Lack of Land Drives Prices Higher

October 17th, 2014
Lack of residential land continues to put upwards pressure on house prices, especially in the highly populated areas of Sydney, Melbourne, and Brisbane. According to new research from RP Data, the cost of land has grown eightfold since 1990, with the median selling price for land in capital cities now $247,000. While capital growth on an annual basis has been trending lower since April this year, restricted land supply continues to push lot sizes down and add to housing affordability problems in Australia.

"Land prices have become a key contributor to rising home prices - particularly in Sydney, Brisbane and Melbourne." said RP Data national research director Tim Lawless, before adding "The combination of smaller land lot sizes and rising prices is likely to continue." ; While buyers often blame negative gearing, cashed-up investors, and the cost of materials and labour for rising prices, according to the report, the rising cost of vacant land is pushing up housing costs more than anything else.

The land shortfall is a direct result of limited land releases by state governments, who benefit directly from high house prices in the form of stamp duty revenue. ; An imbalance between demand and supply continues to add pressure, with land prices rising by 6 percent in the last 12 months alone. ; Only last week former treasurer Peter Costello added to the conversation on housing affordability, saying that state government taxes on the release and transfer of land were restricting supply and contributing to price rises.

House prices have risen by 16 percent in Sydney over the last 12 months, with Melbourne prices up 11 percent over the year. ; Prices rose by 11 percent annually across all capital cities, despite cooling conditions over the last few months. ; Dwelling values have gone up 4.1 percent in Sydney and 3.7 percent in Melbourne over the last quarter, with average auction clearance rates also sitting above 70 percent nationally, helping to fuel demand.

Despite slow land releases, however, house values were almost flat in September on a monthly basis. ; Only Adelaide and Sydney were up over the month, at 0.9 percent and 0.8 percent respectively. ; Darwin recorded the biggest decline, down 1 percent, followed by Melbourne, down 0.8 percent. ; If the lack of new land in Australia is helping to drive prices higher as some analysts suspect, the Australian market could be going through a bigger correction than is first evident. ;

”The annual rate of appreciation in dwelling values has actually been moderating since reaching a peak in April this year,” said Lawless, adding “The fact that the annual trend of capital growth has been trending lower is an important factor to note as it highlights that the rate of capital gain is no longer accelerating. ; Even though housing market conditions remain very buoyant, we have been seeing the 12-month trend drifting lower since peaking at 11.5 per cent in April.”