- The cost of vacant residential land has risen sharply over the past decade.
- Even as prices have risen, the median lot size sold has fallen across all capital cities.
- Australia’s HIA says this is leading to higher housing costs, exacerbating affordability in the nation’s largest cities.
The cost of vacant residential land in Australia’s capital cities continues to increase, even as lot sizes grow smaller.
According to the latest HIA–CoreLogic Residential Land Report, costs across the capitals rose by 2.2% in the three months to December, leaving the increase on a year earlier at 11.1%.
Contributing to the large annual price gain, the number of lot sales nationally fell by 18.8% over the same period. Along with strength in home prices, strong population growth and record-low interest rates, this helps explain the double-digit gain in the average price.
By individual capital, Sydney remained the most expensive market for vacant residential land with the median lot price standing at $450,000 during the quarter.
With costs that high, it’s easy to see why so many houses in Sydney sell for over $1 million.
Melbourne, at $330,000, was the second most expensive market, followed by Perth and Brisbane in third and fourth spots respectively at $269,000 and $232,500.
Hobart, Australia’s hottest housing market over the past 12 months in terms of price growth, remained the cheapest market of the state capitals at $165,000.
Over the past year, Melbourne recorded the largest in the median lot price at a staggering 35.9%, near triple the 13.4% increase in second-placed Hobart 13.4%.
Elsewhere, prices in Sydney grew by just 2.1% over the year, a result heavily influenced by a 6.3% drop during the December quarter. Perth price grew 5.5% over the year while those in Adelaide were flat.
Brisbane, at 5.1%, was the only capital where the median-priced lot went backwards over the year.
However, despite the mixed performance in 2017, as seen in the chart below from the HIA, the median lost price has risen in all capitals over the past decade, especially in Melbourne and Sydney, the two cities with the most acute housing affordability constraints at present.
It’s a similar story for the cost of land per square metre which jumped across all capitals over the same period.
Prices in Melbourne have tripled, while those in Sydney, Brisbane and Adelaide have nearly doubled.
Over the past year, the price per square metre grew by 26.9% in Melbourne, the fastest across any capital. Melbourne’s population is also increasing faster than any other capital, be it by number or in percentage terms.
Elsewhere, price growth ranged from 5.3% in Hobart to 2.3% in Sydney. Adelaide was the only capital to register a decline at 4.6%.
Given lots comes in different shape, aspect, size and location, the cost per square metre is arguably the better measure of price movements over the past decade.
Along with paying more for vacant land, buyers are also getting less bang for the buck compared to a decade ago with the median lot size falling across all state capitals.
With land costs continuing to increase even as the lot sizes shrink, the HIA said this underlines the problem land costs are creating when it comes to housing affordability, especially in Sydney and Melbourne.
“Affordability conditions in Sydney and Melbourne are at their most challenging since at least the early 1990s, with the price of land being a major cause of the deterioration in affordability conditions,” it said.
“The process required to turn a paddock into a ‘shovel ready’ block of land ready for the construction of a home has a major impact on home prices and ultimately affordability. This process has become increasingly complex and cumbersome and is adding additional costs to the building industry.”
And the HIA thinks Australia’s state governments are not helping matters by making it difficult to assess what supply of land is coming, and whether it will be sufficient to meet expected demand.
“The data contained in the Residential Land report captures only the final step of the land supply process during which vacant land lots are sold to the market. This identifies that the problem is a lack of supply of shovel ready land leading to higher land prices and ultimately to higher costs of housing,” it says.
“A more holistic understanding of overall land supply could be assembled if figures on the volume of land at earlier stages in the process were collected and publicly reported.
“This data would then allow industry to establish the volume of land in the process of being delivered to market and whether the supply pipeline is sufficient to meet Australia’s future requirements around new housing across short and long term horizons.”
From a longer-term planning perspective, not only for housing supply and infrastructure requirements, few will disagree that this makes sense.