A surge in land prices is creating significant problems in terms of the delivery of affordable housing, a new report suggests.

Released by the Housing Industry Association in conjunction with CoreLogic, the March quarter Residential Land report shows that overall land prices rose by a whopping 9.3 per cent in the year to March as massive levels of residential construction led to significant upward pressure on land values.

Capital cities led the charge, with prices in Melbourne having risen by 16.6 per cent over the past 12 months and those in Sydney having risen by 11.1 per cent.

All this is despite median lot values having contracted. In Melbourne, for instance, the average square metre of residential lots has contracted by more than one-fifth over the past decade.

In other capitals, prices are up 7.4 percent year-on-year in Adelaide, 3.6 per cent in Brisbane and 2.7 per cent in Perth but have dropped by eight per cent in Hobart.

Beyond the capitals, however, significant price pressures exist in regional markets, where land values (per lot) have increased by seven per cent in the past 12 months.

In sales volume terms, regional markets which have been highly active over the past six months include Southern Tasmania, West Moreton (Queensland), Darling Downs (Queensland), South Eastern (WA) and Wide Bay-Burnett (Queensland).

Markets are also active in Illawarra, North Western New South Wales, East Gippsland (Victoria) and Barwon (Victoria).

Land prices in major metropolitan areas are under massive pressure amid extremely strong levels of residential construction.

Over the 12 months to March, ground broke on a whopping 221,761 new homes and apartments around the country, according to the Australian Bureau of Statistics – a number which is close to the highest on record.

At the same time as prices are rising, however, land sales are sitting at their lowest level in nearly four years.

Whilst this could be a sign of lower levels of development activity, the combination of rising prices and declining sales volumes could also signal declining availability of vacant lots.

HIA senior economist Shane Garrett says the increase in land prices is having a significant impact on housing affordability.

He urges governments to undertake actions to ensure that suitable and appropriate quantities of land are made available in order to accommodate growth in new housing demand.

“Land price increases in Australia are unrelenting,” Garrett said. “The substantial increase in the price of residential land continues to be the single biggest factor behind recent deteriorations in housing affordability”.

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