- National residential land prices rose 12.6% in 12 months to September 2021
- Capital cities pull ahead of regional areas, as prices surge by 14.7% and 8.6% respectively
- Reduction in land sales driven by lack of availability, not lack of demand, says Tim Lawless
Residential land is in short supply across the country, with dwindling stock levels failing to keep pace with strong demand, putting upwards pressure on prices.
Residential land shortage sparks price surge
Residential land recorded a significant surge in prices during the Australia-wide property boom, as national median prices rose 12.6% in the year ending September 2021.
According to HIA Economist Angela Lillicrap, the surge marks the largest annual increase in residential land prices since 2006.
Naturally, certain regions have shown notable diversity in changes to residential land prices.
“In Greater Sydney alone, the median price of residential land increased by 32.2% over the year to September 2021,” said Ms Lillicrap.
Capital cities have performed especially well, with price spikes driven by a higher degree of severity in the residential land shortage.
“The median price of land in the combined greater capital cities increased by 14.7% over the year to September 2021 compared to an increase of 8.6% in the combined regional areas.”
Angela Lillicrap, HIA Economist
While prices rises may be music to the ears of residential landowners keen to offload their asset in a hot market, the news spells trouble for a struggling residential building industry already contending with labour and materials shortages.
“Land will be the biggest constraint on building activity over the next couple of years. The current shortage of land will impact the industry at a time when the broader economy needs construction to help pull it forward,” Ms Lillicrap concluded.
Land scarcity constrains residential building industry
CoreLogic Head of Research Tim Lawless labelled the rise in residential land prices as “hardly a surprise”, attributing the surge to record detached housing approvals during the height of the HomeBuilder grant and the rapid introduction of newly-subdivided land to the online market.
According to data from the Australian Bureau of Statistics (ABS), total dwelling approvals (seasonally adjusted) grew by 3.6% in November, with new residential building totaling $5934.1 million in value.
“What is more counter intuitive is the trend towards fewer land sales through 2021, a pattern that is evident across each of the state capitals despite strong demand,” said Mr Lawless.
“Softer volumes are more a reflection of short supply rather than a lack of demand, which helps to explain the sharp rise in land values at a time when the volume of land sales is reducing.”
Tim Lawless, CoreLogic Head of Research
HIA Economist Thomas Devitt described housing demand as in a “super cycle”, as new home sales chalked up a fifth consecutive month of increases, despite the HomeBuilder scheme ceasing nine months prior.
Mr Devitt said housing trends are shifting to prefer lower density living, as lockdowns and work from home arrangements prompt increases in demand for detached houses and renovation activity.
“The constraint on home building is not demand but the availability of land, labour and materials. The shortage of labour and materials has led to construction timeframes increasing significantly.
“As a result, the volume of approved-but-not-yet-commenced work is at its highest level in over a decade,” concluded Mr Devitt.