The cost of new residential land has stabilised following a strong two years of growth, with rising interest rates the key reason, according to the Housing Industry Association.
Land prices declined 0.2 per cent in the September quarter to sit at a median of $328,954, according to the the latest HIA-CoreLogic Residential Land Report.
That takes price back to a similar place they were in the March quarter, when the median lot price was $328,985.
“The stabilisation of the price of new residential land is a relief following a 26 per cent increase in less than two years,” Mr Devitt said.
The increased size of blocks sold during the September quarter meant the cost per square metre of residential land actually fell further, Mr Devitt explained.
“On a per square metre basis, prices fell even further as the desire for space and amenity that characterised the pandemic continued to push up the size of residential lots that Australians demand,” he said.
There was a 5.4 per cent decrease in the price per square metre of residential land in the September quarter and a 7.7 per cent decrease over the last two quarters.
City performance varies
The report tracks sales activity in 51 housing markets across Australia, including the six state capitals.
Land sales in Greater Sydney were the biggest drag on median prices, the report showed.
Sydney’s median land price was down 8.6 per cent in the September quarter and 11.6 per cent over the past two quarters.
Despite this it remains the most expensive place to purchase land with a median block cost of $614,500, up by 7.8 per cent on September 2021.
Values in Greater Brisbane were also down for the quarter, falling 14.3 per cent.
Prices in the second most expensive market, Greater Melbourne, increased over the quarter.
They were up by 4.5 per cent in the September quarter and 26.1 per cent over the year to a new high of $439,000.
Median prices were also up in Greater Hobart, Greater Adelaide and Greater Perth.
Prices to continue falling
CoreLogic Economist Caitlyn Ezzy said the results were to be expected.
“Given that much of the available land supply was consumed over the September Quarter and December Quarter 2020, when the HomeBuilder scheme increased demand for land, it’s unsurprising that land sales have continued to trend downwards to new record lows,” she said.
“Similar declines have been seen through a number of construction metrics, including dwelling approvals, which have trended 10 per cent below the decade average for the past six months, and dwelling commencements, which are tracking 32.4 per cent below the peak recorded in June 2021.”
She predicted prices had further to fall.
“While a 0.2 per cent decline over the September quarter 2022 is fairly mild, we would expect the price falls to accelerate in the coming months,” she said.
“Australia’s residential land market typically follows the established dwelling market, which fell by 4.1 per cent over the three months to September.
“Additional rate hikes, coupled with continually high construction costs, will add additional downward pressure on prices, with steeper declines expected in the December Quarter 2022, and into 2023.”
More supply needed
Overall, the number of lots sold during the quarter fell.
“Sales of new residential land also reached a new record low, with just 4405 lots being sold in the September Quarter 2022,” Mr Devitt said.
He added that this was likely due to the increased cost of borrowing, rather than indicating any change to supply.
“This stabilisation of new residential land prices and falling sales volumes do not reflect an end to underlying shortages of land,” he said.
“Rather, they reflect a combination of worsening affordability and the shock of the RBA’s rate hiking cycle to consumer confidence and borrowing capacity.”
Mr Devitt warned an underlying shortage of residential land remained a problem.
“Declining prices, together with record low sales volumes, are disguising the underlying shortage of land in the short term,” he said.
“Lower land prices and more affordable housing must be driven by a greater supply of land, shorter delivery times and fewer regulatory and tax imposts, not by the destruction of confidence.”