Demand for residential land in the major eastern state centres is expected to begin declining into 2018 as the new housing market faces emerging headwinds, according to a new report series from BIS Oxford Economics.
Entitled Outlook for Residential Land 2017-2022, the report highlights how residential lot production in Sydney, Melbourne, and South-East Queensland is around its peak in this cycle and will begin to decline.
The predicted downturns in the eastern states are likely to be moderate, according to Angie Zigomanis, senior manager at BIS Oxford Economics. New supply in these markets has been more pronounced in the unit/apartment sector, and markets continue to experience a deficiency in detached housing stock – which is likely to continue to underpin demand.
New housing demand has risen to high levels, with Sydney estimated to have recorded its highest level of residential land production over 2016-17. Lot production in Melbourne peaked in 2014-15 but has remained close to this peak in the subsequent two years. Meanwhile, the Brisbane, Sunshine Coast, and Gold Coast markets have been experiencing a moderate upturn since 2013-14, following an extended period of weakness.
“Steady price growth in houses in the initial stages of the housing construction upturn improved land price affordability and shifted some demand from the established house market, to the new house and land market,” Zigomanis said. “This not only encouraged a greater percentage of home purchasers to opt for a new house over an established one, but also established house owners to sell up and upgrade to a new, larger house.”
Here’s more information on the outlook for lot production:
The residential land market is estimated to have peaked in terms of prices as well as lot production over 2016-17. Strained affordability, the erosion of the dwelling deficiency, and regulatory measures aimed at cooling investor activity have all helped reign in demand.
“Rapid growth in the median house price was not matched by the rises in the median land price over the three years to 2014/15, improving the equation for the purchase of new houses relative to established stock,” Zigomanis said. “However, land prices saw significant growth over 2014/15 and 2015/16, narrowing the gap and driving some demand back into the established market.”
Demand for new houses is forecasted to have plateaued. A total of 11,200 lots were released in 2016-17. Despite the expectation of a downturn, the fall in lot production is likely to be moderate.
The land market has performed strongly over the past four years in response to a sustained undersupply. Meanwhile, strong population growth and economic conditions, combined with low interest rates, have continued to underpin demand for dwellings.
“Through this period, the numbers of new estates being marketed increased dramatically, with outer Melbourne lot production rising to a record 21,400 lots in 2014/15 and averaging 21,050 lots per annum over 2014/15 to 2016/17,” the report said. “Corresponding land price growth has also seen new house affordability deteriorate.”
New house activity and lot production continues its steady road to recovery, with steady price growth, affordability, and low interest rates continuing to support an upturn in demand for new houses and land. A total of 9,400 lots were estimated to have been completed in 2016-17, up from 4,800 in 2012-13.
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