Anaemic land supply likely to drag building activity

By Gerv Tacadena | 21 Jan 2022

Australia’s land shortage will be a significant drag on building activity over the next couple of years, experts at CoreLogic and Housing Industry Association (HIA) predict.

HIA economist Angela Lillicrap said the recent boom in the price of land indicates that supply could not keep pace with the demand.

“Over the year to September 2021, the median price of land in Australia increased by 12.6% — this is the strongest annual increase since 2006,” Ms Lillicrap said.

The growth in land prices is more evident in capital-city markets

For instance, land prices in the Greater Sydney region increased by almost a third over the same period.

Overall, the median price of land in the combined greater capital cities increased by 14.7%, compared to the 8.6% growth recorded in regional areas.

“This suggests that the shortage of residential land is more severe in the capital cities,” Ms Lillicrap said.

“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.”

CoreLogic head of research Tim Lawless the surge in land prices is hardly a surprise, given the record level of detached house approvals at the peak of HomeBuilder and the constraints involved with bringing newly subdivided land online quickly.

“What is more counter intuitive is the trend towards fewer land sales through 2021, a pattern that is evident across each of the state capitals despite strong demand,” Mr Lawless 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.”

BuyersBuyers CEO Doron Peleg said the robust population growth in Australia’s population is also a key factor affecting land demand and prices.

“Take the state of New South Wales, where the estimated resident population has increased by round 3 million over the past four decades, while the average number of persons per household has declined significantly, creating significantly more demand for residential land,” Mr Peleg said.

“Although population growth in the state has slowed dramatically through the pandemic, there was a very rapid run-up from around 2006 onwards through the mining boom years and beyond.”

 

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