The cost of vacant residential land in Australia just hit another record high

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There’s a bit of a debate going on in Australia about housing affordability. Just a little one.

One side thinks prices are out of control, particularly in Australia’s southeastern capitals, fuelled by lower interest rates, increased investor activity, soft labour market conditions and continued foreign investment.

Others think it isn’t as bad as its portrayed, pointing out relatively low loan serviceability costs, an influx of high-density apartments about to hit the market and cheaper alternatives outside the nation’s trendy inner-city suburbs.

It’s a perpetual tug of war and you can expect the tussle to intensify a little bit more following Wednesday’s release of the latest residential land sales report from the Housing Industry Association (HIA).

Even with an increase in lots sold during the September quarter last year, prices still soared to the highest level on record.

Conundrum, much?

According to the HIA, the average lot price rose by another 3.3% to $243,585 in the September quarter last year, despite a 6.4% increase in lot transactions over the same period, which followed an even larger increase in the June quarter.

However transaction volumes in the September quarter were still down 7.3% from the same quarter in 2015.

Source: HIA

According to the HIA, and perhaps contributing to the more than 13% increase in house prices in Sydney and Melbourne in 2016, land sales in Sydney and Melbourne fell by 29.9% and 13.5% respectively in the six months to September, compared to the same period a year earlier.

The huge reduction in Sydney, the largest and most expensive housing market in Australia, saw the median value of vacant land soar to $927 per square meter during the quarter, leaving it 32% higher than the next most expensive capital city, Perth.

Sydney is at the epicentre of the Australia’s housing affordability debate.

Tim Lawless, research director at CoreLogic, said the continued rise in land prices is contributing to housing affordability constraints across the country, especially in Sydney.

“With median land prices rising consistently since mid-2013 it is clear that one of the primary drivers of broader housing market growth has been the underlying appreciation of land values, which is pushing the overall value of housing higher,” he said following the release of the report.

“The high land costs are a significant contributor to the unaffordability of housing across Australia’s largest capital city.”

Shane Garrett, senior economist at the HIA, said costs impose by government on new land sales — essentially ticket-clipping — were further exacerbating the problem.

“The number and size of government taxes, fees, levies and charges on new residential land needed to accommodate our growing population continues to weigh down on our national housing affordability challenges,” he said.

“In addition to removing the excessive taxes on new land, long-term commitment from all levels government in the areas of planning, land release and infrastructure funding is necessary.”

While the HIA has a vested interest in reducing costs and red tape on land sales, they’ll undoubtedly find plenty of support for that view.

Along with potential reforms to land sales, there are grounds to revisit the tax treatment of housing, from negative gearing to a tax-free capital gains on a primary residence, although it’s impossible to find a politician hoping for re-election prepared to take on that issue, despite any concerned noises made about housing affordability.

Then there’s stamp duty in many states and territories, which has been a gold mine for state treasurers off the back of rising prices, yet the increasingly prohibitive cost, may explain falling turnover levels, with the level of housing stock for sale is down over 10% on 12 months ago.

Today the NSW government announced it was appointing former RBA governor Glenn Stevens as an adviser on housing affordability.

There are already plenty of areas for policymakers to look at if they want to address the issue.

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