Scarcity drives up residential land prices

HIA economist Angela Lillicrap said land prices had risen significantly, indicating that supply has not kept up with demand.

“In Greater Sydney alone, the median price of residential land increased by 32.2 per cent over the year to September 2021,” said Ms Lillicrap.

Scarcity of residential land was apparently more severe in major cities than the regions, with the median land price in the combined capital cities climbing to 14.7 per cent, compared to an 8.6 per cent rise in combined regional areas in the year to September 2021.

CoreLogic’s head of research Tim Lawless has seen the land price rise coming based on the “record level of detached house approvals at the peak of HomeBuilder together with the constraints involved with bringing newly subdivided land online quickly”.

What did come as a surprise, according to Mr Lawless, was the downward trend of land sales through 2021, which was visible in all state capitals despite considerable demand.

“Softer volumes are more a reflection of short supply rather than a lack of demand, which helps to explain the sharp rise in land values at a time when the volume of land sales is reducing,” Mr Lawless explained.

Given this scenario, HIA’s economist raised a possible red flag.

“Land will be the biggest constraint on building activity over the next couple of years. The current shortage of land will impact the industry at a time when the broader economy needs construction to help pull it forward,” warned Ms Lillicrap.