As buyers rush to capitalise on the Commonwealth HomeBuilder program, a nationwide scramble to snap up vacant residential land throughout Australia is on.

Releasing the 2021 edition of its State of the Land Report produced in collaboration with CoreLogic and Research4, the Urban Development Institute of Australia (UDIA) said the number of vacant residential lots which were sold throughout Australia over the September and December quarter came in at more than double levels which were seen prior to COVID.

As a result, supply of vacant residential land now sits at just 1.7 months’ worth of trading.

This has happened notwithstanding a 47 percent increase in the volume of land being released throughout 2020.

At this level, the supply of vacant land is below the three-to-five-month benchmark considered by UDIA to represent ideal balanced market conditions.

Land prices, meanwhile, are on the rise in Sydney where the shortage is most acute (see below) – albeit with prices remaining broadly stable elsewhere.

The increase in land demand is being driven by a surge in detached home construction which has taken hold as households rush to capitalise on the Commonwealth HomeBuilder grant.

This, along with low interest rates and a shift in preference toward lower density living due to the nature of the COVID shock, has underpinned a record surge in new detached home sales and building approvals for detached residential construction.

This contrasts with the multi-unit sector, which was already being challenged to absorb massive volumes of stock from several years of record levels of new apartment construction and which has been particularly impacted by the halt to international migration.

Going forward, UDIA says the surge in home building activity is likely to drop back as the HomeBuilder stimulus tapers off and restrictions in international migration remain for some time.

Pointing to forecasts from the National Housing Finance and Investment Corporation (NHFIC), it says demand for new housing will fall from pre-COVID expectations of 176,300 dwellings in 2021 and 186,900 dwellings in 2022 to just 54,200 in 2021 and 91,600 in 2022.

Beyond that, NHFIC projections foreshadow a rebound in 2023 (141,700 dwellings) as the economy strengthens and net oversees migration begins to ramp back up before a return to near pre-COVID levels of 178,800 dwellings by 2024.

As the level of activity eases, pressure on land supply will subside.

City by City (major capitals only)

In terms of locations, the most interesting situation is in Sydney, where a rebound in sales has led to a shortage of land supply, rising prices and a contraction in lot sizes.

Following a lull in 2029, land sales in Sydney rebounded by 88 percent in 2020 to reach historically elevated levels of 8,700 lots.

Despite a 52 percent rise in new land releases, this has seen the stockpile of available lots plummet from 2.8 months’ worth of trading at the start of the year to just 0.6 months in the December quarter.

This has led to a surge in prices and a contraction in lot sizes.

All up, median lot prices increased by 11 percent over the year to average $478,000 over the year and finish 2020 at $495,000.

Median lot sizes, meanwhile, contracted by 2 percent to go from 378 square meters (sqm) in 2019 to 372 sqm in 2020.

This continues a long-run trend toward smaller lots which has seen median lot sizes in Sydney contract from 524 sqm in 2010 to 378 sqm in 2020.

Further, with modelling by Research 4 indicating a trading capacity for the 121 active estates within the Greater Sydney Mega-region area’s (Sydney, Illawarra, the Hunter Region) at 1,473 lots per month, UDIA warns that further price escalation is likely as current capacity levels are insufficient to meet demand.

On specific sub-markets, the most active area for new releases is the South-West corridor which provides the broadest range of price points with Wilton offering entry level products at $290,000.

Also active is the North-West corridor, although this is characterised by smaller lots and is being impacted by ongoing challenges in land supply.

With significant potential for residential development being identified in and around the Aerotropolis, meanwhile, the Western corridor is set to play a more substantial role in catering for new land supply in coming years.

Elsewhere, land is also in short supply throughout the Brisbane/South-east Queensland and the ACT.

In Brisbane/SE Queensland, available stock levels sit at just 1.2 months’ worth of sales after a record year saw new sales outstrip the volume of land releases.

All up, a 65 percent rise saw the volume of lot sales reach 13,040 – the highest level on record on Reserch4’s National Land Survey.

Whilst prices contracted slightly to finish at an average of $265,000 for the December quarter, UDIA warns of upward pricing pressure as current sales activity outstrips production capacity by a factor of two-to-one.

Land supply is also running low in Canberra/Australian Capital Territory where a doubling of sales volumes has seen unsold trading stock contract from 5.0 months at the start of last year to just 1.2 months in the December quarter.

Median lot prices ($417,000), however, contracted by 1 percent as the number of active trading estates continues to grow as the Territory’s growth corridors continue to expand.

Next, moderate land shortages have also emerged in Melbourne and Adelaide.

In Melbourne, land sales increased by 83 percent over the year and ramped up in the December quarter to 1,857 per month after the second metropolitan-wide COVID lockdown was finally lifted and buyers rushed to capitalise on HomeBuilder.

This helped to clear a backlog of inventory which had built up after sales disappointed in 2019 and saw the year close with 2.1 months’ worth of trading stock – slightly below the 3–5-month levels which represent a balanced market.

Despite the improvement in sales, median lot prices contracted by 3 percent to $319,000 in 2020 as the market continues to digest a build-up in 2017 and 2018 which saw prices jump from $230,000 to $330,000.

In Adelaide, the inventory of available land fell from more than ten months’ trading to just 2.3 months over the December quarter as an 83 percent surge in sales volumes to a record 3,765 lots saw clearance rates surge to 116 percent across the June to December quarters.

Whilst median lot prices have remained fairly stable, upward pricing pressure is anticipated if the monthly volume of land sales (305 per month in the December quarter) remains above the current capacity of the city’s active trading estates to deliver around 220 new lots per month.

Whilst demand has surged across all sub-markets, activity is particularly strong in North Adelaide and the Barossa Valley, where sales surged by 142 percent and 140 percent.

According to UDIA, demand in the more affordable north is being driven by local buyers and has been brought forward as a result of government housing stimulus.

Sales volumes still increased in the central and southern parts of Adelaide (up 70 percent each) although not to the same extent as in the north as purchasing in these markets is more strongly driven by international arrivals seeking greater amenity and who have higher pricing points.

Finally, Perth has led the way in sales activity, although pricing pressure remains moderate as there is still a reasonable volume of available supply.

All up, the number of vacant residential lots sold throughout Perth rose by 128 percent during 2020 to reach 10,770.

Sales were strong across all regions, with Peel, North West, North East and South East recording growth of 253 percent, 171 percent, 156 percent, 150 percent and 120 percent respectively.

Thus far, however, this has not led to price increases as the market instead used the sales to clear previous unsold stock and to absorb a high level of new land releases.

Throughout the year, the volume of unsold inventory declined from previously high levels of 9.8 months’ worth of sales to a more balanced level of 3.4 months’ worth of sales.

Median lot prices, meanwhile, contracted by 1 percent.

Going forward, UDIA says pricing pressure will be restrained as the volume of stock on hand remains at reasonable levels and new sales are expected to return to levels which are within the current industry capacity to deliver of 908 lots per month.

Already, sales have dropped from 1,200 per month throughout the June and September quarters to 660 per month in the December quarter – a level which sits comfortably within industry production capacity.