Land tax would encourage developers to turn over land quicker but with unintended consequences: Angie Zigomanis

Without knowing exactly the type of land Prosper is referring to, I would say that the total land banks of the major developers (248,607 lots) does not reflect land that can be turned into vacant lots tomorrow.

Many are likely to be awaiting rezoning, planning approval, trunk infrastructure and services, etc, that have to be in place first before they can subdivide. As a result, the amount that can be brought to the market at any one time is likely to be much lower.

However, having said that, there is probably an argument, particularly in some corridors that a lack of competition and control of land releases is keeping prices up.

A land tax for zoned land may also encourage developers to turn over their land quicker if they are holding zoned land. If more land is forced onto the market in a corridor, then it could also result in price competition.

However, there could also be some unintended consequences.

For example, developers could delay seeking to rezone former cow paddocks to residential as late as possible to minimise the extra land tax. However, any additional delays in the planning process could mean that the land may not be zoned and ready when the market catches up, placing supply pressures in the local region and driving up prices anyway.

Additionally, if developers start building to a price and for speed rather than quality, then there may be lesser investment in product, environmental features, community infrastructure, etc.

The Prosper article includes a link to an article from The Age with a reference from the chief operating Officer of Delfin. He talks about the days when the number of competitors were too numerous to count, but the estates back in those days did not have the level of community investment of the larger estates you see nowadays.

Also, you would need to keep on top of other factors to prevent prices rising too far. At the end of the day, prices are governed by demand and supply, and the rate of supply needs to be able to meet the surges in demand.

This was part of the problem occuring during the boom in Perth in the middle of last decade. Initially, the rate of subdivision was able to keep up without large pressures on prices. However, as demand continued to increase and skills shortages emerged in planning, construction, etc, substantial delays began occurring that drove up prices despite the large level of zoned land that was available.

This also happened to some extent in late 2010 in Melbourne.

Therefore, at the administrative and construction end, you would need to guarantee a smooth process to ensure that land can be zoned and taken through the whole process quickly enough to meet the surges in demand.

There is also the issue of state and local government levies and infrastructure charges. These are charged to the developers who in turn pass them onto the purchasers and have also contributed to the increase in price of land over the past decade.

So the short answer is the concept of taxing zoned land to speed up development is likely to increase price competition and encourage further development of land.

On their argument, this would best work in areas where there are plenty of land holders to create competition, although it doesn't solve the problem where there is not enough competition in the corridor which would allow developers to just factor the land tax into their prices - i.e. a developer would balance their rate of sale to the market with the price they can achieve and the additional cost of the land tax in such a way as to maximise profits.

Even where there is competition, you would also need to ensure that the process of the delivery of the subdivided land is as smooth as possible so that the rate of development can be scaled up quickly enough to meet demand in an upturn without placing pressures on prices. In addition, in circumstances where developers are competing on price, it could impact on the type and quality of the product being offered.

Angie Zigomanis is senior manager of BIS Shrapnel.