The price of vacant residential land has surged across three of Australia’s medium-sized capital cities even as land sales volumes fall to worrying lows, new data shows.

Last week, the Housing Industry Association (HIA) and CoreLogic released the latest quarterly edition of their HIA-CoreLogic Residential Land Report.

The report provides updated information on 51 land and housing markets across Australia. This includes the six state capital cities.

All up, the report found that the number of vacant residential lots that were sold across the country fell by 9.1 percent in the March quarter to just 85,480 blocks.

This represents the fourth lowest volume of transactions since the introduction of the GST in 2000.

Meanwhile, national median lot prices have risen by 3.3 percent over the year to March to reach $343,380.

This has occurred as a 0.9 percent contraction in prices in regional markets has been offset by a 4.4 percent rise in capital city greater metropolitan land values. Median lot values in capital city markets have now reached $377,203.

Within metropolitan areas, softer conditions in Sydney and Melbourne have partly obscured a surge in prices which has occurred across Adelaide, Brisbane and Perth.

Across the three latter cities, prices surged by 12.5 percent, 9.0 percent and 7.9 percent in the March quarter and are up by 23.9 percent, 16.6 percent and 14.5 percent over the year to March.

Such a divergence reflects a more rapid recovery in housing and home-building markets across medium capitals compared with the two largest cities.

In relation to Perth, for example, detached house commencements in Western Australia registered their highest level in the March quarter since the Homebuilder boom.

In addition to overseas migration, Perth and Brisbane have benefited as Queensland and Western Australia have seen net levels of interstate migration (mostly from NSW and Victoria) as well as overseas migration.

Relative to Sydney and Melbourne, Perth, Brisbane and Adelaide have also enjoyed an affordability advantage (although higher prices are now beginning to erode this).

This is especially important as the effect of higher interest rates has been most severe in more expensive markets that are characterised by higher average mortgage values.

The divergence is even more stark when the impact of changing lot sizes is stripped away.

On a per square meter basis, the median price of vacant residential land increased over the year to March by 50.5 percent in Adelaide, 16.3 percent in Perth and 14.9 percent in Brisbane.

The decline in land sales volumes in the March quarter has reversed what previously appeared to be a modest level of upward momentum in land markets which had taken hold over the second half of 2023.

This is concerning for the building industry as land sales volumes are a leading indicator of forward commencements in detached house construction.

Meanwhile, the increase in prices across mid-sized capitals has occurred on the back of sales volumes which are relatively modest by historic standards.

This raises concern that a shortage of shovel-ready land which is available for development may be re-emerging in these markets.

It further highlights broader concerns that the supply and cost of land may re-emerge as a constraint upon industry capacity to deliver upon Australia’s longer-term housing objectives.

In their report, HIA and CoreLogic have called on governments to do more to ensure that an adequate supply of land can be delivered at a price which is conducive to affordable housing delivery.

Toward this end, the report called for action on two matters.

First, it called on governments to create a clear roadmap for land supply and to plan for the infrastructure which is needed in order to support new housing delivery (roads, water/sewerage, public facilities, open space etc.)

Beyond that, the report also called for governments to minimise the burden of taxes and charges which are applied to new land and housing.

In particular, the report called for governments to explore what HIA and CoreLogic say are more equitable arrangements to share the cost of providing infrastructure to new communities between governments, developers and existing infrastructure users.

As things stand, it says that infrastructure provision costs are mostly or entirely borne by developers and are ultimately reflected in the cost of new housing provision.

HIA Senior Economist Matt King called on governments to act.

“The decline in the number of lots sold in this quarter has been broad-based, as land sales fell across all capital cities and regional markets,” King said.

“Lot sales remain well below the pre-pandemic average, suggesting an ongoing lack of urgency from state and local governments to bring enough land to market for residential development.

“Furthermore, it reflects a damaging fixation on taxes and charges levied throughout the new home building supply chain.

“Excessive taxation and charges on land under residential development is a key reason for the high price of land.

“Land supply has been inadequate for the best part of a decade, and inefficient and inequitable taxes, such as stamp duty, have only compounded the problem and significantly inflated the cost of land.

“Before a brick is laid, the median lot prices across many capital city and regional markets are already simply too expensive, pricing vast numbers of owner-occupiers out of the new home building market.

“It is incumbent upon governments to adequately supply land for residential development, both greenfield and infill, to support Australia’s underlying housing demand.

“An appropriate demand/supply balance should be complimented by the removal of punitive taxes, such as stamp duty, that are pushing new homes out of the reach of many Australian families.”

CoreLogic Economist Kaytlin Ezzy said that the recent divergence in capital city land price growth mirrors the recent trends in dwelling value growth. This has seen mid-sized capitals like Perth, Brisbane and Adelaide far outstrip Sydney and Melbourne.

Ezzy says that affordability continues to be an important factor driving this divergence, with the high interest rate environment skewing demand away from the more expensive end of the market towards more affordable capital city and regional alternatives.

She noted that rising land prices and higher construction costs continue to be important factors in hampering the delivery of new housing.

“Since the onset of COVID, median land prices across the capitals have increased by between 16.4 per cent (Perth) and 54.2 per cent (Sydney), which has likely priced many potential homeowners out of the new dwelling market,” Ezzy said.

“Additionally, while growth in construction costs has stabilised in recent months, they remain well above the pre-COVID average, further pushing new dwelling ownership out of reach of many households.”

Enjoying Sourceable articles? Subscribe for Free and receive daily updates of all articles which are published on our site

Want to grow your sales, reach more new clients and expand your client base across Australia’s design and construction sector? 

Advertise on Sourceable and have your business seen by the thousands of architects, engineers, builders/construction contractors, subcontractors/trade contractors, property developers and building industry suppliers who read our stories across the civil, commercial and residential construction sector