The price of vacant residential land in Australia continues to surge as a shortage of shovel-ready supply is driving a scramble to snap up available lots, the latest report has found.
In the latest (December quarter) edition of their latest HIA CoreLogic Residential Land Report, Housing Industry Association (HIA) and CoreLogic have analysis sales activity and transaction prices across 51 housing markets in Australia.
The report showed that the number of vacant lots sold shrunk to record lows in the December quarter.
This happened despite ongoing signs (new home sales, building approvals, housing finance etc.) that demand for residential housing remains at elevated levels despite having dropped back from record highs.
At the same time, combined capital city land prices surged by 13.9 percent over 2021 to go from a median of $297,600 in December 2020 to $339,046 in December last year.
This represents the strongest increase in median land prices since 2004.
Price increases were especially strong in Hobart (up 97.2 percent), Melbourne (up 35 percent) and Sydney (up 30.3 percent).
The latest data comes amid concerns that the pipeline of land which is available for development may not be sufficient to satisfy future housing requirements.
In March, Coline Keane, director of greenfield land market research firm Research 4, warned that Sydney, Melbourne and Brisbane each faced severe long-term constraints in the capacity of land supply to cater for housing needs.
Whereas metropolitan areas would ideally have fifteen years’ worth of zoned residential supply, Keane warned that Sydney and Melbourne have just four years of zoned supply within current approved precinct structure plans.
The report also comes as the new Labor Government has promised the creation of a National Housing Supply and Affordability Council.
The Council will be responsible for collecting and reporting nationally consistent data on housing supply, demand and affordability; setting land supply targets; and advising on ways to improve land use planning and land supply.
The Council will also play a key role in creating a National Housing and Homeless Plan.
In its report, HIA welcomes these moves.
The housing group has long called for a nationally consistent data set of land supply across all states and territories which would be based around the seven stages of rezoning from paddock to shovel-ready land.
As things stand, HIA says a lack of public national data on land supply means there is an absence of visibility about the long-term pipeline and the capacity or otherwise of this to satisfy greenfield housing demand.
HIA Economist Angela Lillicrap says the latest data signals a shortage of supply.
With a time lag between land sales and new housing construction starts – along with a strong pipeline of new housing activity – Lillicrap says tight supply will begin to constrain new home building activity from the middle of next year.
“The volume of land sales fell to record lows in the September 2021 quarter and continued falling in the December quarter despite ongoing strong demand for land and housing,” Lillicrap said.
“At the same time, the median price of land increased by 13.4 per cent or $35,900 in 2021. This is the strongest annual growth since 2004.
“The decline in the volume of sales while the price continues to increase rapidly, is a clear indication that there is a significant shortage of shovel-ready residential land.
“Other leading indicators, including HIA’s New Home Sales Report, show that demand for housing remains elevated compared to pre-COVD levels. However, the sales occurring are now looking to a commencement in at least 12 months’ time.
“There are significant constraints which prevent land supply from quickly responding to changes in demand. As a result, land will be the largest constraint on home building activity from mid-2023.”
CoreLogic research analyst Kaytlin Ezzy says supply constraints are being caused by high levels of demand for new housing.
“It’s unsurprising that land supply is struggling to keep up with demand, given the strong uptick in land sales seen over the second half of 2020 as demand for vacant land responded to the HomeBuilder policy,” Ezzy said.
“While the reduction of construction related stimulus and rising construction costs have likely softened demand to some extent, the sharp rise in median prices over 2021 suggests that supply constraints are a larger factor in the trend towards fewer land sales.
“As land prices and construction costs continue to push the cost of new housings higher, it is possible some demand will shift towards the established housing market, particularly as it moves towards the downwards phase of the cycle.”