Land underuse and speculative vacancy persist in high-demand cities

The Claim

Even in the cities where housing demand is most acute, a persistent stock of dwellings sits empty for years and valuable land is used well below its potential. The three strongest citations: Segú (2020, Journal of Public Economics) — French fiscal microdata show long-term vacancy substantial enough that a 1999 vacancy tax cut it measurably ("a 13% decrease in vacancy rates... specially concentrated in long-term vacancy"), with roughly 40,000 dwellings returned to use; Gyourko & Krimmel (2021, NBER/JUE) — in high-demand US metros, land is held below its market-implied intensity of use at gaps of "about $400,000" per quarter-acre in San Francisco and $150,000–200,000 in Los Angeles, New York and Seattle; and Prosper Australia (2024) — Melbourne water-meter data: "In 2023, 27,408 dwellings (1.5% of all homes) were left totally empty over the year," with 5.2% empty or barely used.

Honest limits: how much of this is speculative withholding rather than friction, second homes, or zoning-forced underuse is genuinely contested — the phenomenon is well documented; its size and cause are not settled.

The Mechanism

Holding valuable land or housing idle is often rational for the owner. An undeveloped or empty property is a real option on future appreciation: under price uncertainty, waiting can be worth more than renting or building now, and conventional property taxes barely penalize waiting (Cunningham 2006 confirms the option mechanism in Seattle parcel data). The speculative vacancy concept page develops the theory; land banking is the same calculus applied to development land, where — as Prosper's report argues — "developers strategically delay financially feasible developments" to maximise staged-release profits. The Georgist relevance is direct: a land value tax converts the waiting option into an annual carrying cost (see LVT dampens land speculation).

The Evidence

Ordered by evidential weight:

1. Quasi-experimental tax evidence (Segú 2020). France's TLV produced a 0.8-percentage-point (13%) fall in vacancy in taxed cities, concentrated in long-term vacancy, with most freed dwellings becoming primary residences. This is the cleanest proof that a meaningful share of urban vacancy is neither frictional nor immovable: it responds to holding costs.
2. Vacant-lot price evidence (Gyourko & Krimmel 2021). The gap between what a lot sells for and what its land contributes at the intensive margin — the "zoning tax" — reaches six figures per quarter-acre precisely in the highest-demand coastal metros, showing systematic underuse of the most valuable urban land (attributed by the authors to regulation; see Counter-Evidence).
3. Consumption-based vacancy counts (Prosper Australia 2024, advocacy research with transparent method). Melbourne 2023: 27,408 dwellings (1.5%) used zero water all year; 97,861 (5.2%) empty or barely used — "equal to one in 20 homes across the city," and "more than two and a half years of new construction." The series has tracked the pattern since the early 2010s; Real Estate 4 Ransom popularized earlier editions.
4. Historical and aggregate corroboration. Hoyt's century of Chicago land values documents recurring speculative withholding; Hsieh & Moretti and Glaeser & Gyourko quantify the aggregate cost of high-demand cities operating below potential, whatever the mix of causes.

Counter-Evidence

• Causal attribution: regulation, not speculation. The strongest mainstream reading of urban underuse is that legal density limits, not owner speculation, are the binding constraint — Gyourko & Krimmel attribute their entire land-price wedge to land-use regulation, and Glaeser & Gyourko (2018) diagnose high-demand-city housing costs as a zoning problem with non-fiscal remedies. On this view, taxing idle land without rezoning changes little, because building more is illegal regardless of holding costs. (The mechanisms are compatible — owners can land-bank within a zoning envelope — but the evidence does not apportion the blame.)
• Measurement disputes. Consumption-proxy vacancy counts are contested: Prosper's own ABS electricity benchmark finds 1.4% zero-use against 1.9% in the water sample for the comparable year, and listing-based rental vacancy rates in the same cities run far lower because they measure a different thing. Zero utility use also captures renovation, probate, and sale transitions — not only speculation. The honest range, not the advocacy headline, should be quoted.
• Modest policy elasticities. The best-identified vacancy-tax effect (Segú) is real but modest — 0.8 percentage points — and a one-off stock release: Melbourne's entire vacant stock equals roughly 2.5 years of construction, so even full mobilization would not substitute for sustained new supply. Critics reasonably argue empty homes are a symptom and a margin, not the core of the housing shortage.

Strength of Evidence

Moderate. That long-term vacancy and land underuse exist at policy-relevant scale in high-demand cities is established across three independent methods (fiscal microdata, land transactions, utility consumption) on three continents, and the holding-cost mechanism has causal support. The claim is graded Moderate rather than Strong because magnitudes swing several-fold with measurement choices, and because the share attributable to speculative withholding — as opposed to regulation-forced underuse and ordinary friction — remains unresolved. Advocates can safely say "one in twenty Melbourne homes sat empty or barely used in 2023, and vacancy falls when you tax it"; they should not say "speculators are the cause of the housing crisis."

See Also

• Speculative Vacancy · Land Speculation · Land Monopoly
• LVT dampens land speculation — the prescription-side companion page
• Cunningham (2006), Seattle real options — the waiting mechanism
• Prosper Australia · Narrative: The Housing Crisis Is a Land Crisis
• High land rents suppress productivity

Sources

1. Mariona Segú (2020), "The impact of taxing vacancy on housing markets: Evidence from France," Journal of Public Economics 185, 104079. DOI · wiki summary — used for the quasi-experimental evidence that long-term vacancy is real and tax-responsive (B-claims).
2. Joseph Gyourko & Jacob Krimmel (2021), "The impact of local residential land use restrictions on land values...," NBER WP 28993 / JUE 126, 103374. NBER · wiki summary — used for the underuse magnitudes and the regulation counter-frame (B-claims).
3. Prosper Australia (2024), Speculative Vacancies 11: Empty Homes in Melbourne 2019–2023. PDF · wiki summary — used for the Melbourne vacancy counts and land-banking argument (B-claims from advocacy research; method transparent, benchmarked against ABS data).
4. Christopher R. Cunningham (2006), "House Price Uncertainty, Timing of Development, and Vacant Land Prices," JUE 59(1). DOI · wiki summary — used for the option-value mechanism (B-claim).
5. Edward Glaeser & Joseph Gyourko (2018), "The Economic Implications of Housing Supply," JEP 32(1). wiki summary — used for the zoning counter-frame (B-claims).