Investors involved in residential construction should consider building smaller houses in response to rising land costs, a leading industry expert has urged.
“Developers targeting price sensitive purchasers should potentially look to develop smaller floor areas with fewer bedrooms as a way to improve affordability,” RP Data research analyst Cameron Kusher said.
According to the Australian Bureau of Statistics (ABS), new developers are already embracing this trend, with average house sizes falling across the country.
The data shows the average floor area of a newly constructed house has fallen from 247.7 square metres in 2009 to 241.1 square metres today.
“Several factors are the cause of why new homes are shrinking in size – some of these include an overall cost for start-up construction and fees associated with vacant land,” Mr Kusher said.
The median price of a vacant block of land has increased at a rate of 9.5 per cent per annum from 2000 to 2013, according to Mr Kusher.
In the same period, the typical size of blocks fell from 750 square metres to 600 square metres.
These factors have caused the price per square metre of vacant land to quadruple from $86/sqm in 2000 to $361.40/sqm currently.
“As vacant land costs continue to increase, it is no wonder the size of new houses has started to reduce. The cost of buying or building a new house is becoming restrictive,” Mr Kusher said.
Every state except Tasmania has seen reductions in house size.
Nonetheless, New South Wales still records the largest average house size, despite having the highest median price and greatest population density, according to RP Data.
”Based on these results, there is scope to reduce new home sizes,” Mr Kusher said.
He predicted the size of homes would continue to fall into the future as affordability constraints continue to be an issue.