Land prices emerge as primary hurdle for Australian home building
By
Photo by Lisa from Pexels
The escalating cost of land has become the foremost challenge in Australian home building, according to the latest findings from the Housing Industry Association (HIA) and Cotality. The HIA-Cotality Residential Land Report, which examines sales activity in 52 housing markets across the nation, including the six state capitals, indicates that land prices have risen at an alarming rate over the past two decades.
HIA Chief Economist Tim Reardon highlighted the disparity between the rise in land prices and construction costs, noting, “Over the last 25 years, the price of the typical new residential lot of land has risen more than three times faster than construction costs.” This stark difference underscores the growing financial burden on prospective home buyers.
Since the year 2000, residential land prices have surged by over 500 per cent, while construction costs and skilled labour prices have only increased by about 150 per cent. Mr Reardon explained, “The long-run escalation in housing costs has been driven overwhelmingly by land.” This trend reflects the significant impact of government policies on land release, servicing, and taxation, which embed infrastructure costs, delays, and planning decisions into land prices. “Those costs are paid upfront, capitalised into land values and ultimately borne by new home buyers,” he added.
The report, released today, also reveals that the median price of residential land reached a new national record in the September quarter, rising more than 10 per cent over the year. This increase is occurring at a pace three times that of consumer price inflation, further exacerbating the affordability crisis.
Tim Lawless, Cotality’s research director, pointed to the persistent growth in construction costs as another contributing factor to Australia’s housing shortfall and affordability issues. “The cost to build a house rose another 1.0% in the December quarter, pushing building costs more than 30% higher over the past five years,” he said. This rise in building costs is also fuelling inflation, with the cost of new dwellings purchased by owner-occupiers, which significantly influences the Consumer Price Index (CPI), increasing by 3.0% in the December CPI. This, in turn, adds to the renewed cost of living pressures faced by Australians.
Mr Lawless further commented on the challenges faced by builders and developers, stating, “With land costs and building costs continuing to trend higher, along with high contribution charges and taxes, project feasibility remains a core challenge for builders and developers in delivering desperately needed housing supply.” This ongoing issue highlights the critical need for viable solutions to meet the housing demand.
Reflecting on the broader impact of these trends, Mr Reardon remarked, “It was easy over the last few years to lose sight of what has been the most pressing constraint on Australian home building – everything has appeared to be under pressure since the pandemic.” He emphasised the importance of addressing the shortage of shovel-ready land as a central solution to the affordability challenge. “In just the last year, residential lot prices in Brisbane and Perth increased by 18 per cent and 21 per cent respectively, while Adelaide prices jumped a whopping 40 per cent,” Mr Reardon noted.
Without a robust pipeline of shovel-ready land, complete with necessary infrastructure and fair funding, the demand for new housing is likely to spill over into the established housing market. This could further drive up prices and exacerbate the affordability crisis. “Without a healthy pipeline of shovel-ready land across Australia’s capitals and regions, along with all the associated infrastructure, fairly funded, the return of demand for new housing will be diverted into the established housing market, further driving up prices and worsening the affordability crisis,” Mr Reardon concluded.
The report underscores the urgent need for strategic interventions to address the soaring land prices and construction costs that are hampering the delivery of affordable housing in Australia. As the nation grapples with these challenges, the insights from industry experts like Mr Reardon and Mr Lawless provide a clear call to action for policymakers and stakeholders to prioritise solutions that can alleviate the housing affordability crisis.