Usually when demand for residential land falls so too do prices, but not in Australia

Ian Waldie/Getty Images
  • Residential land prices in Australia continue to increase despite weaker demand.
  • Lot sales slumped by 25.8% in the year to September. Over the same period, the average sales price rose by 0.9%.
  • Sales volumes fell sharply in Australia’s largest capital cities, Sydney, Melbourne and Brisbane.
  • From a national perspective, the HIA says weaker demand has “not yet resulted in a fall in prices”.

Usually when demand for residential land falls so too do prices, especially when home prices are also falling.

But not in Australia, at least last year.

According to the latest Housing Industry Association (HIA)-CoreLogic Residential Land Report, the average lot price for residential land rose 0.8% to $279,949 in the September quarter, leaving the increase on a year earlier at 0.9%.

Over the same period, total lot sales fell by 25.8% across the country, including 16.2% during the September quarter.

“A fall in demand for land would normally be expected to correspond with a fall in land prices,” the HIA said.

“The anomalous prices-sales behaviour in the Australian land market, which has seen prices increase as demand fell, is likely to reflect a lag in the impact of a material change in market conditions.”

That is, while housing market conditions have weakened substantially in many parts of the country, that hasn’t impact residential lot prices, at least not yet.

Across Australia’s state capital cities, lot sales in Sydney — Australia’s most expensive land market — plunged by 47.9% from 12 months earlier.

Sales also fell in all other capitals except for Perth over the same period, declining by 24.1% in Melbourne, 28.5% in Brisbane, 11.4% in Adelaide and 1.1% in Hobart, the latter the capital city that recorded the largest increase in home prices in 2018.

Perth, at 2%, was the only capital to register an increase in sales compared to 12 months earlier.

While lot sales fell in most state capitals, acutely so in some cases, prices per square metre rose in a majority of centres, led by increases of 25.1% in Hobart and 18% in Melbourne.

HIA

Smaller increases of less than 3% were seen in Perth and Brisbane while average prices in Sydney and Adelaide went backwards over the same period, declining 6% and 7% respectively.

Although prices in Sydney and Melbourne — Australia’s most expensive land markets — went in opposite directions over the past year, the trend in sales volumes in both cities have been very much the same in recent years.

This chart from the HIA shows the change in median lot price and sales volumes in Sydney going back to 2010.

HIA

And this chart shows the same information, but only for Melbourne.

HIA

As land costs soared sales volumes have slumped, underlining the affordability challenge facing prospective new home purchases in Australia’s largest cities, even with recent declines in prices for established homes.

“A rise in land prices, the single largest cost to the construction of a new home, is occurring at the same time as the price of established homes is falling,” the HIA said.

“If the cost of production of a new home continues to rise, then the likely impact is that fewer new homes will be built as customers choose to purchase an established home or delay a new home purchase.”

According to separate data released by the HIA, the number of new home sales across Australia’s mainland states fell to multi-year lows in 2018, impacted by affordability constraints and tighter lending standards introduced by lenders.

“After five years of exceptionally strong sales activity, a credit squeeze and a loss of market confidence led to a rapid fall in new home sales and approvals,” said HIA Chief Economist Tim Reardon.

“This slowdown is evident in land sales and unfortunately the fall in demand has not yet resulted in a fall in prices.”

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