to blame. The land market simply doesn’t function like a traditional “just-in-time” production line where inputs are acquired just as soon as they are to be used.
He points out:
“The answers lie in the fact that the market for land is imperfect and land is not freely available to be purchased ‘off-the-shelf’. That is, a developer nearing the end of one housing development cannot simply phone a land wholesaler and purchase a new parcel of land to develop. Rather, they must: 1) first search and acquire information on what land is available; 2) negotiate with potential sellers; and 3) in the case of markets with strict land-use regulations, they must navigate the planning system, including seeking planning approval.
“If a developer fails to acquire the land and seek planning permission in sufficient time to maintain continuity of production, they risk having their resources sitting idle (e.g. employees, plant and equipment) and may ultimately go out of business.”
Restrictive planning systems mean developers could find future projects scuppered at short notice and create an incentive for firms to store up land with planning permission to keep the conveyor belt moving."
He points out:
“The answers lie in the fact that the market for land is imperfect and land is not freely available to be purchased ‘off-the-shelf’. That is, a developer nearing the end of one housing development cannot simply phone a land wholesaler and purchase a new parcel of land to develop. Rather, they must: 1) first search and acquire information on what land is available; 2) negotiate with potential sellers; and 3) in the case of markets with strict land-use regulations, they must navigate the planning system, including seeking planning approval.
“If a developer fails to acquire the land and seek planning permission in sufficient time to maintain continuity of production, they risk having their resources sitting idle (e.g. employees, plant and equipment) and may ultimately go out of business.”
Restrictive planning systems mean developers could find future projects scuppered at short notice and create an incentive for firms to store up land with planning permission to keep the conveyor belt moving."