The supply of vacant residential land in Australia is tightening, putting upward pressure on land prices, house prices and the cost of residential construction, a key industry association has warned.

In its the most recent HIA-RP Data Residential Land Report, the Housing Industry Association said the volume of residential land sales which took place throughout the country eased back 2.8 per cent in the September quarter, but sales volumes were still up 40 per cent from a year earlier.

While this represents welcome news for the construction industry in terms of being a further indicator of stronger home building activity in the near future, HIA senior economist Shane Garrett says a combination of higher demand and supply bottlenecks were creating pressure on land supply and the cost of land.

Indeed, following almost three years of stability amid a period of subdued demand for new housing and thus vacant land, median lot prices around the country increased by 2.9 per cent in the September quarter.

“Demand pressures are really starting to take their hold on the market and indications are that the available amount of supply is not sufficient,” Garrett said, noting that prices increased in every capital city and some price pressures were becoming evident in regional markets.

Despite strong result overall, RP Data research director Tim Lawless says sales activity varied across each capital city, with extremely strong signs in Sydney and accelerating volumes in Melbourne and Brisbane (albeit from a low base) but slippage in the number of parcels sold in Perth (albeit from a high base), Adelaide and Hobart.

expensive land areas

Click to enlarge

cheap land areas

Click to enlarge

In Sydney, transaction numbers in the six months to September last year were up almost 60 per cent on the same period the year before, he said.

residential land sales

Click to enlarge

Asked about the challenges in unleashing greater housing supply, Garrett said key issues revolved around planning regimes which were not sufficient to cater for the recent increase in demand as well as limitations in the pipeline of available land supply.

He says there are also important issues in terms of the cost of making land available, such as the need for developers to pay for the cost of public-good infrastructure up front, and that the HIA is pushing for alternative funding solutions such as tax increment funding or publicly backed infrastructure bonds in order to ease burdens in this area.

The latest data comes amid increasing signs of a recovery in residential construction activity. Building approval data released on February 3 showed that the overall number of dwelling units approved for construction more than a fifth on the same period last year.