Dear Consultant: What is land banking, and how is it impacting the housing industry?
by: Don Walker , Will Frank
Land is the foundation of the new home industry—literally and financially. With demand for land outpacing supply and traditional financing under pressure, land banking has become a vital mechanism for keeping housing production moving.
Land banking is a financial arrangement in which investors buy land on behalf of homebuilders or developers and earn a fee to hold the land until the client is ready to use the asset.
This strategic partnership between homebuilders and capital providers shapes how lots are acquired, developed, and delivered.
John Burns Research and Consulting has advised clients in this space since 2008. As land prices increased and banks pulled back from development lending, more public and private builders turned to land banking to maintain momentum or execute their growth objectives.
Key Takeaways:
Capital efficiency and risk reduction are the drivers
Builders leverage land banking to preserve capital, reduce balance sheet risk, and focus on their core business: building homes. Public and private builders benefit from higher return on capital, off-balance-sheet financing, and reduced exposure to rising development costs and land prices.
Land bankers take on the risk—for a return
Land bankers typically step in post-entitlement, financing land through development. Builders pay a fee (typically 10%–20%) to secure options on finished lots, while land bankers underwrite the builder and the project. Returns are earned through fees and margins, generally targeting higher returns than a traditional bank but lower than joint venture equity. Land bankers’ key risks include market changes, builder default, and schedule delays. Having thorough risk analysis to help assess the market and each project is key to success for all parties involved.
Structured for scale and strategy
Every project is unique, but most land banking projects follow the same life cycle / deal structure:
Builders source land.
Builders and land bankers agree on the total development budget, lot prices, and takedown schedules.
Land bankers fund the acquisition and project costs.
The builder controls the supply of future lots with minimal upfront investment.
The builder purchases lots from the land banker according to the agreed schedule.
The land banker earns a return for owning the land and risk.
Explosive growth and more to come
With over an estimated $87 billion in finished lot value annually, land banking could realistically capture a larger portion of that market share—translating to tens of billions in annual deployment. As more players enter the space, competition intensifies, potentially compressing margins for land bankers while increasing builders’ access and flexibility.
Land banking is no longer niche—it’s institutional. As we enter a new era of housing finance, it’s reshaping how builders strategically scale and grow. Our JBREC consulting team assesses risk nationwide. If you are a builder or land banker who would like to talk more, please contact us.
Great rundown. Is it fair to consider "land banking" pre-sold lots to builders? If so, how would you classify buying raw land without having sale contracts/deposits in hand but still for the purpose of eventually developing lots and selling to builders?
Happily retired on Clearwater Beach, Florida and spending time on the beach, spreading joy and smiles every day in every way! What we give is what we get!
5moExcellent article!