Markets for vacant residential land across Australia appear to be waking up after a period of extremely subdued activity.

And momentum is growing across Brisbane, Adelaide and Perth, where land purchasing activity has now returned to or is above pre-pandemic levels.

The Housing Industry Association and CoreLogic have released the latest quarterly edition of their Residential Land Report.

The report provides updated information on vacant land sales activity in 51 markets across Australia including the six largest capital cities.

The report shows that land buying activity is slowly picking up – albeit with activity remaining well below levels seen during the recent boom in detached home building.

In the December quarter, the seasonally adjusted number of vacant residential lots that were sold edged up by 0.9 percent to reach a total of 10,666.

This represents a 24.6 percent increase compared with the December quarter in 2022.

Land purchasing activity is typically a leading indicator of detached housing construction starts approximately nine months in advance.

As such, the increase in land sales volumes that was seen throughout the latter part of 2023 is generally a positive sign that the beginning of a recovery in detached home building may be likely to occur in the second half of this year.

Largely speaking, activity is being concentrated in the smaller capital city markets of Brisbane, Perth and Adelaide.

Sales volumes in these markets have either returned to pre-pandemic levels or are higher compared with pre-pandemic levels.

By contrast, volumes in the two largest capitals of Sydney and Melbourne remain at near 15-year lows.

According to the report, the stronger land market performance in the medium sized capitals is consistent with broader expectations of a brighter outlook for new home-building activity in these markets.

Conditions in these markets are being supported by the relative affordability of housing and land compared with Sydney and Melbourne, inflows of overseas and interstate migrants and robust employment opportunities.

In terms of interstate migration, Brisbane, Adelaide and Perth have seen stronger performance of late at the expense of Sydney, Melbourne and Hobart.

By contrast, markets in Sydney and Melbourne have been impacted by the loss of interstate migrants as well as having the most expensive land and housing markets. The latter factor means that these markets are comparatively more sensitive to interest rate increases as homebuyers need to take on greater mortgages in order to make undertake new property purchases.

Whilst the recovery in mid-sized capital markets is welcome, however, concerns is growing that this is leading to a return of supply constraints and pricing pressures in these markets.

Overall, capital city metropolitan market land prices remain relatively subdued, with prices having contracted by 0.6 percent in the December quarter and risen by only 2.9 percent in 2023.

That subdued picture overall, however, obscures quarterly price increases of 4.4 percent and 3.7 percent in Perth and Adelaide along with annual median lot price rises of 13.7 percent, 9.4 percent and 6.3 percent in Perth, Brisbane and Adelaide respectively.

Housing Industry Association Senior Economist Tom Devitt welcomed the improvement in land sales volumes.

But he cautioned that the nation could once more face constraints on new housing delivery amid a shortage of available land which is ready for residential development.

This, Devitt added, is occurring even though land sales volumes overall remain at modest levels.

He encouraged state and local governments to remove impediments to greater land supply.

“The fact that land prices are re-accelerating alongside such a modest recovery in sales volumes suggests it will not be long before the number one constraint on new home building is, once again, the availability of land,” Devitt said.

“State and local governments that do not help bring sufficient shovel-ready land to market – both greenfield and infill – will struggle to do their share of the Australian government’s national target of delivering 1.2 million new homes over the next five years.”

CoreLogic Economist Kaytlin Ezzy broadly agrees.

“The uptick in land prices and sales is following similar patterns to the overall housing market, with growth skewed towards the mid-sized capitals and corresponding regional markets,” Ezzy said.

“The combination of higher interest rates and low land supply has seen new annual dwelling approvals fall 12.8 per cent over the past year.

While the government’s $1 billion of additional funding for the Housing Support Program, announced on budget night, should help alleviate some of the infrastructure hurdles for land development, it will take some time for this to translate into an increase in land supply and land availability will likely continue to be a major factor hindering growth in overall housing supply.”

 

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