Let's get one thing straight. I'm not talking about the plethora of landbanking shysters selling paddling-pool sized plots of greenbank on the internet. Today, the market's awash with serious institutional-style funds who think they can buy cheap land today, and sell it for double the money tomorrow.
Known as "strategic land" (purchased with the intention of getting planning permission), some of the biggest names in the property industry are entering the fray. Last week, Jamie Ritblat's Delancey did its first residential deal with Essential Land, buying a huge tract of the Thames Gateway.
Welbeck Land, the development arm of London's powerful Howard de Walden Estate, has boosted its strategic land department with the appointment of top property lawyer Bob Kidby as a director. Ex-Chelsfield grandees Nigel Hugill and Robin Butler have founded Urban & Civic, which has already snapped up over 1,000 acres of land. Even Tim Wheeler, the outspoken former CEO of failed industrial Reit Brixton, is threatening to set up a £20m land fund.
So will these new entrants successfully invade the builders' patch? Or could they find that there's not much on the ground to purchase?
"What we're seeing on the market is the wrong type of land," says Stephen Wicks, chief executive of listed brownfield land buyer Inland. "An awful lot of sites are the hangover from the days of multi-storey buy-to-let flats, and they're not selling as that's not what housebuilders want. They want plots for houses – the good old 3-bed semi has made a great comeback."
When these sites come up, bidding wars amongst the housebuilders ensue - though most are still insisting on deferred payment terms. What the housebuilders and the land funds are both holding out for is cheap land. "The problem is, the banks are not dropping land," adds Mr Wicks. "At the end of the 1980s boom, they certainly were. There are hopes they will enter into joint ventures with housebuilders to build out all the land they're sitting on, but they won't be selling it cheap."
Another valuable source of land in the overcrowded south east is under threat from the new government's "anti garden grab" policies. I was staggered to hear that in the south of England, statistically 20 per cent of all production is built on recycled garden land. Long gardens count as brownfield land, and are effectively zoned for residential development. Now, the coalition is saying gardens will be classed as greenbelt land under the new planning rules.
As development land becomes rarer, prices should surely inflate. But sadly for the land bankers, the cost of building houses is rising at a faster rate.
"There is a vast difference in the pricing expectations of buyers and sellers of land," notes Investec housebuilding analysts Alastair Stewart. "You can only get cheap land from distressed sellers. Solvent sellers will just sit on it, as they're on perception altering drugs that make them imagine builders could get an acceptable margin at the prices they're asking."
Taking Mr Stewart's residual valuation model: assume a new home is sold for £100k. Right now, the build costs are £65k, and that includes planning kickbacks to local councils and other regulatory obligations. Housebuilders need to hit a 20 per cent gross margin, or it's not worth the capital tie-up and development risk. So they're left with just £15k to spend on the land.
"The problem is that most land sellers want more than double that sum," he adds. The added burden of carbon-neutralising new housing development will skew the valuation methodology even more. This has not gone down well with Mr Stewart.
"When will the sandal-wearing members of the coalition cabinet realise that a couple of inches of insulation on a house will make no difference to carbon in the atmosphere when new power stations are being built all over China?" he rages. "It would be a far better policy to issue a nice Aran sweater to all new homeowners to wear so they can keep the heating turned off."
