The price of vacant residential land is surging as the supply of shovel-ready lots has failed to keep up with massive demand for detached homes, new data shows.

Releasing their latest Residential Land Report for the September quarter, Housing industry Association and CoreLogic say that the price of vacant residential lots which are sold for development in capital city markets has increased by 6.5 percent for the quarter to be up 14.7 percent compared with the September quarter of last year.

Whilst Greater Adelaide led the quarterly charge with a quarterly rise of 21.8 percent, Greater Sydney, Greater Hobart and Greater Melbourne have registered the highest year-on-year increases of 32.2 percent, 30.1 percent and 21.3 percent respectively.

Partially speaking, the increase in capital city lot prices has been offset by a 13 increase in the size of lots being sold.

This runs contrary to a previous long-term trend toward smaller lot sizes.

Across regional markets, meanwhile, the price of vacant residential lots increased by 8.6 percent over the year to September although this was offset by a 10.6 percent increase in median lot sizes.

Longer term, the price of capital city land continues to rise – a phenomenon which continues to contribute toward housing affordability challenges.

Whilst increases in other capitals have been more moderate, the cost of vacant residential lots in Sydney, Melbourne and Hobart has risen from $278,750, $210,000 and $136,176 in the September quarter of 2011 to $575,000, $377,000 and $265,000 in the September quarter of 2021.



The latest data comes amid strong demand for vacant residential land on the back of record levels of activity in detached house construction – demand for which appears to remain strong despite the expiration of the deadline for the Commonwealth Homebuilder grant.

This has seen 267,936 new detached homes approved for construction over the two years to November 2021 – well above a previously elevated level of 225,473 detached home approvals over the two years to 2019.

In their report, HIA and CoreLogic say that the supply of shovel-ready land is failing to keep pace with new housing demand.

Such demand, they say, has been driven not only by HomeBuilder and state incentives but also by low interest rates and a shift in household preferences for more space and greater amenity in their homes.

At least over the short term, the report notes that it can be difficult for supply to respond as the process of turning land from paddock to shovel ready can take more than a decade.

As for the increase in lot size, HIA and CoreLogic say this likely reflects a shift in purchasing activity further away from capital cities and into regional areas.

This is happening as the ability to work from home has enabled households to consider locations that previously would have been considered too distant from the office.

HIA Economist Angela Lillicrap said the availability of shovel-ready land will be one of the largest constraints on residential development activity over coming years.

This will happen even as the broader economy needs construction to pull it forward.

CoreLogic Head of Research Tim Lawless said the surge in prices is unsurprising given the level of demand for new detached housing along with the constraints associated with bringing new subdivided land online quickly.

Lawless notes that the surge comes amid a trend toward lower levels of land sale volumes throughout 2021.

This, he said, indicated not a lack of demand but rather a shortage of available shovel-ready lots to sell.