The high cost of housing in the capital cities remains a political hot potato and with a federal election imminent, there will be increased focus on how future generations are being priced out of the market.
This is highlighted by recent data showing that even vacant blocks are moving out of reach of market entrants, but equally, while there is limited supply, empty land is a solid investment.
CoreLogic RP Data figures show capital city vacant land prices continued to rise in 2015, with the median price across the combined capital cities at $265,000, while the median land price across the combined regional markets was $156,000.
The $109,000 and 69.9% difference between regional and capital city prices are both the largest differentials on record. Capital city vacant land prices increased by 4.0% in 2015, compared with a 5.2% fall in prices in regional areas.
Melbourne and Sydney lead way
Not surprisingly, the two biggest capitals made the biggest gains.
Vacant land statistics across state capital cities
As the table shows, Sydney’s median land price is substantially higher than the other capital cities. Compared with the second most expensive city, Perth, Sydney’s median land price is more than $100,000 higher.
Sydney and Melbourne also recorded exceptional increases in median land prices over the past year at 20.2% and 23.5% respectively. Although Sydney is the most expensive per square metre, vacant land in Perth is the nation’s most expensive by virtue of the fact that only Adelaide has smaller lot sizes.
Demand exceeds supply
Housing Industry Association senior economist Shane Garrett says land supply policy is not keeping pace with the housing needs of a growing population. “Ineffective land supply policy will limit Australia’s long-term growth potential and erode competitiveness by forcing costs up,” he says.
“The key supply side issues like planning delays, efficient infrastructure provision and the mammoth taxation burden on new housing need urgent attention.”
Median selling price of vacant land, capital cities versus regional markets
CoreLogic RP Data research director Tim Lawless says the number of vacant land sales has been declining since peaking in the June quarter of 2014.
“Buyer demand across the vacant land market has remained strong, which is why prices are rising on lower sales,” he says. “However, as land prices rise it is likely block sizes will have to reduce in order to maintain an affordable price point for buyers.”
Lot sizes fall
Median vacant land size, capital cities versus regional markets
This chart shows that lot sizes have fallen more in capital cities than in regional markets over time, with median lot sizes shrinking at a rate of 2.5% annually in capital cities over the past decade compared with a 0.5% annual compression rate in regional markets.
Mr Lawless says median lot prices have risen across every capital city over the past 12 months, except in Adelaide where they fell by 1%. Tight supply in Sydney pushed up the median land price by the most of any capital city, up 22.8% compared with a weighted average of 10.7% growth across the capitals.
“Despite having the most expensive housing and vacant land, Sydney is currently showing the second largest median lot size among the capital cities at 575 square metres,” Mr Lawless says. “Somewhat counterintuitively, the median land area has historically been the smallest in Adelaide.”
The data provides really valuable insight into why housing costs are so high in the capital cities. In a market such as Sydney, for example, if the typical lot costs $410,000, it is difficult to imagine market entrants being able to buy a block and build a home for less than $550,000.
More land releases would help bring prices down. An alternative political solution would be to encourage greater development of regional areas through economic stimulus measures – but that sounds very familiar. Most governments have had a crack at that one.