Rise in price of land for home building adding to affordability issues in Australian cities

A substantial increase in the price of residential land continues to be the single biggest factor behind recent deteriorations in housing affordability in Australia, according to an industry report.

The price of a typical vacant lot of land for housing increased by 2.1% to $253,525 in the second quarter of 2017, according to the report from the Housing Industry Association (HIA).

‘Land price increases in Australia are unrelenting. The solution to the housing affordability challenge lies in ensuring that the additional residential land needed across our cities and regional towns is delivered in the right place, at the right time and at the lowest price. This should be a key imperative for governments at all levels,’ said HIA senior economist Shane Garrett.

The latest HIA-CoreLogic residential land report suggests that demand remains strong for residential land as a result of strong dwelling price growth. The CoreLogic hedonic price index suggests that while capital growth in the Sydney market is slowing, annual gains in Sydney homes were still 12% in the year to July 2017.

‘An interesting dynamic to follow will be in Melbourne, where annual housing returns were over 17.2% but units grew by just 4.6%. High growth in housing assets may make houses on relatively cheap land the preferred dwelling type for developers. This is already evident around the fringes of the Melbourne metropolitan area, where residential subdivisions for housing estates are in the pipeline for Whittlesea, Casey and Plumpton,’ said Eliza Owen, CoreLogic’s research analyst.

A breakdown of the figures show that based on sales during the second quarter, the pace of annual residential land price growth was strongest in Melbourne with growth of 16.6%, followed by Sydney up 11.1% and Adelaide up 7.4%.

Price pressures were a little more modest in Brisbane with a rise of 3.6% and an increase of 2.7% in Perth over the same period. Hobart was the only one of the six capital cities features in the report to experience a reduction in land prices over this period with a fall of 8%.

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