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What is Land Banking?

By O. Wallace
Updated May 16, 2024
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In most countries, land is a hot commodity due to sprawling cities and commercial development. Open land is often consumed at a dizzying rate by cities and developers hungry for space to build more housing, retail and office space. In anticipation of future development, investors and city, county or state governments may purchase and hold land that is vacant, rural or underutilized at a relative bargain before its value skyrockets once it eventually falls in the path of development. This practice is called land banking.

When land banking is used by a city or county government, or even a not-for-profit agency, it is typically to retain some control over the future development of a particular area. Some cities have been particularly aggressive in keeping suburban sprawl at bay, and use land banking to preserve green space, or to halt growth altogether. Land banking may also be used for cities and counties to exert control over how the land is developed, by controlling if it is zoned for commercial or residential use. They may also stipulate to future developers that some or all of the land be used for low-income housing.

Land banking, when used by cities and governments, may also be a benefit to future buyers by holding skyrocketing land prices at bay. It also gives these agencies the ability to build new schools, parks and other city projects on land that may become too expensive for a tight city budget, but are necessary for expanding cities.

Land banking is a practice also utilized by private investors who take a risk on what is usually cheap, undesirable property in the hopes when the growth comes to them, they’ll make a significant profit. Donald Trump, Howard Hughes and Bob Hope are all famous land bankers, buying up large swaths of land in what are now highly lucrative areas such as Manhattan, NY, Las Vegas and Southern California.

For many private individuals, no matter how cheap the land, they may not have the capital necessary to participate in land banking. Many land banking scams have sprung up, especially in the United Kingdom, to appeal to these investors. These involve land banking companies that buy up large areas of land, and divide them up into smaller, affordable plots. Unfortunately, the investor may be purchasing land that may never be developed due to zoning restrictions or other limitations.

If you are investigating land banking, research zoning laws, and visit your city or county planning department to see if there are any future plans for the area. Although Mark Twain gave the sage advice to “buy land, [because] they’re not making it anymore,” land banking is not guaranteed to be a lucrative investment.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Discussion Comments
By anon177371 — On May 18, 2011

The land banking sellers make money when selling the land shares to individuals, but can not make more money when helping individuals to sell the whole land. So they may try to keep the money for their own use for a long time before doing anything for the land share holders.

By anon39023 — On Jul 29, 2009

Very good article. Can you please update us on the land development banking business in Edmunton, Canada.

By anon10752 — On Apr 02, 2008

Can you please let me know whether there is a Income tax for non resident of UK who made profit from land banking sales.

By anon6309 — On Dec 24, 2007

My question is: I have been solicited by a land banking organization in Puerto Vallarta Mexico now selling shares on land that is to go public the year of 2008..these shares are selling for 60 cents a share now..True the growth of this area is phenomenal and it is definitely a possibility that the next developed area is where the land lies..However what do i need to know to protect myself in this manner?

By anon3986 — On Sep 27, 2007

That was a very good short article for people like me who are new to the topic. My question is how does land banking functions in countries where land is owned by government and the government is the only supplier of land?

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