Rising land prices threaten home building recovery

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Residential land prices rose dramatically in the year to December 2009, which has put the new home building recovery at risk.

The latest release from the Housing Industry Association (HIA) and rpdata.com, Residential Land Report, has revealed that the weighted median price of land rose by 14% in the year to December - a pace that hasn't been experienced since mid-2004. A 2.2% increase was also recorded in the three months to December 2009, to reach a median of $185,222.

Meanwhile, land sales have dropped considerably, with the report finding a 4.6% decrease over the year from December 2008 to December 2009. Tim Lawless, rpdata.com's national research director, says this finding should attract concern: "With Australia's population growing at a rapid rate and housing undersupply worsening, we should be seeing land releases and consequent sales volumes rising - not falling.

"Without further construction of homes we're likely to see affordability worsen and more prospective buyers looking towards an already very tight rental market for their accommodation requirements," Lawless continued.

HIA chief economist Harley Dale said that in 2009 new house prices (excluding land) grew by 2.8%, building material prices increased by 1%, median land prices jumped by 14% and labour rates fell slightly.

"Throughout the last housing up-cycle, land values consistently grew at a substantially faster pace than construction costs and the general rate of inflation. Only six months into a new home building recovery, this situation is happening all over again. If this situation continues, then the recovery will stall, the housing shortage will worsen, and there will be upward pressure on rents and on existing home values that could have been avoided," Dale explained.

The report picked Sydney as the most expensive residential land market, while it pointed to the Sunshine and Gold Coasts in Queensland, and Richmond Tweed and Illawarra in NSW as the most expensive land markets out of the capital cities.

The northern region of South Australia was labelled the most affordable market, followed by Mallee in Victoria ($75,000), the southern region in Tasmania, Murray Lands in SA and Mersey Lyell in Tasmania.

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