Demand for residential land in Sydney and Melbourne may have already hit its peak

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Demand for residential land in the major eastern state cities is expected to fade this financial year as the housing market for new homes hits headwinds, according to industry analyst and economic forecaster BIS Oxford Economics.

The Outlook for Residential Land 2017 to 2022 report says residential lot creation in Sydney, Melbourne and South-East Queensland is around its peak and will begin to fall away.

Demand for land in Adelaide and Perth has already been weakening and will continue to soften.

The downturn in the eastern states is likely to be moderate. While supply has been strong for apartments sector, there still aren’t enough detached houses.

Sydney is estimated to have recorded its highest level of residential land production last financial year. Lot production in Melbourne peaked in 2014-15 but stayed close to this in the subsequent two years.

The BIS Oxford Economics forecasts for land availability:

Source: BIS Oxford Economics

“Steady price growth in houses in the initial stages of the housing construction upturn improved land price affordability and shifted some demand from the established house market, to the new house and land market,” says Angie Zigomanis, BIS Oxford Economics senior manager.

“This not only encouraged a greater percentage of home purchasers to opt for a new house over an established one, but also established house owners to sell up and upgrade to a new, larger house.”

Zigomanis says the rise in new housing activity is easing some of the demand pressures in the market.

“Most markets saw house price growth outpace land price growth through the early stages of the upturn, which improved the value proposition for a new house,” says Zigomanis.

“That said, land prices have now largely caught up and this gap will have narrowed, making new housing less attractive.”

Land production in Sydney was estimated at 11,300 lots in 2016-17, its highest level in the past 25 years.

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