Developers and home buyers throughout Australia are buying larger blocks of vacant residential land and are paying higher land prices, new data shows.

Published by Housing Industry Association and CoreLogic, the Residential Land Report shows that median prices for vacant residential lots surged by $44,130 or 15.6 percent over the year to June.

Meanwhile, average block sizes rose by 12.6 percent. This indicates that the rise in prices was mostly due to larger block purchases.

Moreover, price growth appears to be slowing.

During the June quarter, median lot prices increased by only 1.0 percent.

With block sizes having risen by 2.2 percent over that time, this suggests that prices actually contracted during the quarter on a square meter basis.

Meanwhile, land sales volumes continued to contract in the June quarter and stood at their lowest level in more than ten years.

In their report, HIA and CoreLogic say that slowing price growth and low sales volumes could indicate that recent valuation increases have pushed land prices closer to consumers’ purchasing capacity.

The groups say that Increases in the RBA’s cash rate (which started in the June quarter) will further constrain consumers’ ability to purchase land and may reduce the number of new homes built over coming years.

(The low sales volumes could also reflect a shortage of available land following two years of record activity in detached home building.)

Whilst the increases in land sizes may partly reflect changing consumer preferences following the pandemic, the report warns that greater lot sizes may also reflect a shift toward less desirable locations (further from employment) on account of constrained availability.

The combined outcome of greater land sizes and prices, it cautions, ‘is not necessarily consistent with the market shifting in favour of consumers’.

HIA Economist Nick Ward said the cost and availability of land will need to improve if government is to realise its vision of delivering one million new homes as outlined in the latest budget.

“Prices appear to have risen close to consumer’s capacity to purchase land,” Ward said.

“The increases in the cash rate will likely further constrain consumer’s ability to buy, risking a reduction in the number of homes expected to be built.

“In order to achieve the Australian government’s target of building one million new homes over five years from 2024, the supply of land will need to improve in the near future and the cost decline.”

CoreLogic Economist Kaytlin Ezzy agrees.

“Despite approximately 975,000 homes being completed over the five years to June 2022, the government’s goal to complete one million new homes is an ambitious one, especially given current land supply,” Ezzy said.

“While the interest rate rises seen over the past six months will have put some downwards pressure on land prices, until there is a material change in supply, median land prices will likely remain elevated.”

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