Slump in land values could boost affordability

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Land values across the most expensive markets in Australia took a slide over the year to June quarter, according to the latest Housing Industry Association (HIA)-CoreLogic Residential Land Report.

Sydney recorded the most substantial decline, with its land rate per square metre falling by 12.6% over the period. Adelaide followed, reporting a 12% decline in land values. Melbourne and Brisbane's land prices also fell during the period, down by 7.6% and 4.6%, respectively.

"Lower land prices should provide further support for housing affordability in these markets," CoreLogic head of research Tim Lawless said. 

Also read: Population Growth Could Boost Residential Construction

However, the opposite happened in Hobart and Perth, where land prices shot upwards. Hobart, in particular, showed a substantial 20.3% gain over the year to June. 

Lawless said Hobart's growth in land values reflects the city's "tight supply against a backdrop of strong demand".

Despite the significant increase in prices, Hobart still showed the lowest median land price amongst capital cities at $180,000. 

Land supply driver of home prices

While land prices came down during the first half of 2019, HIA economist Angela Lillicrap said residential land values in Sydney and Melbourne have more than doubled over the past decade.

Lillicrap said the shortage of land and the increasing demand in the two cities have led to the surge in land values, eventually inflating home prices.

"The process of making land ‘shovel-ready’ can often last a decade; therefore, responding to shortages cannot be met with increased supply in the short term. An adequate supply of land is required to avoid deterioration in affordability," she said.

Also read: More Sales, Faster Selling Times As Land Prices Fall

The crucial role land supply plays in improving housing affordability spurs the need for further efforts by the governments and industry players to ensure an adequate supply of land, said Lillicrap.

"If the Australian dream of homeownership is to remain achievable, governments must work with industry to ensure that there is an appropriate supply of land. Improving the monitoring and reporting of the land supply pipeline will enable government and industry to make well-informed decisions," she said.

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