Residential land prices in Sydney have jumped by 27.1 per cent in the past 12 months to June, with further rises expected in the next two years as demand for new houses and scarce supply inflates values by more than twice the cost of building materials, the HIA-CoreLogic residential land report shows.
The sharp rise in vacant land prices over the year, together with rising construction costs, will place further upward pressure on the cost of new housing, said CoreLogic’s research director, Tim Lawless.
“The lift in land prices and residential construction costs, along with the value of established housing rising rapidly, is set to add further pressure to housing affordability challenges that are becoming increasingly apparent across the country,” Mr Lawless said.
“The cost of the underlying land is a key component of the overall cost of a new home, so the sharp lift in vacant land prices is likely to add to the upwards pressure on housing prices.”
Sydney retained its title as the most expensive capital city in the country to buy land, with the median lot price rising to $546,500 – an 11 per cent increase during the June quarter.’
Melbourne has the second most expensive land market, with the median climbing by 12.7 per cent over the year to $355,000.
Greater Hobart posted the sharpest rise in land prices, surging by 80 per cent to $341,000 over the year. In the three months to June alone, the median lot price soared by 66.5 per cent.
A decade’s lead time
Across the country, the weighted price for vacant lots rose by 3.6 per cent in the June quarter to $285,354 – the fastest quarterly rise in four years. Over the year, land prices jumped by 8.5 per cent – more than twice the 4 per cent rise in the cost of home building materials.
“A price increase of this magnitude indicates that there is a shortage of
residential land available,” said HIA chief economist Tim Reardon.
“The process of turning a paddock into ‘shovel ready’ land can take over a decade, making it difficult for land supply to respond to changes in the short term. As a consequence, a sudden increase in demand for land, as occurred due to HomeBuilder, will likely result in prices increasing.”
Sydney developer Mark Bainey, chief executive of Capio Property Group, said higher land costs will ultimately price out new homebuyers.
“This will push prices up for new properties as developers pass that increase to homebuyers,” Mr Bainey said.
“This means housing affordability will get worse for new property buyers as land prices continue to rise, unless the government starts to issue more land or grant approval over existing land to help the supply constraints.”
Mr Reardon said the tight land supply and strong demand for detached housing would continue in the years ahead.
“Land has been in tight supply for the past two decades and the strength of demand for land is set to continue throughout 2022 and into 2023,” he said.
“Ensuring there is an adequate supply of land to meet housing demand is a key responsibility of state governments and one of the necessary steps to addressing the affordability challenge. There is no better time than now to increase the supply of available land and make a generational step toward improving housing affordability.”
This article is from Australian Financial Review, please click the following link for the original article: https://www.afr.com/property/residential/sydney-land-prices-surge-27pc-in-a-year-20211027-p593jd