Land prices throughout Australia are surging as record levels of activity in detached home building has driven up demand at a time when the supply of vacant residential lots remains constrained, the latest report indicates.

In the June Quarter edition of their HIA-CoreLogic Residential Land Report, Housing Industry Association and CoreLogic say that the median price of vacant residential lots rose by 3.5 percent in the quarter and was up by 8.5 percent over 2020/21.

Leading the charge was Hobart, where land prices surged 66.5 percent in the quarter and were up by 79.5 percent during the year to go from $190,000 in the June quarter of 2020 to $341,000 in the quarter just passed.

However, the report cautions that further data is needed in order to confirm the extent to which the spike in Hobart prices represents underlying trends as opposed to quarterly statistical volatility.

In Sydney, Melbourne and Perth, meanwhile, median lot prices rose by 11.0 percent, 7.8 percent and 6.8 percent to be up for the financial year by 27.1 percent, 12.7 percent and 15.7 percent respectively.

In addition, the past financial year has also seen a reversal in the long-term trend toward smaller land parcels.

All up, median lot sizes throughout Australia increased by 6.7 percent in 2020/21 – a phenomenon the report attributes to a shift in activity toward regional areas.

For the most part, the rise in land prices has been brought about by record levels of demand for detached home building.

This, in turn, has been driven by the Commonwealth Homebuilder program, through which 109,938 applications for grant funding to be applied toward construction of a new home were received along with a further 25,158 applications for funding toward renovation of existing homes.

Nevertheless, HIA and CoreLogic warn that there are broader concerns about a shortage of land supply.

Although the effect of HomeBuilder will wane as the deadline for program eligibility expired in March this year, they argue that a likely return in migration in 2022 means that demand for new housing will remain robust into 2023.

Meanwhile, a long-term trend toward smaller household sizes means that Australia will need to build more homes even if population levels remain constant.

As a result, demand for new homes – and for land on which to build them – is likely to remain at robust levels for some time.

As this is happening, the pipeline of land supply is shrinking in some areas.

Across the Sydney basin, for example, the supply of available land which is set to be released to the market over the next five years is smaller compared with that which was made available over the past five years to the tune of 25 percent.

In their report, HIA and CoreLogic call on state and territory governments to free up supply of available land.

They point out that the price of land is rising at a rate which is twice that of construction materials (four percent, according to ABS data).

Furthermore, whilst material price rises are being driven by factors outside of government control, the supply of land is one factor associated with new home construction costs which governments are able to influence.

HIA Chief Economist Tim Reardon said the impact of rising land prices should not be understated.

“The cost of residential land has risen more than twice as fast as the cost of building materials over the past year,” said HIA Chief Economist, Tim Reardon.

“The shortage of building materials has caused delays to home building across the country and added 4.0 per cent to the cost of homebuilding in 2020/21, according to the ABS. At the same time, the cost of residential land prices rose by 8.5 per cent, adding further to the cost of new home building,” added Mr Reardon.

“Land supply has been in tight supply for the past two decades and the surge in demand in 2020 has seen land prices in Sydney rise 27.1 per cent in the past year alone. The strength of demand for land is set to continue throughout 2022 and into 2023.

“As land is a key component of housing, this increase in price has been a key driver of the rising cost of homes and the decline in housing affordability.

“There is little state and Australian governments can do to improve global supply chains and improve the availability of building products, but they are in direct control of the volume of land available for home building.

“Ensuring there is an adequate supply of land to meet housing demand is a key responsibility of state and territory governments and one of the necessary steps to addressing the affordability challenge. There is no better time than now to increase the supply of available land and make a generational step toward improving housing affordability,”

CoreLogic heard of research Rim lawless broadly agrees.

“The number of vacant land sales has been easing over recent quarters due to a combination of less stimulus along with scarcity of supply,” he said.

“The HomeBuilder grant saw demand for vacant land brought forward, with land sales surging through the second half of 2020.  However, the more recent trend has been a slowdown in land sales but a surge in detached housing construction as the nation moves into the early stages of what is likely to be an extended period of residential detached housing construction.

“The sharp rise in vacant land prices over the year, together with rising construction costs, will place further upwards pressure on the cost of new housing.  The lift in land prices and residential construction costs along with the value of established housing rising rapidly, is set to add further pressure to housing affordability challenges that are becoming increasingly apparent across the country.”


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