Cost of land keeps on rising, impacting on housing affordability

“Yet again, the price of residential land in Sydney and Melbourne has touched fresh all-time highs,” Shane Garrett, senior economist at the HIA, said.

“Transactions on the land market continue to drop, indicating that supply is simply not matching demand sufficiently.”

Mr Garrett claimed that Australia’s housing affordability crisis stems from the high cost of residential land.

“The housing industry’s ability to ramp up the supply of new dwellings as demand dictates is hampered by the inconsistency of the land supply pipeline. The time it takes for land to be made available to builders is unnecessarily long,” he said.

Eliza Owen, commercial reach analyst at CoreLogic, said that the 6.5 per cent rise is suggesting that there is strong demand, even with some of the largest markets already past their peak growth rate.

“The CoreLogic Hedonic Home Value Index is showing a 1 per cent quarterly decline in capital city dwellings in the three months to January, led by the Sydney market which saw a 2.5 per cent decline,” Ms Owen said.

“Despite the softening in capital growth, land prices were driven higher by long-term confidence in some Australian metropolitan markets. Indeed, developers may act countercyclically to secure vacant land on the fringe of metropolitan areas before the next upswing.”

Of particular note was Victoria, which Ms Owen mentioned over one in five of all 14,704 vacant land transactions over the last year to September.

“In Victoria, CoreLogic development data indicates that 48.6 per cent of residential subdivisions in 2017 commenced on the fringes of Melbourne, such as in Hume, Whittlesea and Wyndham,” she said.

“This further demonstrates the high levels of demand for housing that is connected to the facilities and employment opportunities of major cities.”