The price of vacant residential land has surged to record highs even as demand for new housing construction has slowed, new data shows.

Released on Friday, the HIA-CoreLogic Residential Land Report has provided updated information on sales activity and prices across 51 housing markets throughout Australia including the six state capital cities.

It revealed that the price of vacant residential lots surged by 3.8 percent during the September quarter to record highs of $340,000.

The result has been driven by a surge in prices in greater metropolitan areas of capital cities.

On a weighted average basis, capital city land prices surged by 5.3 percent in the September quarter to reach $375,659.

Leading the way was Perth, followed by Sydney, Melbourne and Adelaide.

Median lot prices in these capitals rose by 8.0 percent, 7.5 percent and 6.3 percent and 4.6 percent respectively.

On an annual basis, the median price of vacant residential land across all markets covered in the survey increased by 3.1 percent over the twelve months to September.

This was driven by a 3.8 percent increase on a weighted average basis across the six state capitals.

In turn, this has been driven by increases in Perth (17 percent), Brisbane (7.2 percent), Sydney (6.7 percent) and Adelaide (5.9 percent).

In regional markets, median lot prices increase by more a more modest 0.8 percent.

To be sure, part of the increase in lot prices over the past year reflects a modest increase in lot sizes.

Even accounting for this, however, the median price of vacant residential lots still rose by 1.7 percent in capital cities on a square meter basis – although the price per square meter did contract by 1.1 percent in regional areas.

The rise in prices comes as the number of lots sold eased slightly during the September quarter and remained at low levels by recent historic standards.

Land sales, building approvals and housing starts have all been subdued over the past year as rising interest rates have impacted demand for new housing construction.

The combination of low sales volumes and high prices indicates a shortage of available ‘shovel-ready’ land that is ready to be sold to the market for development.

The shortages have emerged as record levels of detached home building activity resulting from the Commonwealth HomeBuilder program and low interest rates saw buyers pile in to snap up available land across 2020 and 2021 (see chart).

This has placed enormous pressure on the supply of land that is available for development.

The constrained land supply underscores further challenges in delivering on Commonwealth targets of 1.2 million homes over the five years from 1 July 2024.

Unless further land supply can be unlocked, delivery upon that target would depend upon massive levels of investment in multi-unit and multi-storey dwellings as opposed to detached houses.

The report also reveals some interesting trends between states.

Compared with the same quarter in the previous year, September quarter transaction volumes were higher in Queensland, South Australia and Western Australia but fell in Victoria.

This, the report notes, indicates a movement in buying patterns away from the Melbourne basin.

Those purchasing land are not only moving to Queensland as a traditionally popular retirement state but also to other markets which are relatively more affordable and growing in popularity.

Within New South Wales, meanwhile, there has been a regional-capital divergence which has seen land sales volumes increase by 18.8 percent in Sydney but fall by 18.1 percent in regional markets.

(Source: HIA-CoreLogic Residential Land Report Sep qtr 2023)

Housing Industry Association Senior Economist Tom Devitt said the shortage of land supply underscores the level of difficulty which is involved in meeting the aforementioned housing target.

“The national median price of a residential block of land in Australia reached $340,000 in the September Quarter 2023, a new record high and up by more than a quarter compared to before the pandemic,” Devitt said.

“Shortages of shovel ready land saw lot prices surge during the pandemic, while the volume of lots being sold has plummeted to twenty-year lows.

“This ties in with other data showing the number of homes commencing construction is also lower than at any point in the last decade.

“Alleviating the housing shortages in Australia will require a supply-driven approach, and National Cabinet’s ambition to build 1.2 million well-located homes in five years is a step in the right direction.

“It would further require the release of more shovel-ready residential land into the market, which the data suggests has fallen to levels inconsistent with required levels of home building.”

CoreLogic Economist Kaytlin Ezzy agrees.

“The continued increases in land prices, despite a higher interest rates environment, growing affordability constraints and, recessionary low levels of consumer sentiment, indicate just how constrained the supply of shovel ready land is,” Ezzy said.

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