From Policy to Practice: How Public Land Policies Shape Private-Sector Housing Development—An Indonesian Case

Abstract

The interplay between land availability and the housing market highlights the importance of government intervention through land policies. Effective land policies ensure in-time land availability and facilitate private sector involvement in housing development. This study examines how public land policies influence formal housing development by the private sector, with a particular focus on land banking strategies—mechanisms involving the acquisition and holding of land for future use to ensure availability and capture value increases. While land banking policy aims to serve public benefits, private-sector land banking often prioritizes profit, creating governance challenges that shape housing development outcomes. This paper analyzes this phenomenon in the context of Indonesia by developing analytical framework of legitimacy, effectiveness, efficiency, and fairness. As a rapidly growing country with significant housing backlogs and a private-sector-dominated market, Indonesia’s land regulations present a critical case for examining these dynamics. Our analysis shows that while regulatory framework regulations emphasize land consolidation, acquisition, and development as instruments to facilitate private sector involvement in housing development, weak enforcement and regulatory ambiguities often undermine their effectiveness. The findings indicate that private-sector land banking is largely speculative, driven by profit-maximization strategies rather than housing provision, and is reinforced by inconsistent policy enforcement at the municipal level. A municipal case study further illustrates how governance challenges and discretionary compliance allow private developers to prioritize profitability over the affordable housing needs outlined in public policies. While land policies in Indonesia are framed as comprehensive planning tools, their implementation often favors specific beneficiaries, limiting their broader social impact.

1. Introduction

Land availability is critical to the sustainability of housing provision, as it directly affects housing supply, affordability, and accessibility. Traditionally, governments play a central role in ensuring land availability through land policies that regulate land use and support housing supply [1]. The link between public land policies and the housing market is, therefore, essential, mainly because market mechanisms alone often fail to ensure equitable access to housing [2,3]. This interplay between land availability, land policies, and housing markets is particularly critical in urban development contexts, where the dominance of the private sector in housing development raises concerns about the alignment between profit-driven objectives and broader societal needs for affordable housing.

Despite the essential role of land policies to ensure land availability in housing markets, significant challenges persist. Public land banking, a policy tool designed to regulate land supply by allowing governments to acquire, manage, and release land strategically for housing development, ensure in-time land availability, and capture value increases for the public benefit [4], often fails to align with private-sector interests. In practice, many private developers also frequently employ land banking by acquiring and holding land before development [5,6]. The extent to which these land banking practices by the private sector impact housing provision and affordability remains a subject for further investigation [1,7,8]. Understanding these practices and their dynamics is crucial for assessing how land policies can effectively regulate private-sector land use and housing development.

Despite the critical role of land banking in shaping housing development, existing research tends to examine public and private mechanisms in isolation, with limited attention to how they interact in practice. This study addresses this gap by investigating the relationship between public land policy and private-sector land banking strategies, focusing on how governance structures, regulations, and their enforcement mechanisms shape landholding behavior by the private sector to avoid their possible negative effects on housing availability and affordability. Rather than evaluating public land banking as a standalone instrument, this paper analyzes how public land policy, which also includes public land banking, and market behavior intersect and often conflict, in the context of private-sector-led housing development. By centering the analysis on this institutional interface, this study contributes to a more nuanced understanding of how land policies operate within real-world governance environments, particularly in emerging urban contexts where the state’s regulatory capacity is contested.

This study focuses on the case of Indonesia, especially Surabaya City. As the country’s second-largest city and a major economic hub [9], Surabaya represents a crucial case for understanding urban land development and housing development in the context of rapid economic growth and urbanization. With a significant private sector dominance in housing provision [8], the city illustrates the complexity of land banking practices and regulatory enforcement in emerging markets. These dynamics would provide valuable insights for international scholars and policymakers seeking to address similar challenges.

The paper is structured as follows: Section 2 presents a literature review on land policy and land banking, serving as the theoretical foundation and introducing the analytical framework developed to evaluate public policy. Section 3 provides an overview of the Indonesian case context, offering background information relevant to the study. Section 4 outlines the materials and methods used to investigate and analyze how land policies in Indonesia regulate private-sector housing provision. Section 5 discusses the study’s findings and provides an in-depth analysis. Finally, Section 6 concludes the paper by summarizing key insights and their implications.

2. Theoretical Framework

Understanding how land policies shape private-sector housing development requires a theoretical approach that incorporates government intervention mechanisms, land policy instruments (i.e., land banking), and the dynamics of housing provision. This study builds on existing theories of land policy and land markets to assess how public and private land banking influence housing development. To strengthen this theoretical foundation, we incorporate insights from institutional economics, market dynamics, and regulatory frameworks, particularly drawing on the recent literature that highlights the increasing relevance of private-sector land banking [10].

2.1. Government Intervention in the Land Market

Observing public policy as government intervention and its intersection with land development strategies is complex. While scholars may disagree on a single, all-encompassing definition of public policy, it is generally understood as what governments decide to do or not to do concerning particular issues or problems [11]. Governments intervene in land markets through various instruments aimed at regulating land use, ensuring equitable access, and stabilizing land prices. Traditional approaches to government intervention in land markets can be categorized into active and passive land policy [3]. Active land policy involves direct government intervention through land acquisition, development, and resale to ensure land availability for public purposes [1]. In contrast, passive (or facilitating) land policy relies on regulatory mechanisms, such as zoning laws and development incentives, and grants building rights, while leaving development to the private sector.

Active and passive land policies each have distinct advantages and limitations, shaping how governments intervene in land markets. Active land policy helps prevent speculation, control prices, and secure land for public purposes, such as affordable housing and infrastructure. However, it requires significant public funding, is often slow to implement, and may be vulnerable to bureaucratic inefficiencies [12]. In contrast, passive land policy allows private actors to drive land development. This approach reduces public financial burdens and increases market efficiency, but can also lead to speculation, land hoarding, and a lack of affordable housing. The choice between these policies depends on institutional capacity, economic conditions, and urban development needs. Countries with strong governance and financial resources often adopt active land policies to ensure long-term affordability. Meanwhile, countries favoring market-driven approaches rely on passive land policies to encourage private investment.

Indonesia, in general, has applied a passive land policy, relying on regulatory frameworks rather than direct land acquisition (see Section 5). While passive land policies have facilitated economic growth and investment, they have also contributed to some issues, especially those related to housing development. Recent policy discussions on agrarian reform and land banking indicate a growing recognition of these challenges, but meaningful change remains constrained by structural and institutional limitations [8].

Governments also regulate land markets and encourage private-sector participation in affordable housing through strategies such as land subsidies, tax benefits, and inclusionary zoning [1]. Land subsidies provide developers with land at below-market prices to ensure affordability but require strong oversight to prevent speculative misuse [3]. Tax incentives, including property tax exemptions and VAT reductions, aim to reduce financial burdens and attract developers, though enforcement challenges can lead to profit-driven rather than affordability-focused projects [13]. Inclusionary zoning mandates affordable housing units within private developments in exchange for incentives like increased density, but overly strict requirements can deter investment [14]. Additionally, land value capture mechanisms, such as developer contributions to infrastructure, help align private and public interests. However, in developing economies like Indonesia, high land acquisition costs, weak tax incentives, and poor enforcement of inclusionary zoning create gaps between policy intent and market realities [2].

2.2. Public vs. Private Land Banking

Land banking, a widely recognized land management tool, has been used globally to secure land for future development and regulate land markets [4,10]. Traditionally, public land banking has been employed to counteract land speculation, stabilize property values, and facilitate affordable housing projects [10]. However, the role of private-sector land banking has received increasing attention in the recent literature.

Public land banking is an integral component of active land policy in urban planning, while private land banking operates outside the public policy domain [1,13]. The concept originated in Amsterdam in the late 1890s and was later adopted by several Western countries, including Sweden (1904), Canada (1950s), and France (1958) [5]. In the United States, land banking emerged in the latter half of the 20th century as a planning instrument for creating municipal land reserves for short- and long-term urban planning control [1]. In some cases, it is also linked to land consolidation, facilitating land redistribution or relocation for public purposes [15,16]. Evans [6] defines land banking as the legal advance acquisition of land, where land is secured before development and stored for future supply.

Public land banking refers to activities conducted by public agencies or nonprofit entities; therefore, it serves the purposes of public benefit. It has become a prevalent tool in public policy across some countries, primarily in the Global North. The main objective of land banking as public policy is to guarantee the future supply of land for development by mitigating ownership barriers that prevent timely land provision for development [4,17] and capture the increase in land value for public benefit through regulatory instruments [18]. Generally, public land banking addresses vacant or abandoned land by assembling, reserving, purchasing, developing, and improving it for future use or sale [17,19]. At the same time, it is also a strategy to reserve undeveloped land, converting it to productive use or holding it for long-term development [13,20,21].

Private-sector land banking refers to the practice of acquiring and holding land as a financial asset with the aim of capitalizing on future price increases [10]. This speculative behavior can significantly impact housing development by delaying housing supply, as developers may withhold land from the market to maximize profits rather than build homes in alignment with housing needs [1,7,22]. It can also lead to market concentration, where large real estate firms accumulate land reserves, reducing land availability, driving up housing prices [23]. This contributes to a mismatch between supply and demand, as developers prioritize high-end housing projects over affordable housing, further exacerbating housing inequality [24]. A similar pattern is observed in Hong Kong, where, despite increased land availability, developers delayed housing delivery due to declining internal rates of return. As shown by [22], high land prices led developers to postpone construction and hold land assets longer, which suggests that speculative holding is often a rational market response. Similarly, in Ghana, the increasing role of private developers in land banking has raised concerns about equitable land access [10].

2.3. Regulatory Challenges and Housing Market Outcomes

The interplay between government intervention and public policy in making land available for housing illustrates the complexity of regulatory governance in housing markets. Despite national-level regulations aiming to structure land banking and improve housing supply [14], municipal enforcement mechanisms often remain weak, leading to a dominance of private-sector interests in housing development [2]. The weak enforcement of public land policies stems from municipal governments lacking the capacity to implement land banking strategies effectively [25]. Additionally, regulatory loopholes enable speculative behavior, as developers exploit ambiguities in land use regulations to maximize profitability, contributing to delayed housing production and rising land values [22]. Furthermore, insufficient incentives for affordable housing development exacerbate the housing supply crisis, as policies such as inclusionary housing or price regulations are often poorly enforced [24].

This study contributes to the literature on land policy and housing development by bridging the gap between the land banking literature and housing market regulation. The findings align with recent calls to shift research attention beyond public land banking to incorporate private and semi-public land banking dynamics, acknowledging that private-sector engagement in land banking is not just a market response but also shaped by regulatory structures and institutional frameworks [10]. This perspective enhances our understanding of how land policies interact with market incentives, influencing housing affordability and supply efficiency in various contexts.

2.4. Public Land Policy Assessment Framework and Conceptual Model

Developing a clear framework to assess and analyze how public land policies interact with and manage private-sector development is essential. Following [1,26], we utilize [3]’s framework to assess or evaluate land management policy, which encompasses four fundamental principles: legitimacy, effectiveness, efficiency, and fairness. The four criteria principles are explained below.

Legitimacy is gauged by scrutinizing the input and output of policy processes associated with spatial planning. By examining stakeholder involvement and the alignment of outcomes with the public interest, we can evaluate the legitimacy of land policy as a tool. Effectiveness pertains to the capacity of land development strategies to accomplish planning goals within a reasonable timeframe. Through land banking, governments aim to secure land and facilitate its transition from passive to active ownership, enhancing the efficiency and efficacy of land use. Efficiency emphasizes the optimal utilization of scarce resources through the efficient allocation and utilization of land, minimizing waste, and maximizing the benefits. Fairness refers to the extent to which a land strategy equitably redistributes land-based wealth among stakeholders.

We conducted an extensive literature review to develop these principles to be applied in the context of land policy, specifically land banking instruments, as part of an active planning approach towards housing provision.

Table 1. Framework for an effective land policy implementation.

	Key Points in Land Policy Literature	Authors
Legitimacy	Power to plan and control development, legitimized action, intervention through spatial planning and zoning regulations, input and output of policy processes, public instrument for public benefit, municipal authority to negotiate, land bank institutions	[4,6,7,13,14,19,20]
Effectiveness	Achieves the planning goals, able to provide land for designated uses in a reasonable period, facilitates land transactions, captures or boost capital value, guarantees public land profit	[1,17,24,27]
Efficiency	Guided by planning goals, efficient use of scarce resources, financial involvement and effort aligned with land strategy outcomes	[1,13,17]
Fairness	(Re)distributes land-based wealth in a fair way among landowners, land users, property developers, investors, and the public sector	[1,19,28]

describes each principle’s keyword indicators that were used for analyzing the case study data in this study.

The key points from the literature review in Table 1 capture a deeper understanding of land policy practices, despite most case studies being from Global North countries. Legitimacy in land policy and land banking refers to integrating public land policy into spatial planning acts and municipal development programs with public interest to achieve public development goals [6,13,14,20]. It also involves institutions, such as land banks or municipalities, with the legitimate power to manage land as municipal assets [4,7,19].

Effectiveness in public land policy is the ability to achieve broader planning goals and encourage municipalities and communities to realize public benefits through urban renewal, reducing housing shortages, increasing public capital value, state-owned investment, and neighborhood stabilization [17,24,27]. Efficiency refers to the strategies used concerning financial involvement compared to land ownership or municipal investment, guided by planning goals for public benefit [1,13,17]. Fairness pertains to the equitable sharing of benefits among landowners, users, developers, investors, and the public [1,19,28].

3. Background of Case Study

3.1. Indonesia as a Case Study and Its Land Banking Strategies

Indonesia’s economic growth has been accompanied by a rising demand for formal housing, with a housing backlog of 17 million units [29]. This crisis is driven by a 1.7% annual population growth and the limited capacity of the formal sector, which delivers only 350,000 of the required 800,000 new houses annually [30]. Rapid urbanization has led to the large-scale conversion of agricultural land for residential use, particularly in Greater Jakarta, Surabaya, and Bandung [2]. However, private developers and land speculators frequently acquire large land areas without prompt development, indicating early private land banking practices [2,31].

Public land banking was formally introduced in 2020 through Law 11 of 2020, followed by Government Regulation 64 of 2021, which established the Land Bank Agency (Badan Bank Tanah). The recent establishment of Bank Tanah in 2021 underscores the significance of land banking institutions for public benefit [25]. However, land banking strategies had been informally recognized in earlier Indonesian land policies and practices. Some privately driven land banking has delayed housing provision and prioritized higher-end market segments [32]. Given Indonesia’s housing shortage, it is crucial to explore how national and local government land policies interplay with private-sector housing development and mitigate the adverse effects of land banking practices.

3.2. Historical Influence on Private-Sector Land Banking

The literature on land policy in Indonesia highlights long-standing challenges related to urban land development, land tenure security, and the regulatory frameworks shaping land use and management. Key issues include poorly coordinated urban land management, inflexible regulatory frameworks, lack of secure land tenure, ineffective taxation, and insufficient urban land data [2]. Other research focuses on land tenure security, land rights in urban and rural settlements [33,34], the political evolution of land policies under different regimes [35,36], and land use integration in spatial planning [37,38].

Government intervention in land-use management has historically been weak, leading to greater reliance on private-sector developers in urban expansion [2]. While private-sector involvement is encouraged, regulatory systems remain insufficient in guiding responsible land development. In some cases, public authorities have misused the term ‘public interest’ to justify large land acquisitions for developers, facilitating speculative landholding rather than housing development [39]. Rapid land conversion and deregulated land markets have enabled private actors to acquire and hold land strategically, resulting in stalled development and inflated land prices [31,40].

Indonesia’s land taxation, development permits, and building permits are primarily used as revenue-generating instruments rather than tools for effective land-use control [36]. The 1960 Basic Agrarian Law provided overarching land policy principles, such as nationalism, legal certainty, anti-monopoly measures, redistribution, sustainability, and welfare. However, these principles have been inconsistently applied across different regimes for public benefit, often favoring private interests over equitable land distribution [35,36,41].

Concerning land banking, research has predominantly focused on institutional frameworks and management [25,31,41], its context in the Job Creation Law [40], and comparisons of land acquisition strategies under different political regimes [35]. While some studies explore land banking’s potential to support affordable housing [32,42], the role of private-sector land banking remains overlooked despite its long-established practice. Private developers have historically engaged in land banking, acquiring land in advance of formal development, which has contributed to housing delays and affordability challenges.

Although this study focuses on Indonesia, its findings have broader international relevance. As [10] highlights, research on land banking has primarily focused on public land banking within formal land markets, while private and semi-public land banking remains underexplored. This study contributes to these debates by examining how private-sector land banking shapes housing provision. Furthermore, Indonesia’s challenges, such as rapid urbanization, housing shortages, and decentralized governance, offer insights applicable to other emerging economies facing similar land policy dilemmas.

4. Methods and Research Materials

4.1. Structure of the Analysis

This study examines how and under which conditions land policies, particularly the land banking instrument, influence formal housing development by the private sector. We employed a case study approach, selecting Indonesia for national policy analysis and Surabaya for municipal-level regulation analysis, focusing on how land banking strategies facilitate housing provision. Our research was guided by a structured three-stage analytical framework:

• Stage 1: Developing an analytical framework for land policy evaluation

The first stage involved a comprehensive literature review on land policy (see Table 1) to establish an analytical framework (see

Table 2. The analytical framework developed for land policy analysis.

Principle	Criteria
Legitimacy	Regulation as a public intervention to impose power and control
	Public benefit purpose (legitimation of securing the value capture)
	Public entity authorized for issuing permits
Effectiveness	Planning goals for the housing provision
	Land asset and acquisition to support the planning (housing) goals
	Stabilization through sanctions or consequences
Efficiency	Good use of resources (in terms of time)
	Cost recovery or any additional costs needed
Fairness	Redistributes land-based wealth in a fair way
	Collaboration with wider stakeholders

). We refined the framework by Hartmann and Spit [3] to enhance its applicability in evaluating land policies, particularly for housing development. Our review incorporated global literature to examine the key principles of legitimacy, effectiveness, efficiency, and fairness, which form the basis for evaluating land banking as a policy tool. The developed criteria guided the subsequent analysis.

• Stage 2: Analysis of Indonesian Land Policy

In the second stage, we analyzed Indonesia’s national land policies, with a focus on their impact on private-sector housing provision. We examined key legal instruments, including:

• National laws (Undang-Undang)
• Government regulations (Peraturan Pemerintah)
• Presidential decrees and ministerial regulations (Keputusan Presiden/Keputusan Menteri)

These policies were assessed using the content analysis method, applying the evaluation criteria developed in Stage 1. The analysis aimed to understand how national policies shape land availability and influence private-sector participation in housing development.

• Stage 3: Case Study of Surabaya Municipality

The third stage involved a case study to gain detailed insights into the local implementation of land policy. Surabaya was selected as a single-case study due to its strategic role in Indonesia’s urban development and its municipal efforts to regulate land availability for housing. Our approach combined policy document analysis with semi-structured interviews conducted with representatives from different stakeholders. These interviews provided insights into the challenges and strategies in providing land for housing provision, as well as the interactions between local authorities and private actors. By integrating regulatory analysis with stakeholder perspectives, this case study assessed both policy frameworks and their practical implications for formal housing provision.

4.2. Data Sources and Collection

The data were collected from three primary sources to ensure a comprehensive and triangulated analysis:

• Official Documents:

National, provincial (East Java), and municipal (Surabaya City) laws and regulations, as along with corresponding government reports and policy documents related to land banking and housing development.

2.

Semi-Structured Interviews:

Interviews were conducted with key stakeholders, including land agency officials, municipal planning and housing authorities, real estate associations, and housing developers (see Appendix A 

Table A3. Overview of interview respondents.

Code	Affiliation	Sector
R1	National Land Agency	Public
R3	Municipal Government	Public
R4	Municipal Government	Public
R5	Municipal Government	Public
R6	Real Estate Association	Private/Industry
R7	Housing Developer—Small	Private
R8	Housing Developer—Medium	Private
R5	Housing Developer—Large	Private

). The participants were identified through purposive sampling to ensure a diversity of institutional and market perspectives. These interviews provided qualitative insights into land policy implementation, challenges, and interactions between public and private actors for housing provision, particularly at the municipal level. To ensure ethical research practices, all participants were informed about the study’s purpose, and their participation was entirely voluntary. Confidentiality was maintained by anonymizing responses and ensuring that no personally identifiable information was disclosed. Ethical approval was obtained in accordance with institutional guidelines, and informed consent was secured from all interviewees before data collection.

3.

Field Observations:

Direct observations were conducted at municipal offices and development sites to assess how land policies are implemented in practice. These observations provided first-hand insights into bureaucratic processes, land allocation mechanisms, and challenges in policy enforcement. These observations were used to cross-validate interview responses, identify discrepancies between policy intent and execution, and document any delays or inefficiencies in land banking strategies. This method also helped in assessing how municipal authorities interact with private developers in land acquisition and housing provision, allowing a deeper understanding of regulatory constraints and governance issues affecting land availability.

4.3. Data Analysis

The primary research method employed was content analysis, following [43]. The process involved data preparation, unitizing and coding, analysis and inference, sampling and reduction (for the case study), and narrative analysis (see Appendix A: Figure A1 and Figure A2).

To assess policy effectiveness, we developed criteria (see Table 2) based on [3]’s analytical framework, focusing on:

• Legitimacy: the legal and institutional basis of land policies.
• Effectiveness: the extent to which policies achieve intended housing outcomes.
• Efficiency: the administrative and financial feasibility of land policies.
• Fairness: the equitable distribution of land resources among stakeholders.

Additionally, we identified and contextualized terminologies and instruments related to land banking and private-sector engagement. Through this systematic approach, our study aims to provide a nuanced understanding of how land policies shape private housing development in Indonesia.

5. Results and Discussions

5.1. Land Policy in Indonesia for Land Banking Strategy and Housing Development

Although the term land banking was only formally introduced in Indonesia through Law No. 11/2020 on Job Creation and institutionalized with the establishment of the Land Bank Agency (Badan Bank Tanah) in 2021, the regulatory foundation for related practices, such as land acquisition, land consolidation, and land development, has evolved over several decades. These mechanisms, often framed within sectoral laws, were originally designed to support public infrastructure and urban development, including housing provision.

Table 3. Key policy instruments in Indonesia’s land regulations (national level).

Year	Regulations	Instruments	Rationale
1960	Law No. 5/1960 on Basic Agrarian Law	Penguasaan dan pemanfaatan tanah (land acquisition and land development)	As a general legal basis for the public authority to acquire land and to grant or revoke land rights to people or legal entities.
1964	Law No. 1/1964 on Housing	Pemanfaatan lahan untuk perumahan (Land development for housing)	To facilitate land acquisition for housing development.
1991	Regulation of Head of the National Land Agency No 4/1991 on Land Consolidation	Konsolidasi Tanah (Land consolidation)	To improve land utilization and land use efficiency.
1992	Law No. 4/1992 on Housing and Public Settlements	Pemanfaatan dan Konsolidasi Tanah untuk permukiman (Land development and consolidation for housing)	To restructure the control, ownership, use, and utilization of land following the spatial plan; to provide land for housing and settlement purposes.
2004	Government Regulation No. 16/2004 on Land Use Management	Penatagunaan Tanah, Penguasaan tanah (Land development and consolidation)	To control and utilize land through land consolidation and institutional arrangements.
2005	Presidential Decree No. 36/2005 on Land Acquisition for Development Implementation for the Public Interest	Pengadaan Tanah untuk kepentingan umum termasuk perumahan (Land acquisition for development in the public interest, including housing)	To provide public infrastructure, facilities, and services, including housing for low-income people.
2007	Law No. 26/2007 on Spatial Planning	Pemanfaatan Ruang atas tanah (Land development)	To achieve spatial planning goals.
2011	Law No. 1/2011 on Housing and Public Settlements	Pemanfaatan dan Konsolidasi Tanah untuk permukiman (Land development and consolidation for housing)	To restructure the control, ownership, use, and utilization of land following spatial plan.
			To provide land for housing and settlement, especially for low-income people (affordable housing).
2012	Law No. 2/2012 on Land Acquisition	Pengadaan Tanah (Land acquisition)	To provide land by giving fair compensation for its development.
2019	Regulation of the Minister of Agrarian Affairs and Spatial Planning/Head of the National Land Agency No. 12/2019 on Land Consolidation	Konsolidasi Tanah (Land consolidation)	To restructure land control, ownership, and utilization in accordance with the spatial plan.
			To provide land for the public purpose.
2020	Law No. 11/2020 on Job Creation	Pengadaan Tanah untuk lokasi investasi ekonomi (Land acquisition for economic investment location)	To provide land for infrastructure development and to acquire land to support economic investment and growth.
		Mandat pembentukan bank tanah (Mandate to establish the land bank)
2021	Government Regulation No. 19/2021 on Implementation of Land Acquisition for Development in the Public Interest	Bank Tanah untuk Pengadaan Lahan (Land Acquisition and explanation about the land bank)	To explain the implementation of land acquisition by the land bank.
2021	Government Regulation No. 64/2021 on Land Bank Agency	Badan Bank Tanah (Land Bank Agency)	To establish a Land Bank Agency.
		Pengembangan Tanah (Land Development)	To prepare land for infrastructure development in accordance with the spatial plan.
		Penyediaan Tanah (Land Provision)	To provide land for public, social, and economic equality, development, and land consolidation needs.
2022	Surabaya City Mayoral Regulation No. 89/2022	Pengadaan Tanah (Land Acquisition)	The guideline to prepare small-scale land (max. 5 Ha) acquisition in the city area.
			To improve the administration of land acquisition in the city area.
			To synergize land acquisition in the city area.

outlines the gradual introduction and conceptual evolution of these instruments, highlighting the incremental institutionalization of land banking principles.

The Basic Agrarian Law (Law No. 5/1960) provided the state with the authority to allocate or revoke land rights for public purposes. However, housing provision was not explicitly included in the definition of public interest until Presidential Decree No. 36/2005. While earlier housing laws (Law No. 1/1964; Law No. 4/1992; Law No. 1/2011) shared housing responsibilities across levels of government and the private sector, they primarily positioned the public role as regulatory, focused on setting standards and issuing guidelines, rather than actively providing land. This reflects a facilitative rather than interventionist nature of policy orientation [3,14].

To support land provision, land consolidation was introduced in 1991 through Regulation of the Head of the National Land Agency No. 4/1991, empowering local governments to reorganize fragmented plots. Yet, its application has been limited due to technical, legal, and participatory challenges [44]. Newer mechanisms, including land acquisition and land development strategies (e.g., Government Regulation No. 16/2004; Regulation of the Minister of Agrarian Affairs and Spatial Planning/Head of the National Land Agency No. 12/2019), have attempted to formalize land provision processes. However, its implementation has been limited, undermined by overlapping responsibilities and limited coordination among government agencies.

At the local level, regional and municipal authorities have issued complementary regulations to guide land acquisition and often embed land provision into spatial planning frameworks. These efforts aim to balance public and private interests and facilitate partnerships between landowners, developers, and the state. However, effectiveness varies widely, depending on local institutional capacity and stakeholder willingness to engage. The result is a formalized structure that often struggles in practice to ensure land access or affordable housing outcomes.

A major turning point came with the 2020 enactment of the Omnibus Law (Law No. 11/2020 on Job Creation), which restructured spatial planning authority and reframed public land policy (see Appendix A: Figure A3). This reform centralized decision-making by shifting spatial planning authority from local to central government, streamlining the land acquisition process, and redefining “public interest” to legitimize land acquisition for large-scale investment projects. As noted by [39], this redefinition raises concerns that land policies increasingly serve politico-business elites rather than the broader public.

One of the most notable developments under this reform is the creation of the Land Bank Agency. Bank Tanah is tasked with managing state-owned land (through Hak Penguasaan Lahan, HPL) and ensuring land availability for a wide range of purposes, including affordable housing [25]. This agency is also expected to contribute to agrarian reform by actively acquiring, developing, and redistributing land, playing a critical role in ensuring land availability for public purposes and advancing agrarian reform. However, the agency’s operations remain nascent, and its relationship with municipal governments has yet to mature, which is critical for implementation. In response, some municipalities have adopted local regulations that interpret or implement the Job Creation Law’s mandates. These include procedures for land procurement and acquisition involving both private and public interests. In sum, Indonesia’s public land policy landscape reflects a fragmented but evolving framework (see comparative flowchart in the Appendix A: Figure A3). The regulatory instruments increasingly acknowledge the need for active land management and affordable housing, yet the implementation is constrained by institutional inconsistencies, limited enforcement, and political–economic dynamics that privilege market actors. This disconnect between national policy ambition and grounded practice sets the stage for understanding how these tensions manifest at the municipal level.

5.2. The Legitimacy, Effectiveness, Efficiency, and Fairness of Indonesian Land Policy in Shaping Private-Sector Housing Development

At this stage, we evaluated Indonesian land policies using four key principles: legitimacy, effectiveness, efficiency, and fairness. This assessment aimed to determine how well these policies facilitate private-sector engagement in housing development and whether they align with broader land governance objectives. Through content analysis, we examined the regulatory framework to identify patterns and trends that reflect the overall performance of land policies, particularly in their interactions with private housing developers.

Our analysis focused on how regulations are structured, the extent of government intervention, and the level of regulatory clarity provided for private-sector participation. By recognizing recurring themes in policy implementation, administrative procedures, and enforcement mechanisms, we were able to assess whether these policies create an enabling environment for housing development or impose barriers that hinder private-sector involvement. The results of this pattern recognition analysis are visualized in Figure 1, while a more detailed content analysis is presented in Appendix A 

Table A1. Coding indicator.

Framework	Indicator	Code
Legitimacy	Regulation as public intervention to impose power and control	A1
	Public benefit purpose (legitimation of securing value capture)	A2
	Public entity authorized for issuing permit	A3
Effectiveness	Planning goals	B1
	Land asset and acquisition	B2
	Enforcement/stabilization	B3
Efficiency	Good use of resources	C1
	Cost recovery	C2
Fairness	Redistribution of land-based wealth	D1
	Stakeholders’ access to collaborate	D2

and

Table A2. (Part of) The content analysis of Indonesian land policy patterns using the legitimacy, effectiveness, efficiency, and fairness framework.

Regulations	Coding Analysis	Inference
National Law No. 1 of 2011	A1: Pasal 1 Ayat 18 “Konsolidasi tanah adalah penataan kembali penguasaan, pemilikan, penggunaan, dan pemanfaatan tanah.....” A1: Article 1 Verse 1 “Land consolidation is the restructuring of control, ownership, usage, and utilization of land…..” B1: Pasal 1 Ayat 18 “...sesuai dengan rencana tata ruang wilayah…” BI: Article 1 Verse 18 “Based on the municipal spatial planning…” B2: Pasal 1 Ayat 18 “....dalam usaha penyediaan tanah untuk kepentingan pembangunan perumahan dan permukiman....” B2: Article 1 Verse 18 “....in providing land for housing and settlement development…..” B3: Pasal 106 Huruf E “Penyediaan tanah untuk pembangunan rumah, perumahan, dan kawasan permukiman…” B3: Article 106 Letter E “Land Provision for house, housing, and settlement development…” C1: Pasal 43 Ayat 1 “Pembangunan untuk rumah tunggal, rumah deret, dan/atau rumah susun, dapat dilakukan di atas tanah; hak milik, hak guna bangunan, hak pakai” C1: Article 41 Verse 1 “The development of the detached house, row house, and/or apartment building can be conducted on the type of land: Right of Ownership, Right to Build, and Right to Use.”	Principles of legitimacy, effectiveness, and efficiency are embedded in National Law No 1 of 2011. Legitimacy is reflected in the regulation of public entities for benefit purposes: “Konsolidasi tanah adalah penataan kembali penguasaan, pemilikan, penggunaan, dan pemanfaatan tanah.....” (Article 1 Verse 18). Effectiveness is indicated by the existence of planning goals for the city in the sentence: “...sesuai dengan rencana tata ruang wilayah…” (Article 1 Verse 18) and provides land for public development in the sentence: “....dalam usaha penyediaan tanah untuk kepentingan pembangunan perumahan dan permukiman....” (Article 1 Verse 18), as well as housing provision, neighbourhood stabilization, and land asset maximization: “Penyediaan tanah untuk pembangunan rumah, perumahan, dan kawasan permukiman…” (Article 106 Letter E). Efficiency is indicated by the good use of sources in the sentence: “Pembangunan untuk rumah tunggal, rumah deret, dan/atau rumah susun, dapat dilakukan di atas tanah: hak milik, hak guna bangunan, hak pakai.” (Article 43 Verse 1).
National Government Regulation No 64 of 2021	A3: Pasal 1 Ayat 1 “Badan Bank Tanah yang selanjutnya disebut Bank Tanah adalah badan khusus (sui generis) yang merupakan badan hukum Indonesia yang dibentuk oleh pemerintah pusat yang diberi kewenangan khusus untuk mengelola tanah.” A3: Article 1 Verse 1 “Land Bank Agency, hereinafter referred to as Bank Tanah, is a special entity (sui generis), which served as a legal entity of Indonesia established by the national government which granted specific authority to manage the land.” B1: Pasal 11 Ayat 4 “Kegiatan pengembangan tanah sebagaimana dimaksud pada ayat (1) dilaksanakan berdasarkan kesesuaian rencana tata ruang.” B1: Article 11 Verse 4 “Land development activity as referred to Verse (1) is conducted based on the spatial planning suitability.” B2: Pasal 2 Ayat 2 “Bank Tanah sebagaimana dimaksud pada ayat (1) diberi kewenangan khusus untuk menjamin ketersediaan tanah dalam rangka ekonomi berkeadilan.” B2: Article 2 Verse 2 “Bank Tanah, as referred to Verse (1), is granted special authority to ensure the availability of land as a form of economic justice.” B3: Pasal 11 Ayat 1 “Pengembangan tanah sebagaimana dimaksud dalam Pasal 10 huruf a meliputi penyiapan tanah untuk kegiatan perumahan dan kawasan permukiman” B3: Article 11 Verse 1 “Land development, as referred to in Verse 10 letter A, consists of land preparation, housing, and settlement activity.” C1: Pasal 7 “Tanah hasil penetapan pemerintah terdiri atas tanah negara yang berasal dari tanah bekas hak, kawasan dan tanah terlantar,…” C2: Article 7 “Government-designated land consists of state-owned land originating from former rights land, abandoned land and area,....” C2: Pasal 40 Ayat 1 “Tanah yang dikelola Bank Tanah diberikan Hak Pegnelolaan.......” C2: Article 40, verse 1 “The land which managed by Bank Tanah gets a Right of Management……” D1: Pasal 3 Ayat 2 “Bank Tanah mempunyai tugas melakukan pendistribusian tanah dengan melakukan kegiatan penyediaan dan pembagian tanah.” D1: Article 3 Verse 2 “Bank Tanah is assigned to distribute the land by making land provision and allocation.”	There are variables of legitimacy, effectiveness, efficiency, and fairness dalam PP 64/2019. Legitimacy is indicated by the sentence: “Badan Bank Tanah yang selanjutnya disebut Bank Tanah adalah badan khusus (sui generis) yang merupakan badan hukum Indonesia yang dibentuk oleh pemerintah pusat yang diberi kewenangan khusus untuk mengelola tanah” (Article 1 Verse 1). Effectiveness is indicated by the existence of planning goals of the city, as in “Kegiatan pengembangan tanah sebagaimana dimaksud pada ayat (1) dilaksanakan berdasarkan kesesuaian rencana tata ruang” (Article 11 Verse 4), and by providing land for public development in the sentence: “Bank Tanah sebagaimana dimaksud pada ayat (1) diberi kewenangan khusus untuk menjamin ketersediaan tanah dalam rangka ekonomi berkeadilan” (Article 2 Verse 2), as well as housing provision, neighbourhood stabilization, and land asset maximization in the sentence “Pengembangan tanah sebagaimana dimaksud dalam Pasal 10 huruf a meliputi penyiapan tanah untuk kegiatan perumahan dan kawasan permukiman” (Article 11 Verse 1). Efficiency is indicated by the good use of sources in the sentence: “Tanah hasil penetapan pemerintah terdiri atas tanah negara yang berasal dari tanah bekas hak, kawasan dan tanah terlantar,...” (Article 7), and promotes public land ownership in the sentence: “Tanah yang dikelola Bank Tanah diberikan Hak Pengelolaan.....” (Article 40 Verse 1). Fairness is indicated by the redistribution of land-based wealth in a fair way in the sentence: “Bank Tanah mempunyai tugas melakukan pendistribusian tanah dengan melakukan kegiatan penyediaan dan pembagian tanah” (Article 3 Verse 2).

. These findings offer insights into the strengths and limitations of Indonesia’s land policy framework, contributing to discussions on policy reform and institutional capacity for effective land governance.

This analysis reveals that legitimacy, effectiveness, and efficiency principles are the most prevalent in Indonesian land policy, while fairness is relatively moderate. Legitimacy is emphasized in the political transformation of 2020, which leads to policy that gives the national government more power and control and gives the municipality authority to issue building permits. Effectiveness is frequently highlighted through policies that prioritize land provision for public development, including projects involving private-sector investors and developers. Efficiency is similarly emphasized, particularly in the context of resource utilization and the promotion of public land ownership. These findings indicate that effective land use and resource management goals primarily drive Indonesian land policies.

However, the analysis also uncovers a notable gap in legitimacy, particularly concerning housing provision. Despite the mention of housing provision in Law No. 1/2011 and Government Regulation No. 64/2021, supporting regulations at the municipal level still need to be created to facilitate land banking or housing supply. This deficiency contrasts with the effectiveness principle, as municipal land ownership is crucial for ensuring the success of land policies, a practice well-established in other countries.

Prior studies on land policy have underscored the importance of institutional frameworks and the practice of land banking, which is recognized as an active governance tool for land development, influenced by institutional, financial, and environmental factors [14,26]. Additionally, research highlights the expanding role of the private sector due to new economic and housing policies. This sector includes private developers holding land banks and independent private entities, including those in the informal housing sector. The evolving housing policies have encouraged the private sector to take on more prominent roles and responsibilities in housing development. These entities have transitioned from traditional roles in construction to becoming key promoters of housing projects, including those targeting lower- and middle-income groups [8].

5.3. Indonesia’s Land Policy in Practice: The Case of Surabaya Municipality

Municipal institutional capacity plays a critical role in implementing public policies, particularly in housing, where it directly influences service provision. Studies have shown that municipalities with stronger institutional frameworks are more effective in reducing housing deficits and improving public service delivery [45]. This section analyzes land policies at the municipal level, focusing on how local governance facilitates private sector participation in housing development. Surabaya, Indonesia’s second-largest city (Figure 2), with a population of 3.5 million, serves as a focal point. Surabaya is a prime location for private property developers, ranking alongside Jakarta as a leading real estate hub [9].

At the municipal level, public land policies are governed by Mayoral Regulations (Peraturan Walikota) and Municipal Regulations (Peraturan Daerah), which operationalize national and regional policies. These regulations primarily focus on procedures and guidelines for land provision, acquisition, and the issuance of development permits for housing and other public infrastructure.

Table 4. Overview of municipal regulations pertinent to private-sector facilitation.

Municipal Regulations	Title	Content
Mayoral Regulation No. 89/2022	Small-scale Land Acquisition for Development of Public Interest	It elaborates on the guidelines for small-scale land acquisition in Surabaya for development. Small-scale is defined as land that does not exceed five hectares. The land acquisition is carried out directly by the institution in need of the land, in collaboration with eligible parties. They could be individuals, legal entities, social organizations, religious bodies, state-owned or regional-owned enterprises, land banks, or government agencies. The development must be in line with the municipal spatial plan.
Municipal Regulation No. 12/2014	Spatial Plan of Surabaya City 2014–2034	It elaborates on the strategy and development of spatial planning in Surabaya for 20 years, including housing and settlements. The housing strategy consists of managing housing density, improving the quality of housing and its environments, developing vertical housing for social housing, developing new housing areas that are more integrated with the city infrastructure, and achieving a balanced/proportional ratio in providing housing between simple, medium, and luxury housing.
Municipal Regulation No. 8/2018	Detail Spatial Plan and Zoning Regulation of Surabaya City 2018–2038	It elaborates on the spatial planning in Surabaya for 20 years in a more detail format (scale 1:5000). It divides the city into 12 development units, including land use plans, zoning regulations, and the activities allowed in each zone. This regulation has become the primary reference of decision-making for every development permit to be/not to be issued by the municipality. This document also refers to location permits and building permits for housing provisions by private developers.
RP3KP 2016	Surabaya City Housing Provision Plan 2016–2036	It elaborates on the problems, strategic concept, and development plan of housing provision in Surabaya for 20 years. Surabaya’s development plan is divided into short-term, medium-term, and long-term periods. It includes the registered private developers and their housing units that are planned to be built as part of Surabaya City’s housing provision.
Municipal Regulation No. 7/2010	Delivery of Infrastructure, Facilities, and Utilities in Industrial, Commercial, and Housing Areas	It elaborates on the obligation to hand over the infrastructure, facilities, and utilities built by private developers in industrial, commercial, and housing areas to the municipality. This regulation guides private developers in determining the land size to be developed that provide infrastructure, facilities, and utilities, which are then given to the municipality as part of public assets and management.
Mayoral Regulation No. 14/2016	Procedure for Delivering the Infrastructure, Facilities, and Utilities in Industrial, Commercial, and Housing Areas	It elaborates on the operational procedure of the handover obligation stipulated in Municipality Regulation No. 7 of 2010. Private sectors or housing developers will receive sanctions if they do not abide by the regulation. The sanctions are given in stages: warning, delay in the approval of development/building permits, penalty, being published in mass media, and being blacklisted.
Municipal Regulation No. 7/2009	Buildings	It elaborates on building requirements for the developers according to the municipality system, such as management, utilization, preservation, demolition, inventory and registration, numbering, community involvement, supervision, and control.
Mayoral Regulation No. 34/2023	Procedures of Sanctions for Violations of Municipal Regulation No. 7/2009	It elaborates on sanctions given to developers that do not comply with Municipality Regulation No. 7 of 2009. This regulation manages the private developers from activities that do not comply with established regulations, such as building housing without a building permit on owned land and/or municipality land, building housing that is not suitable with building requirements, and uncertified technically through Sertifikat Laik Fungsi (SLF)—Fit of Use.
Municipal Regulation No. 54/2022	Surabaya Development Plan 2023	It elaborates city development objectives into performance indicators, followed by quarterly realization. This document also presents the achievements of Surabaya municipality-certified assets, resolved land cases, issued building permits, buildings subject to sanctions, and housing, including apartment use in the previous years.
Mayoral Regulation No. 52/2017	Technical Guidance on Development Control	Private housing developers will receive sanctions by forbidding them to continue ongoing or future construction if they do not hand over the obligation (infrastructure, facility, and utility in the housing area) to the municipality.

summarizes key regulations of the Surabaya municipality pertinent to private-sector involvement in land and housing development.

Public land banking aims to promote affordability and regulate land use, while private land banking is profit-oriented. Although national regulations mandate the Land Bank Agency (Badan Bank Tanah) to play a central role in land supply management, there is no active implementation or collaboration with the agency at the municipal level in Surabaya. Land transactions are predominantly market-driven, enabling speculative private land banking that constrains supply and increases housing prices. Developers acquire land as a financial asset, holding it in anticipation of rising prices. The limited enforcement of development obligations exacerbates this behavior and reinforcing scarcity and inflating prices. The disconnection between policy intent and market realities enables private actors to dominate land control with little accountability, particularly affecting lower-income groups who depend on state-supported housing interventions.

To examine this further, we analyzed stakeholder interviews and media reports and identified three critical phases in which municipal regulations influence housing development: pre-development, development, and post-development.

• Pre-development phase: private developers and their effort to consolidate land for housing

The rapid escalation in land prices within Surabaya is closely tied to spatial planning policies, particularly following the enactment of Municipal Regulation 8 of 2018, which outlined detailed spatial arrangements within the city. While this regulation could provide planning certainty, it may also inadvertently contribute to speculative landholding, as private developers may strategically acquire and consolidate land in areas projected for urban development. For instance, by designating specific areas for residential, commercial, and infrastructure development, the regulation signaled potential high-return investment zones, prompting private developers and land speculators to acquire land in anticipation of rising demand. The absence of price control mechanisms and the weak enforcement of development obligations further enabled speculative behavior, allowing investors to hold land indefinitely while waiting for higher profits. As a result, artificial scarcity was created in key development areas, significantly inflating land prices and making housing provision increasingly unaffordable.

Land prices in Surabaya are notably high and influenced by market dynamics with minimal regulatory intervention. The disparity between property values determined by municipal assessments and market prices ranges from 300% to 700%, with an average deviation. This significant discrepancy underscores the influence of private developers in establishing market prices that substantially exceed municipal standards. The regulatory focus is primarily on determining the Tax Object Sales Value (NJOP), as outlined in Surabaya’s Mayoral Regulation 1 of 2024, which is the basis for levying urban land and building taxes. This phenomenon aligns with findings from previous studies, which suggest that land acquisition and restructuring as part of territorial policies can exacerbate land price surges and contribute to worsening land inequality [22,23,46].

The absence of regulatory control over land prices has created significant opportunities for private developers, who actively engage in land acquisition and speculation, holding land for future development. This practice has contributed to land value appreciation, but it also raises concerns about housing affordability and equitable access to land. Without adequate policy intervention, speculative landholding can lead to land scarcity, inflate housing costs, and undermine efforts to provide affordable housing. In this regard, Mayoral Regulation No. 89/2022 provides a relevant planning instrument, particularly in guiding small-scale land acquisition and ensuring spatial compliance during the pre-development phase. This trend was further emphasized by one of the interviewees (confidential), who stated:

”Providing houses in cities in Indonesia, especially in Surabaya, is intensively carried out by private developers. They play the biggest role in providing housing in the formal sector with a mechanism entirely dependent on the market without government intervention. Private developers start independently from the land acquisition, planning, and construction phases. The role of government, especially in the municipality, is to provide permits and intervene in some cases. Planning (housing targets) is pragmatically unconsidered (as a benchmark for the private sector in constructing houses) even though the government has the authority to provide houses. Housing should be a mandatory matter for the central government and municipalities, but municipalities tend to support the commercialization of housing.”

Government Regulation No. 64/2021 has, in fact, assigned the responsibility of land development and residential area expansion to the Land Bank Agency. However, in practice, the Surabaya local government does not directly engage in land provision for housing projects, nor does it collaborate with the Land Bank Agency to facilitate such efforts. Some developers express concerns that government-managed land banking might conflict with the profit-driven nature of their activities, given the government’s role in land banking, as outlined in the regulation, which emphasizes transparency, accountability, and a nonprofit approach. However, in practice, as also shown by [39] in other cases, a public authority in Surabaya still facilitates the profit-driven private developers in housing provision, which serves the interest of business actors instead of the public or local communities. Political considerations―including competing governmental priorities, landowner resistance, and private-sector lobbying―complicate the implementation of land policies. Rather than being solely an issue of corruption, these governance dynamics shape how land regulations are enforced, often leading to delays and inefficiencies in executing place-based programs.

The phenomena mentioned above illustrate a misalignment between public land policy and private land banking practices, where the lack of direct municipal intervention in land provision has allowed speculative private-sector behavior to shape housing development. While national regulations, including the establishment of the Land Bank Agency, aim to ensure land availability for public purposes, Surabaya’s local government does not actively engage in land acquisition for housing or collaborate with the agency to implement land banking strategies. This regulatory gap enables private developers to dominate land markets, acquiring and holding land primarily for financial gain rather than for meeting housing needs. Without effective municipal oversight, public land policy remains largely aspirational. Meanwhile, private land banking practices continue to influence land availability and housing prices in ways that challenge the realization of affordability and equity-oriented planning goals.

• Development phase: private developers and their unwillingness to build affordable housing in urban areas

The private sector housing provision’s reliance on market mechanisms has led to a lack of regulatory controls over land and property prices, resulting in the misalignment between the price and the purchasing power of most of Surabaya’s residents. The significant housing backlog in the city evidences this mismatch between housing supply and demand. According to real estate associations and experts in Surabaya, most housing demand focuses on housing that remains below 1 billion rupiahs (approximately USD 63,000). In comparison, the minimum price for available housing supply is around 1.5 billion rupiahs (approximately USD 95,000), often for properties located on the urban fringe. In contrast, the average price for apartments in Surabaya is significantly lower, ranging between 500 to 600 million rupiah (approximately USD 38,000). These properties have yet to see high demand, as the Surabaya market clearly prefers landed residential properties (see Figure 3) over non-landed alternatives. This situation highlights the unequal housing provision within the urban areas of Surabaya, where private developers still need to adjust their offers to meet the needs and financial capabilities of all societal levels. The focus of the housing market remains on upper-middle-class consumers, leaving lower-income groups underserved. It is explained in the interview with one of the interviewees (confidential) as follows:

“Housing policies such as balanced housing (a proportion to build three affordable houses for every luxury house), subsidized housing, and FLPP (housing financial program), imposed on private developers to build affordable housing, are still challenging to implement in Greater Surabaya. Subsidized housing, for example, is difficult to implement because the rules set by the government do not match reality. For a housing unit of 60 square meters, the selling price is set at around 145 million rupiahs (approximately USD 10,000); we calculate that developers must find land for 200 thousand rupiahs (approximately USD 15) per square meter. How can we realize this? Surabaya’s land market price is already 3 million rupiahs (approximately USD 200) per square meter, even in the suburbs. There is a gap of up to 15 times between the cost of land on the market and the rules set. Developers’ motivation to build housing is to gain profit, so if the rules do not match our profit calculations, how can we build affordable housing? It’s not even affordable for us to build.”

From a public policy perspective, national instruments have been introduced to regulate the maximum selling price of subsidized housing. For instance, PUPR Ministerial Decree No. 689/KPTS/M/2023 sets the maximum price for subsidized houses in Java, including Surabaya, at IDR 166 million (approximately USD 10,500). However, implementing this policy at the municipal level presents significant challenges, as these regulated prices do not reflect the housing market in Surabaya.

Moreover, private developers, who dominate the housing market, perceive such regulations as financially unviable and lacking incentives, particularly in profit margins and streamlined permit processes. This conflict of values, as an unfair outcome of policy implementation, as observed by [28], in the case of land provision for housing in the Netherlands, has also rendered urban housing policies in Indonesia ineffective in addressing the need for affordable housing.

• Post-development phase: failure of private developers to abide by the policy of infrastructure handover to the municipality for public benefit

In housing development, private developers must establish infrastructure, facilities, and utilities (PSUs) for public benefit, as mandated by Surabaya’s Municipal Regulation No. 7/2010, and further detailed in Mayoral Regulation No. 14/2016. These regulations obligate developers to allocate 30% to 41%, depending on the specific criteria of the development land area for PSUs (see Figure 4). Despite these precise requirements, many developers fail to meet their obligations. To enforce compliance, the Surabaya City government imposes administrative sanctions as outlined in the Mayoral Regulation No. 14/2016, including written warnings, permit suspensions, and fines.

However, the effectiveness of these regulations appears to vary significantly based on the size of the developers involved. Interview findings with municipal officials and representatives from private developers’ associations indicate that smaller and medium-sized developers generally comply with only the minimum regulatory requirements, often due to limited financial and legal resources to challenge or negotiate policy constraints. In contrast, larger developers, with greater capital and legal expertise, are more likely to resist stricter regulatory measures or negotiate exemptions, leveraging their influence to navigate policy restrictions in ways that benefit their financial interests, as below:

“We had to blacklist 20 developers who failed to hand over their PSU obligations, despite multiple warnings, permit suspensions, and public notices. These firms continued to ignore the requirements set out in the regulations. We’ve taken every step but enforcement remains difficult, especially with larger developers”

This observation aligns with findings from a study by [47], which examined policy implementation by private developers in Singapore and found that smaller developers were more likely to comply with regulatory requirements, albeit minimally. This disparity highlights a regulatory gap where enforcement mechanisms struggle to ensure consistent compliance across different developer scales, ultimately affecting land availability and housing affordability.

This pattern of non-compliance is also reflected in broader studies on land policies. Ref. [27] notes that non-compliance can be the result of inconsistency between the intention of the public authority to implement stricter rules and the financial and personnel resources available to enforce them. Ref. [48] notes that weak policy enforcement hinders effective urban land management and leads to inefficient land use. Limited human and technical capacity, combined with unrealistic spatial planning and land use regulations, undermines policy implementation. The study also highlights that without a strong commitment to enforcement, policies are rendered ineffective, even if they are well-designed. The gaps between policy formulation and implementation are significant in these failures. While regulations are in place, the lack of rigorous enforcement and the variability in developer compliance undermine the intended outcomes, resulting in missed opportunities to ensure that housing developments contribute to the broader public good.

In Indonesia, as shown earlier, the land policy framework does include regulatory mechanisms intended to guide private-sector behavior, such as mandatory land allocations for public use, affordable housing requirements, and infrastructure contributions from developers. However, these regulations often fail to deliver their intended outcomes due to weak municipal oversight, regulatory loopholes, and discretionary enforcement practices. In the case of Surabaya, private developers frequently delay compliance with land transfer obligations or negotiate exemptions, leading to uneven policy enforcement. Furthermore, local governments’ capacity to monitor and enforce land policies varies across municipalities, contributing to fragmented policy outcomes and reinforcing speculative land banking practices.

Rather than an outright lack of policy tools, the key issue in Indonesia lies in governance challenges and enforcement inconsistencies, which allow private-sector interests to dominate land markets. Strengthening institutional capacity, increasing transparency in regulatory enforcement, and improving mechanisms to monitor developer compliance are crucial steps toward ensuring that land policies achieve their intended objectives in shaping more equitable and sustainable urban development.

6. Conclusions

This study examines how public land policies influence private-sector housing development, with particular attention to the role of land banking strategies in shaping access, availability, and affordability. Public land banking is intended to regulate supply and promote equity, whereas private land banking is driven by speculative motives, dominates housing markets, often restricting supply and increasing prices. These dynamics highlight the limitations of public land policy in contexts where enforcement capacity is weak, intergovernmental coordination is limited, and municipal authorities remain institutionally sidelined. The result is a policy environment in which affordability goals remain aspirational, while land remains controlled by profit-oriented actors.

To explore these dynamics, we developed an analytical framework based on the principles of legitimacy, efficiency, effectiveness, and fairness to evaluate Indonesia’s evolving land policy system and the case of Surabaya. Findings reveal that, despite a progressively integrated land policy system, housing provision continues to be shaped more by speculative landholding and market-driven behavior than by coordinated planning. The limited enforcement of infrastructure handover obligations, price regulations, and affordable housing mandates illustrates how public policy objectives can be undermined by discretionary governance and uneven compliance.

The 2021 establishment of the Land Bank Agency is a significant policy step toward expanding land availability and regulating private-sector participation. However, its success depends on effective enforcement and stronger collaboration with local governments. Although instruments such as sanctions, development permits, and zoning controls are commonly known in theory and formally in place to manage land hoarding, their implementation remains limited in practice. As a result, speculative behavior will continue to persist and undermine housing affordability goals.

This study has limitations inherent to single-case research, particularly in its generalizability beyond the Indonesian context. However, the issues explored—speculative landholding, institutional fragmentation, and weak regulatory enforcement—are increasingly common across cities in emerging economies. In many rapidly urbanizing regions, private land markets operate alongside under-resourced public institutions, leading to similar tensions between policy ambition and implementation. The analytical framework and findings presented here offer a lens through which to understand and compare governance gaps in land policy elsewhere.

Ultimately, this research contributes to the debates on land policy and housing markets by highlighting the critical interplay between public policy objectives and private-sector land acquisition practices, particularly through the lens of land banking. It emphasizes the need for stronger enforcement, transparent regulations, and inclusive governance to ensure that land policies effectively manage private-sector activities and improve housing affordability. Addressing these challenges will be crucial in bridging the gap between policy intent and housing outcomes, offering insights applicable to emerging economies and rapidly urbanizing regions worldwide.