Supply not meeting demand as residential land price skyrockets

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on January 24, 2022 Fact Checked
Supply not meeting demand as residential land price skyrockets

The HIA-CoreLogic Residential Land Report revealed the price of residential land has had the strongest annual increase since 2006.

Over the year to September 2021 the median price of land in Australia increased by 12.6%.

The report said the significant increase in the price of land indicates that supply is not keeping pace with demand.

Housing Industry Association (HIA) economist Angela Lillicrap said in Greater Sydney alone the median price of residential land increased by 32.2% over the year to September 2021.

"The median price of land in the combined greater capital cities increased by 14.7% over the year to September 2021 compared to an increase of 8.6% in the combined regional areas," she said.

"This suggests that the shortage of residential land is more severe in the capital cities.

"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."

ABS data released on Wednesday shows new detached home starts in the September quarter experienced a sharp contraction.

HIA2022.PNG

HIA economist Thomas Devitt said availability of land is a major factor influencing the decline. 

"The constraint on home building is not demand but the availability of land, labour and materials," he said.

"The shortage of labour and materials has led to construction timeframes increasing significantly.

"Under normal circumstances, the surge of HomeBuilder projects would have translated into an increase in completions from the June 2021 quarter.

"However, completions have been slower to respond. As a result, the volume of approved-but-not-yet-commenced work is at its highest level in over a decade."

CoreLogic head of research Tim Lawless said fewer land sales through 2021 is "counter-intuitive" to the supply-demand equation.

"Considering the record level of detached house approvals at the peak of HomeBuilder together with the constraints involved with bringing newly subdivided land online quickly, the surge in land prices over the quarter is hardly a surprise," he said.

"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."


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            Aaron joined Savings.com.au in 2021. He is a finance journalist with a keen interest in property, the share market, and improving financial literacy in young Australians.

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