Fall in land sales likely to slow the new home market recovery in Australia

New home building activity in Australia faces a long road ahead as land sales have declined significantly, according to the latest update from the Housing Industry Association which represents the building industry.

The HIA-RP Data Residential Land Report shows that residential land sales fell by 17.8% in the September 2012 quarter, although the volume was still 14.9% higher than the record low set a year earlier.

‘It is encouraging that land sales in a majority of markets have lifted off the depths plunged in 2011. However, this latest update highlights the uncertainty around whether the new home building sector can mount a recovery that is both sustainable and of the magnitude Australia’s population and economy require,’ said HIA chief economist Harley Dale.

‘Overall, residential land sales, a key leading indicator of housing starts, signal a rocky road for any new home building recovery in 2013,’ he added.

Dale pointed out that one catalyst for the emergence of a strong new home building recovery would be the reduction in the cost of new housing, including serviceable land, which is brought about by disproportionately high and inefficient levels of taxation.

‘This requires bold and decisive policy reform across all levels of government, action which consistently fails to occur to the detriment of a more productive and efficient economy,’ he explained.
 
According to RP Data’s research director Tim Lawless, the September results highlight the recovery in the vacant land market remains a fragile one. ‘After consistent increases in the number of vacant land sales over the past three quarters, the lower September result is a stark reminder that consumers remain very price sensitive and cautious about their household finances,’ he said.

‘Land developers and builders are facing the challenge of providing affordable house and land packages at a time when land costs, as well as construction costs, continue to rise. The median price of a vacant block of land rose 3.8% over the September quarter last year despite the fall away in volume,’ he explained.

‘The broader housing market remains on a recovery trajectory, and I would be surprised if the vacant land market continued the slippage in transaction numbers we saw in September. Low interest rates and a subtle improvement in consumer confidence, together with Government incentives now more focussed on new housing, are likely to be the driver behind a gradually improving market,’ he added.

The report also shows that in the September 2012 quarter the weighted median residential land value in Australia increased by 3.8% to $197,807, up 4.2% compared to the same period in 2011.
 
The median value for capital cities increased by 5.15 in the September 2012 quarter to $225,795, some 6% higher than in the September 2011 quarter. The median value for regional Australia was $155,214, a quarterly rise of 0.8% and a 0.2% increase compared with the same period in 2011.

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