Land supply could put the brakes on building

The recent HIA-CoreLogic Residential Land Report has provided updated information on sales activity across Australia.

It’s showing that the volume of land sales fell to record lows in the September 2021 quarter and continued falling in the December quarter despite ongoing strong demand for land and housing.

HIA economist Angela Lillicrap said that although land sales fell, the median price of land increased by 13.4 per cent or $35,900 in 2021.

“This is the strongest annual growth since 2004,” she said.

“The decline in the volume of sales while the price continues to increase rapidly, is a clear indication that there is a significant shortage of shovel-ready residential land.”

Other leading indicators, including HIA’s New Home Sales Report, show that demand for housing remains elevated compared to pre-COVD levels.

However, the sales occurring are now looking to a commencement in at least 12 months’ time.

Ms Lillicrap said that there are significant constraints which prevent land supply from quickly responding to changes in demand.

“As a result, land will be the largest constraint on home building activity from mid-2023,” she said.

CoreLogic’s research analyst Kaytlin Ezzy said that it is unsurprising that land supply is struggling to keep up with demand, given the strong uptick in land sales seen over the second half of 2020 as demand for vacant land responded to the HomeBuilder policy.

“While the reduction of construction related stimulus and rising construction costs have likely softened demand to some extent, the sharp rise in median prices over 2021 suggests that supply constraints are a larger factor in the trend towards fewer land sales,” she said.

“As land prices and construction costs continue to push the cost of new housings higher, it is possible some demand will shift towards the established housing market, particularly as it moves towards the downwards phase of the cycle.”