Land and Real Estate markets
Lecture 1 - Introduction to the course (06/09/23)
Four main topics
Property rights and urban planning
Planning interventions: regulatory planning versus market-based approaches
Dynamics of land and real estate markets
Land management strategies and value capturing
NL house building crisis: why don’t they build faster?
The demand is like 1.000 houses each year and they don’t reach this. But it is not that there
are 1.000 homeless people, students and ‘starters’ are searching for a house. If there is a
huge demand why don't they build faster?
The aspects of the house building crisis are:
Delays in house building production
Public and private financial deficits in development projects
Do they build the right types of houses?
Questions raised by Dutch Competition Authority:
How competitive is the house building market?
How to measure market concentration?
What causes concentration; and what are the effects?
There are many reasons why the house building crisis is happening. Some reason is the
‘inspraak’ from the ‘belanghebbende’ around the place. Because of this, the planning can be
delayed. Another reason is that landowners are waiting to sell their land to get more money
from the developers or municipality. The building costs are also a reason why there is a
house building crisis. The costs are higher and the laws are stricter to build a home. It is
often easier to build higher buildings to reduce these costs. Also, there needs to be some
transparency from the developers.
“The land in itself has no value but the value is what you can do with this land.”
Key concepts
Market share: Company’s share in total market size (gross added value, turnover, number
of homes).
Market concentration: Distribution of market shares by companies.
(Abuse of) market power: A company’s ability to act independently both from competitors
and consumers.
Product market: Contains all products and/or
services that are considered by consumers as
interchangeable, based on their features, prices and
for which they are used.
Geographical market: Area in which companies in
certain sectors play a role in the demand for and
supply of products or services, in which competitive
conditions are sufficiently homogeneous, and that
can be clearly distinguished from other areas (with
different competitive conditions).
What causes market concentration?
Autonomous growth and mergers
Investment capacity larger companies
, Geographical context
Restrictions to supply
Complexity, uncertainties and risks
Typical for land and real estate development: connections between markets
How developers may (ab)use market powers?
Delays in production of new homes: the stalled
sites
Stalled sites are places where the developer
can build but don’t do it. These are places that
the developers owned.
Quality and type of houses built
Kaplan-Meijer survival function for time between building Permit and
Price completion
To assess harm done by market concentration to
consumers, ‘the market’ must be defined
‘Common’ standpoint:
Housing market typical stock market
Prices new houses follow prices second-hand houses
Counter argument
Share of new houses in total number of transactions substantially higher
New houses differ in price, location and quality
Some people prefer a new home and others prefer a second home. The question in
houses is different.
Additional arguments to define market for new houses as set apart from market for second-
hand houses
Limited demand substitutability
Majority of households does not consider new and second-hand homes as proper
substitute
Relocation distance: households buying second-hand home move over larger
distance than those buying new home
Limited supply substitutability
Usually housebuilders not active on second-hand market
And vice versa: suppliers second-hand houses no access to market for new homes
investment decision homebuilders primarily depends on; land bank, planning
restrictions, finance; and not so much on prices second-hand market.
Geographical market: sub-regional level
How consumers consider their living
environment.
60% inland migration within city
boundaries
Locational monopolies reduce demand and
supply substitutability.
,How we define market for new homes (and why)
Delineation Explanation/motivation
Product Market for new Large share of households prefer either new or
market homes set apart second-hand home
from market Price difference new/second-hand homes
second-hand Investment decision homebuilders depends on their
homes (but still land bank, planning restrictions, finance; and not so
connected) much on price second-hand market.
Geographica Subregional level: 60% of inland migration within municipality
l market ‘municipality’ as Immobility and uniqueness of new homes: cannot be
geographical fully reproduced elsewhere
delineation Takes into account indirect effects for consumers of
imbalance in power between municipality and
developer
Measure for market concentration: Herfindahl-Hirschman Index (HHI)
Calculation of HHI
Assume market shares:
Company 1: 40%
Company 2: 30%
Company 3: 15%
Company 4: 15%
HHI: 0.40² + 0.30² + 0.15² + 0.15² = 0.295 (29.5)
Data collection (National land registry > Kadaster)
Housebuilders; number of new homes sold
232,091 transactions of new homes (2015 - 2021), sold to private persons
(households)
Linked to 7,122 different legal entities (housebuilders)
Includes joint-venture companies
Real number of housebuilders selling new homes expected to be lower.
Unbuilt land, owned by housebuilders
6,035 lots, owned by ‘housebuilders’ (1-1-2022)
Consisting of both land already zoned for residential use and land still with other use,
but ‘expected’ to be rezoned
Relatively high and robust levels of concentration across the Netherlands (2015-2016; 2017-
2018; 2019-2021)
Particularly in medium-sized cities
, Top 10 municipalities with highest levels of market concentration (2015-2021)
Top 10 developers (based on number of transactions, 2015-2021)
• Cumulative market share: 19%
• Actual market share might be bigger
- Due to not-registred participation in joint ventures
- Limited public information available about number, type and location of houses
they sell
Market shares largest homebuilders Netherlands, Australia, United Kingdom, United States
What causes high levels of market concentration?
Planning culture Restrictive planning policies
Regional (and national) government prefer early selection
of development locations
Land use plans pre-sorted large-scale and integrated forms
of development
Municipal land policy Municiplaities still hold large land banks; they often prefer
public tenders of large locations at once
Or even skip public tender and instead privately transfer
land to preferred private developer
Developers’ land Big developers can manage financial risks of land banks,
banking strategies despite planning risks, particularly in greenfield locations
Provides them with strong ‘right to develop’ (depending on
rezoning decision)
*Based on interviews with local authorities in ‘extreme HHI-level’ cases
Lecture 1 - Introduction to the course (06/09/23)
Four main topics
Property rights and urban planning
Planning interventions: regulatory planning versus market-based approaches
Dynamics of land and real estate markets
Land management strategies and value capturing
NL house building crisis: why don’t they build faster?
The demand is like 1.000 houses each year and they don’t reach this. But it is not that there
are 1.000 homeless people, students and ‘starters’ are searching for a house. If there is a
huge demand why don't they build faster?
The aspects of the house building crisis are:
Delays in house building production
Public and private financial deficits in development projects
Do they build the right types of houses?
Questions raised by Dutch Competition Authority:
How competitive is the house building market?
How to measure market concentration?
What causes concentration; and what are the effects?
There are many reasons why the house building crisis is happening. Some reason is the
‘inspraak’ from the ‘belanghebbende’ around the place. Because of this, the planning can be
delayed. Another reason is that landowners are waiting to sell their land to get more money
from the developers or municipality. The building costs are also a reason why there is a
house building crisis. The costs are higher and the laws are stricter to build a home. It is
often easier to build higher buildings to reduce these costs. Also, there needs to be some
transparency from the developers.
“The land in itself has no value but the value is what you can do with this land.”
Key concepts
Market share: Company’s share in total market size (gross added value, turnover, number
of homes).
Market concentration: Distribution of market shares by companies.
(Abuse of) market power: A company’s ability to act independently both from competitors
and consumers.
Product market: Contains all products and/or
services that are considered by consumers as
interchangeable, based on their features, prices and
for which they are used.
Geographical market: Area in which companies in
certain sectors play a role in the demand for and
supply of products or services, in which competitive
conditions are sufficiently homogeneous, and that
can be clearly distinguished from other areas (with
different competitive conditions).
What causes market concentration?
Autonomous growth and mergers
Investment capacity larger companies
, Geographical context
Restrictions to supply
Complexity, uncertainties and risks
Typical for land and real estate development: connections between markets
How developers may (ab)use market powers?
Delays in production of new homes: the stalled
sites
Stalled sites are places where the developer
can build but don’t do it. These are places that
the developers owned.
Quality and type of houses built
Kaplan-Meijer survival function for time between building Permit and
Price completion
To assess harm done by market concentration to
consumers, ‘the market’ must be defined
‘Common’ standpoint:
Housing market typical stock market
Prices new houses follow prices second-hand houses
Counter argument
Share of new houses in total number of transactions substantially higher
New houses differ in price, location and quality
Some people prefer a new home and others prefer a second home. The question in
houses is different.
Additional arguments to define market for new houses as set apart from market for second-
hand houses
Limited demand substitutability
Majority of households does not consider new and second-hand homes as proper
substitute
Relocation distance: households buying second-hand home move over larger
distance than those buying new home
Limited supply substitutability
Usually housebuilders not active on second-hand market
And vice versa: suppliers second-hand houses no access to market for new homes
investment decision homebuilders primarily depends on; land bank, planning
restrictions, finance; and not so much on prices second-hand market.
Geographical market: sub-regional level
How consumers consider their living
environment.
60% inland migration within city
boundaries
Locational monopolies reduce demand and
supply substitutability.
,How we define market for new homes (and why)
Delineation Explanation/motivation
Product Market for new Large share of households prefer either new or
market homes set apart second-hand home
from market Price difference new/second-hand homes
second-hand Investment decision homebuilders depends on their
homes (but still land bank, planning restrictions, finance; and not so
connected) much on price second-hand market.
Geographica Subregional level: 60% of inland migration within municipality
l market ‘municipality’ as Immobility and uniqueness of new homes: cannot be
geographical fully reproduced elsewhere
delineation Takes into account indirect effects for consumers of
imbalance in power between municipality and
developer
Measure for market concentration: Herfindahl-Hirschman Index (HHI)
Calculation of HHI
Assume market shares:
Company 1: 40%
Company 2: 30%
Company 3: 15%
Company 4: 15%
HHI: 0.40² + 0.30² + 0.15² + 0.15² = 0.295 (29.5)
Data collection (National land registry > Kadaster)
Housebuilders; number of new homes sold
232,091 transactions of new homes (2015 - 2021), sold to private persons
(households)
Linked to 7,122 different legal entities (housebuilders)
Includes joint-venture companies
Real number of housebuilders selling new homes expected to be lower.
Unbuilt land, owned by housebuilders
6,035 lots, owned by ‘housebuilders’ (1-1-2022)
Consisting of both land already zoned for residential use and land still with other use,
but ‘expected’ to be rezoned
Relatively high and robust levels of concentration across the Netherlands (2015-2016; 2017-
2018; 2019-2021)
Particularly in medium-sized cities
, Top 10 municipalities with highest levels of market concentration (2015-2021)
Top 10 developers (based on number of transactions, 2015-2021)
• Cumulative market share: 19%
• Actual market share might be bigger
- Due to not-registred participation in joint ventures
- Limited public information available about number, type and location of houses
they sell
Market shares largest homebuilders Netherlands, Australia, United Kingdom, United States
What causes high levels of market concentration?
Planning culture Restrictive planning policies
Regional (and national) government prefer early selection
of development locations
Land use plans pre-sorted large-scale and integrated forms
of development
Municipal land policy Municiplaities still hold large land banks; they often prefer
public tenders of large locations at once
Or even skip public tender and instead privately transfer
land to preferred private developer
Developers’ land Big developers can manage financial risks of land banks,
banking strategies despite planning risks, particularly in greenfield locations
Provides them with strong ‘right to develop’ (depending on
rezoning decision)
*Based on interviews with local authorities in ‘extreme HHI-level’ cases
