Shortages of vacant residential land are set to further exacerbate housing supply and affordability challenges across Australia in coming years, a leading researcher has warned.

And concerns remain about the adequacy of the long-term pipeline of land that will be available for residential development.

Last week, the Urban Development Institute of Australia released the 2024 edition of its annual State of the Land report.

The report provides an overview of current market conditions and forward expectations in new residential development for both detached housing and multi-unit construction.

In detached housing, the report revealed that a shortage of land persists across several markets notwithstanding that demand for new home building activity has eased.

Granted, land shortages have eased since an unprecedented boom in detached home construction that occurred throughout 2021 and early 2022 saw the supply of land that was available for sale and development fall to less than one month’ worth of trading across several states.

However, the supply of land remains worryingly constrained.

Generally speaking, markets are considered to be ideally balanced when the supply of land which is available for sale and development amounts to between three and five months’ worth of trading.

As at the end of December, however, trading inventories across Adelaide, Sydney, South-East Queensland and Perth stood at only 2.7 months, 2.6 months, 2.0 months and 1.1 months respectively.

(The situation is less constrained in Melbourne and the ACT, where available stock stands at 5.0 months and 5.8 months’ worth of trading.)

As a result, land prices continue to rise even as sales activity has slumped.

All up, the number of vacant residential lots that were sold for development across Australia fell by 28 percent last year to come in at just 30,344.

This represents the equal-second lowest volume of land sales on record across the past fifteen years.

Despite this, the median price of vacant residential lots ($1,030 per sqm) increased by 4.8 percent on a square meter basis.

This means that land prices are continuing to rise even as detached house building approval numbers spent much of 2023 at near-decade lows.

Such a situation paints a concerning picture in terms of cost and affordability of land which is available for new residential development.

Going forward, the report warns that the situation will deteriorate further in coming years.

Colin Keane, Director at greenfield development monitoring firm Research4 and a key contributor to the UDIA report, warned that the supply of land will be increasingly constrained in 2024 and onward.

This will place further pressure on housing supply and affordability.

Further, Keane highlighted concerns about the pipeline of land development over the long term.

Under ideal conditions, the pipeline of land which is in various stages of the land development process would be sufficient to meet new greenfield housing requirements for about fifteen years.

However, the current pipeline across Sydney, South-East Queensland and Melbourne is sufficient to bring on new estates for only seven, five and four years respectively.

After these periods, Keane says that the supply of vacant land will dwindle and will not be sufficient to cater for ongoing housing requirements.

He said that governments have failed to understand the urgency in ensuring adequate levels of active supply and associated development capacity.

“The outlook for 2024 (in greenfield land markets) is for demand to continue to move back toward long running averages,” Keane said.

“This pathway may be defined by short periods of over selling and then under selling, but the trend should be upward.

“It is suggested that this ongoing improvement in demand will highlight more the issues around not having sufficient supply and effective levels of competition. Pricing pressure will increase, driven by rising costs associated with development and tight personal budgets.

“This tension will in part shift demand toward smaller land product and integrated housing options, but (will) also run the risk of simply pricing people out of the market.

“Land supply remains an issue for most markets. Fortunately, most greenfield markets are currently not under any serious pressure, however it is likely that pressure will grow over the 2024 year and into 2025.

“If Australia is facing a housing crisis now, then what it might be facing in a years’ time may need a stronger adjective.”

(A summary of the performance of greenfield land markets across Australia in 2023. Source: UDIA State of the Land Report (data provided by Research4, March 2024)

The latest data comes amid ongoing concern that Australia will struggle to meet its national housing target of delivering 1.2 million new homes over the five years from July 1, 2024.

Last month, Housing Industry Association forecast that the nation would break ground on just over one million new homes over the next five years – almost 200,000 homes short of the target.

The need to deliver on the target has been underscored by recent data showing surging levels of immigration and a rapidly deteriorating supply of housing.

In terms of immigration, data released last Thursday by the Australian Bureau of Statistics shows that Australia’s population grew by a whopping 2.5 percent over the year to September 2023 to reach 26.8 million.

This is a level that the Intergeneration Report as recently as 2007 projected would not be reached until 2034/35.

In terms of housing supply, data from CoreLogic suggests that national rental vacancy rates stood at just 1.1 percent for houses and 1.2 percent for multi-unit dwellings as at last November.

This is well below the three percent level that is commonly considered to be ideal in a well-balanced market.

In addition to soft conditions in detached housing, the UDIA report highlights challenges in the outlook for construction of new apartments and multi-residential dwellings.

All up, the report suggests that the number of multi-unit residential dwellings that were brought to completion across combined capital city markets edged up by four percent across 2023 to reach 51,484.

This number, however, remains 12 percent below decade averages.

Going forward, UDIA expects a modest increase in net additions to 54,409 in 2024 before production levels plummet to a forecast fifteen year low of 38,086 units in 2026.

The anticipated slump in completions will occur as approvals for new multi-unit dwellings have trended at near decade lows across 2023.

The lower approval numbers will translate into fewer commencements in 2024 and lower numbers of completions across 2025 and 2026.

Whilst the report forecasts an uplift in activity for build-to-rent apartments, it says this will be offset by a slowdown in build-to-sell additions.

(Drone image of an airiel view of Tarneitt on Melbourne’s western fringe. Whereas the Victorian Government aims to have 15 years worth of supply within the land development pipeline, the current amount of land within the city’s development pipeline stands at just four years.)

UDIA National President Col Dutton said that the report highlighted that Australia’s housing crises will deepen over the coming year as the supply pipeline for new residential development continues to shrink.

He called on governments to do more to free up more land supply.

“Without drastic change to boost housing, we are headed for a decade low supply that will push prices higher,” Dutton said.

“The UDIA State of the Land report provides insightful evidence that Government needs to focus policy on boosting development ready land supply.

“This is critical to any hopes of achieving the broadly held ambition to permanently ease housing affordability and thus improve the delivery of at market, affordable and social housing.”

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