Land prices rise twice as fast as building materials

The cost of residential land has risen more than twice as fast as the cost of building materials over the past year says a key housing sector official.

A recent HIA-CoreLogic Residential Land Report provides updated information on sales activity in 51 housing markets across Australia, including the six state capital cities.

“The shortage of building materials has caused delays to home building across the country and added four per cent to the cost of homebuilding in 2020/21, according to the ABS,” said HIA chief economist Tim Reardon.

“At the same time, the cost of residential land prices rose by 8.5 per cent, adding further to the cost of new home building.”

Mr Reardon said land supply has been in tight supply for the past two decades and the surge in demand in 2020 has seen land prices in places like Sydney rise 27.1 per cent in the past year alone.

He also said indicators suggest the strength of demand for land is set to continue throughout 2022 and into 2023.

“As land is a key component of housing, this increase in price has been a key driver of the rising cost of homes and the decline in housing affordability,” Mr Reardon said.

“There is little state and Australian governments can do to improve global supply chains and improve the availability of building products, but they are in direct control of the volume of land available for home building.

“Ensuring there is an adequate supply of land to meet housing demand is a key responsibility of state and territory governments and one of the necessary steps to addressing the affordability challenge. There is no better time than now to increase the supply of available land and make a generational step toward improving housing affordability.

Meanwhile CoreLogic research director Tim Lawless said the volume of vacant land coming onto the market has been easing recently due to a combination of less stimulus along with scarcity of supply.

“The HomeBuilder grant saw demand for vacant land brought forward, with land sales surging through the second half of 2020,” he said.

“However, the more recent trend has been a slowdown in land sales but a surge in detached housing construction as the nation moves into the early stages of what is likely to be an extended period of residential detached housing construction.

“The sharp rise in vacant land prices over the year, together with rising construction costs, will place further upwards pressure on the cost of new housing.

“The lift in land prices and residential construction costs along with the value of established housing rising rapidly, is set to add further pressure to housing affordability challenges that are becoming increasingly apparent across the country.”