One of the most frustrating aspects of the housing debate is that even among the people who accept that the fundamental problem is insufficient supply, there are a sub-category who choose not to blame restrictive planning laws but instead lay blame at so-called land bankers.

They point out that the UK’s biggest house-builders are sitting on around 600,000 plots of land with planning permission. As Olly Wainwright at the Guardian points out “that’s four times the total number of homes built last year.”

The idea is that rather than simply build out a new development and sell it on the market, the big house-builders are sitting on land based on the assumption that land prices will rise in the near future. I’m reasonably sceptical that the logic of land speculation works. By forgoing construction in the hope of future land value rises, it suggests that the market is substantially undervaluing the price of land. In fact, they’re undervaluing land to such an extent that it makes sense for house-builders to forgo the substantial income they can get from building on the land and selling it on.

Perhaps this makes sense, if like Daniel Bentley or Liam Halligan, you believe there is a fundamental lack of competition in the housing market. I don’t buy it. It’s true that three house-builders built a quarter of all UK new builds, but three supermarkets (Tesco, Sainsbury’s and Asda) make up more than half of the UK grocery market and few people would argue that supermarket prices are being kept artificially low. In fact, even after the increase in the cost of imports after the EU referendum, UK food prices are still cheaper than in 2013 when a supermarket price war drove costs down.

As my colleague Sam Bowman, points out to me. There are roughly as many major house-builders (about 20) as there are car manufacturers and even fewer smart phone manufacturers, yet I know of no columnist complaining about the ills of car banking or smartphone banking.

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.

In the areas with the greatest demand for new housing, well-thought out planning applications are often rejected. For example Tory Councillor Judy Terry in a depressing piece for ConservativeHome gives countless examples of the planning system rejecting or slowing down good proposals.

“A campaign to protect nightingales scuppered a scheme to provide 5,000 new homes at the former Lodge Hill army camp near Rochester in Kent when Land Securities pulled out after spending £11 million on the plans, which were approved by the local council but referred to a public enquiry.”

And…

“It took three years for a derelict site in Haringey to eventually win approval, on appeal, during which prices had risen by 60 per cent. A similar story in Ipswich delayed a major project for more than ten years.”

Plus, who could forgot the absolutely bonkers time that 2,000 (!) homes were blocked from development near Canary Wharf (!!) in order to save an ASDA petrol station (!!!).

When developers face such dramatic risk is it any wonder that they choose to sit on land with planning permission rather than building out as fast as they can and running the risk that a few bad planning rejections block the pipeline and leave builders, plants and tools sitting idle