Australia faces long-term challenges in delivering housing in greenfield areas as residential land supply is likely to fall short of what is needed, a new analysis has found.
As part of the launch of the State of the Land report published last week by the Urban Development Institute of Australia (UDIA), Colin Keane, director of greenfield land market research firm Research 4, provided an overview of the outlook for greenfield land markets across the remainder of the decade.
As noted in a previous article, current land supply across Sydney, Melbourne and Brisbane is extremely tight on account of record levels of activity in detached home-building.
Longer term, Keane says several problems lie on the horizon.
In some cities, coming years will see periods where the combined selling capacity of land estates is insufficient to meet demand.
Across Sydney, Melbourne and Brisbane/SE Queensland, meanwhile, the stock of land which is currently zoned for residential purposes will fall far short of what is needed to satisfy long-term greenfield housing requirements.
When speaking about land supply, Keane says several concepts are important.
First, there is zoned land – the amount of land which is currently zoned for residential development. In a healthy market, urban planners work on an assumption that fifteen years’ worth of zoned supply is sufficient to satisfy long-term demand.
Second, there is activate supply. This represents the combined selling capacity of all land estates which are active in the market at a particular time.
This concept is important as a healthy market needs to be able to respond to fluctuations in demand and to deliver shovel-ready land as and when this is needed.
Finally, when speaking about zoned land supply, data below assumes a 100 percent conversion rate into residential housing. In other words, the data assumes that all land which is zoned for housing winds up having one or more homes constructed on it.
Obviously, this does not happen. In practice, challenges such as fragmented ownership, developer intention and geographic complexities mean that not all land which is zoned for residential use is converted into housing.
So what does Australia’s greenfield land supply look like?
In Perth and Adelaide, the scenario is not that bad.
In Adelaide, Keane says industry capacity to deliver an average of just under 400 lots per month should be sufficient to meet demand (between 316 and 400 lot sales per month) over his forecast period.
Meanwhile, the city has a relatively healthy ten years of zoned supply – though Keane reiterates his above point that not all zoned supply will be converted into shovel-ready land.
This should result in a competitive market overall notwithstanding that some opportunities for land price escalation could arise during peak demand periods.
In Perth, Keane says the city enjoys eleven years of zoned supply.
Whilst this is less than the ideal of fifteen years, it is still one of the strongest supply pipelines in the country.
That said, conditions are tighter in some specific corridors such as the north-east and the south-west.
Over the shorter term (next two years), however, Keane says the market may be subject to price escalation as the active supply will struggle to address average demand levels let along any spike in demand.
Beyond Adelaide and Perth, however, the situation in east-coast markets is dire.
In Melbourne, Keane says the city has just four years of zoned supply within current approved precinct structure plans (PSPs). Unless additional PSPs are approved, market capacity will fall apart from 2026 onward.
In some locations, this could happen as soon as 2023 or 2024. In the south-eastern fringe LGA of Casey, Keane says the market is ‘under the gun’ regarding supply. Likewise, Hoppers Crossing/Wyndham in the south-west has only 1.2 years of active supply. Geelong it ‘as the end of its tether’.
Even over the shorter term, Keane says active selling capacity will barely cater for average market demand and will not have capacity to respond to demand peaks.
All this will put pressure on prices. Over the next two years, Keane says the city expects average quarterly price growth of 2.2 percent.
By 2029, Keane says median lot prices in the city could reach $639,000. This compares with a current median price of $377,000 in the September quarter (HIA/CoreLogic Residential Land Report, September quarter).
Even more dire is the situation in Sydney.
Here, median land prices surged by 17 percent on a square meter basis in 2021 on the back of massive demand and a shortage of land which saw trading stock levels sitting at only weeks for the entirety of the year.
As with Melbourne, Keane says zoned supply within PSP areas sits at just four years.
Even over this short period, new estates may not meet demand. Put together, all estates combined will provide an average of only 105 new land estates each year. Were we to need 150 estates, Keane says the four years of supply would effectively become two-and-a-half years.
Shorter term, Keane expects active selling capacity to fall short of average demand throughout 2022 before struggling to meet average demand levels in 2023 and 2024.
Finally, the outlook is also concerning Brisbane and South-East Queensland.
This was the second strongest performing market in terms of land sales volumes across 2021 behind Melbourne (Sydney was impacted in terms of sales volume numbers by short supply).
Queensland also stands at the end of the line in terms of interstate migration from Sydney or Melbourne. This means that if housing and land supply does not cater for demand in Queensland, those who migrate north will simply need to wait until housing becomes available or compete with existing residents for established housing.
Based on an assumption that 117 active projects will come into the market (based on historic take up rates for new projects), Keane says the region has active zoned supply of seven years.
In itself, this is less than half of what is needed to represent healthy levels of supply.
For two reasons, however, the situation is more dire than what this number infers.
First, Keane says the 117 active project baseline on which this calculation is based is extremely conservative. If as he anticipates the state in fact needs an average of 182 projects each year, that zoned supply would be slashed to three and a half years.
As noted above, meanwhile, not all zoned supply will make it through to shovel-ready land. Thus the true land supply outlook is tighter than what these numbers suggest.
Short term, Keane expects overall price growth to continue in 2022. Individual sub-markets such as Gold Coast, Logan and Moreton Bay will be particularly hard hit.
(Note: the above data on the land supply pipeline refers only to land which has been zoned for residential use. Land which sits within urban growth areas but has not yet been zoned for residential use has not been included).
The latest report comes as property groups push for measures to improve the land supply pipeline.
As part of its pre-budget submission for 2022/23, UDIA has called for the Commonwealth to establish land and housing supply targets for each state/territory and to reward performance against these through an incentive scheme.
In its election priorities, meanwhile, Housing Industry Association HIA) called for development of a National Housing and Land Supply Strategy along with annual reporting for progress against this which includes the seven stages of land development. These seven stages are designation for land development, zoning for land development, subdivision planning approval, subdivision works approval, subdivision completion approval, title registration and lots sold to market.
As things stand, HIA says Australia’s residential land supply chain is broken and that bringing unzoned land to market as shovel-ready land can take more than a decade.
Keane says action is needed.
“The effectiveness of greenfield markets around Australia are going to come into increased pressure in 2022 because active supply has been run down,” he said.
“The amount of zoned land available within each market has limited capacity to keep bringing on new projects.
“When you overlay the fact that it takes five years plus to get a project to market, you need more zoned land in every market pretty much now to prevent an affordability crisis.”