Brisbane, the Gold Coast and the Sunshine Coast are set to join Sydney as strong markets in terms of demand for residential land, though Melbourne and Adelaide are slated to see more modest growth and the market in Perth is set to soften considerably, according to the latest forecasts.
In its Outlook for Residential Land 2014:2019 report, industry research firm BIS Shrapnel said the volume of new residential lots produced within the Sydney metropolitan area would rise from around 5,500 over 2012/13 and 2013/14 to a peak of 9,000 in 2016/17 and would average 8,100 over the five years to 2018/19.
Lot production in Brisbane, the Gold Coast and the Sunshine Coast, meanwhile, were expected to rise from 6,000, 1,475 and 950 in 2013/14 to peaks of 9,000, 2,100 and 1,800 in 2016/17 respectively.
The forecaster said a prolonged downturn in land production and housing construction in Sydney over the past decade had led to a significant shortfall of land and housing supply notwithstanding a recent surge in land sales and residential building activity, and that significant volumes of pent-up demand would take several years to work its way through the market.
Meanwhile, a combination of surprisingly affordable lot prices (current median lot prices of $290,0000 in 2013/14 are below those of the $296,000 which were observed at the height of the price peak in 2004/05) and increases in existing house prices in outer metropolitan areas had seen a reversal of a phenomenon observed throughout the last decade in which a combination of a mid-decade peak in land prices and affordable prices for established house prices precipitated a collapse in the demand for new housing.
Meanwhile, south-east Queensland markets such as Brisbane, the Gold Coast and the Sunshine Coast are seeing the beginning of a recovery in demand at a time when lot production has been at extremely low levels in recent years and when rising prices in Sydney and Melbourne are encouraging residents there to move north.
In Brisbane, for example, new housing has become relatively more affordable in recent times as land price growth has been even more constrained than house price growth, while higher than average lot sizes compared with other cities mean there is considerable scope for developers to boost affordability and therefore demand by reducing lot sizes.
The new report comes amid early signs of moderate levels of upward pressure on land availability and prices amid growing levels of demand for new housing construction. Median lot values in capital cities throughout the nation rose by an average of 7.5 per cent throughout 2013/14 after several years of price stability.
Concerns over skyrocketing land demand come as planning reform efforts on the part of governments to free up land for new construction meet with mixed success.
In New South Wales, for example, community backlash forced changes which allowed for streamlined assessment processes and shorter approval time frames for new construction and housing renovations which met local development guidelines to be substantially pared back and restricted to apply to only nominated growth areas and other changes which limited appeal rights and heritage protections to be abandoned.
Western Australia, by contrast, is winding back and streamlining compliance requirements relating to building permits and planning approvals for new construction.
How Your City Compares:
On a city by city basis, BIS sees the outlook for residential land production between now and 2018/19 as follows:
- Continued strong demand to see lot production rise from 5,500 lots per annum in 2013/14 to a peak of 9,000 by 2016/17
- Significant levels of pent-up demand remain amid low levels of lot production last decade
- Strong activity in both new subdivisions and off-the-plan purchases
- Strong growth in lot production from 6,000 lots in 2013/14 to 9,000 lots in 2015/16
- Low levels of land price growth in recent times has seen relative affordability of new construction increase
- Strong potential for developers to reduce average lot sizes and improve affordability and demand
- Diminishing opportunities in Brisbane City Council boundaries will see increasing development in outer Brisbane regions
Gold Coast/Sunshine Coast:
- Strong recovery in lot production from low levels in recent years.
- Demand to be helped by healthy interstate migration and improving conditions in the tourism sector
- Some potential to reduce lot sizes, though this is limited as home buyers choose these regions for lifestyle choices
- A pick up in lot completions anticipated for 2014/15 off a massive dip in 2013/14 caused by previous levels of oversupply
- Average lot production over five years to 2018/19 to remain slightly below long-run averages
- Stable level of lot production as housing demand picks up but remains at modest levels
- Sufficient number of pre-sales in system to keep new lot completions at record levels until 2014/15.
- Demand for land to ease thereon after as population growth eases.