Inadequate land supply causeS price surge in shovel ready lots

A recent report by two of the most respected industry bodies shows that land prices have surged ahead of CPI placing a heavier burden on new home buyers.

The HIA-CoreLogic Residential Land Report that provides updated information on sales activity in 52 housing markets across Australia reveals that the median price of land sold nationally increased by 7.6 per cent compared to the previous year, much faster than the rise in the cost of other goods and services in the economy.

HIA Economist Maurice Tapang said that the median price of land sold nationally in the September quarter 2024 was a record high $366,510.

“Land prices have risen by more than double the rate of growth in the ABS Consumer Price Index (CPI) and five times faster than growth in the cost of home building materials, as measured by the Producer Price Index (PPI) over the same period,” Mr Tapang said.

“Australia’s capital cities continue to drive this strong growth, with their median price increasing by 9.2 per cent compared to the previous year to $408,160.

“Prices have increased the fastest in areas where either home building activity is beginning to pick up or where the cost of providing the infrastructure for new lots is high.”

The report shows that Brisbane and Perth recorded the strongest growth in their median land prices, up in the last twelve months by 21.2 per cent and 38.6 per cent, respectively, with Sydney recorded a 7.2 per cent annual increase in its median land price despite having significantly weaker home building activity than other capital cities.

All in all, this new information confirms that the cost of delivering shovel-ready land to market here remains high.

The report also reveals that there are signs that despite the rise in land prices, particularly in the capital cities, buyers are looking at better opportunities to purchase land, whether through exploring growing regional locations or buying smaller lots.

Australia’s regions continue to provide better land purchasing opportunities compared to the capital cities, with the median price growing in the year by a slower 2.0 per cent to $281,910.

Mr Tapang said that in areas such as the Illawarra and Geelong, where the median land price is lower than their respective capital cities, lot sales have increased by over 50 per cent compared to the previous year.

“Ongoing inadequate supply of land for residential development, both greenfield and infill, continues to act as a key constraint on housing supply and risks torpedoing the Government’s ambition to build 1.2 million homes over the next five years.

“Increased urgency and commitment from governments to release more land for residential development and adequately service it with essential infrastructure will alleviate rising land prices and help more Australians into homeownership,” Mr Tapang concluded.

CoreLogic Economist Kaytlin Ezzy said that affordability continues to be a major hurdle in bringing new housing stock online.

“The continued uptick in land prices, coupled with upward pressure on construction costs and the higher for longer interest rate environment, has moved new home ownership further out of reach for some Australians,” Ms Ezzy said.

“Over the year to November, the ABS counted approximately 169,000 new dwelling approvals. While up slightly (0.5%) compared to the previous year, this is -17.8% below the decade average and almost -30% below the 240,000 a year needed to meet the government’s target.

“With the HomeBuilder backlog largely worked through, some builders are coming up against a shortfall in new work.”

The ABS has noted that in the November monthly CPI release a -0.6% monthly decline in the new dwelling purchase prices, with some builders offering discounts and promotions in order to secure hesitant business, despite ongoing margin pressures.