Faltering land supply may slow 2023 building activity

The recent Housing Industry Association (HIA) and CoreLogic Residential Land Report shows 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 although land sales fell, the report – which provides updated information on sales activity across Australia – revealed 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 start in at least 12 months’ time.

Ms Lillicrap said there were significant constraints preventing 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.”

CoreLogic’s research analyst Kaytlin Ezzy said it was unsurprising that land supply was 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.”