As demand for residential construction gathers momentum, strong recovery in residential land markets in Sydney and Perth is well underway and is expected to continue, a leading forecasting firm says.

But whilst Brisbane is expected to expected to improve off a low base, demand for land in Melbourne and Adelaide is expected to remain subdued over the next twelve months, whilst markets such as the Gold Coast and Sunshine Coast will lag behind Brisbane.

In its Outlook for Residential Land 2013 to 2018 report series, industry research firm BIS Shrapnel says an upturn in demand for residential land is underway in Sydney and Perth and is ‘well and truly underway’ amid a shortage of stock following several years of low building activity and improved affordability driven by low interest rates and weak house and land prices in recent years.

BIS Senior Manager and report author Angie Zigomanis says momentum is building in the two capitals, where new sub-divisions are emerging to meet pent up demand associated with the shortage of stock in recent years, with demand in Sydney being driven primarily by upgraders and that in Perth by a resurgence in first-home buyers.

Zigomanis says conditions are likely to improve in Brisbane throughout amid early signs of upgrader demand, albeit with stronger growth in lot production not expected until later years and with low levels of demand amid 30 year low levels of interstate migration meaning there is little likelihood of any substantial recovery in the Gold Coast or Sunshine Coast until at least 2014/15, when activity in those markets will likely pick up.

Meanwhile, lot production in Melbourne and Adelaide will remain subdued having fallen from unsustainable record levels, BIS says, with demand in these markets not expected to pick up until next year.

The report also says lot sizes have been shrinking as developers have tried to construction housing construction costs.

“Median lot sizes have shrunk by between 14 and 32 per cent across the capital cities over the last decade” Zigomanis says. “Developers have tried to keep headline lot prices lower in order to keep the cost of a new house competitive with the existing stock in the outer fringe suburbs, thereby encouraging demand for land.”