Residential land value hits $6.6 trillion with further increases tipped

The value of residential land in NSW might have hit $2.67 trillion, but it’s still worth less than tech company Apple.

BuyersBuyers Co-founder Pete Wargent made the comparison when analysing the growth in Australia’s land values, emphasising that Apple, as a company, was priced at US$3 trillion market capitalisation earlier this month.

“To put that another way, and to paraphrase the great man Warren Buffett, for the same value of the Apple business today you could buy all of the residential land in the NSW and still be left with about a trillion Aussie dollars or so of walking around money,” he said.

Mr Wargent said Australia’s residential land values increased in every state and territory in 2021, rising from $4.9 trillion to $6.6 trillion nationally, according to Australian Bureau of Statistics data.

“At face value, there has been a huge increase in the value of residential land, more than doubling over the past eight financial years,” he said.

“But it should also be recognised that more land is being released and used for residential purposes as the population grows over time, so a good part of the increase in land values is baked in.”

Mr Wargent said demand for residential land was exceptionally high and he tipped that trend would continue.

“We expect to see a further increase in land values, and consequently, free-standing houses are highly likely to enjoy strong capital growth in the long term, in most of the established areas and landlocked suburbs in the country,” he said.

BuyersBuyers Chief Executive Officer Doron Peleg said Australia’s population growth had played a key role in rising land values, alongside structurally lower interest rates and an increase in Australian household wealth.

“Take the state of NSW, where the estimated resident population has increased by around three million over the past four decades, while the average number of persons per household has declined significantly, creating significantly more demand for residential land,” he 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.”

Coastal and lifestyle suburbs as well as prime harbourside suburbs has driven the recent strength in land values, with Mr Peleg noting buyers had increasingly used flexible working arrangements to seek more space.

“We expect that the demand for land will remain strong, and land values are highly likely to deliver strong price increases, particularly in the long term” Mr Peleg said.

Once again calling on the wisdom of Buffet, who liked to buy stocks on the assumption the market could close for a decade the next day, Mr Warget said property buyers should take a similar mindset.

“The total value of Australian residential land may appear to be at nosebleed levels at $6.6 trillion, but land values always feel expensive, and they will be much higher a decade or two from now,” Mr Wargent said.

“A key drawcard for long-term investors in land and property is the survivorship factor. Apple is a wonderful business, no doubt – but nobody can say for sure which companies will be the most valuable in another four decades from now.

“Forty years ago, in 1980, the largest corporations list was dominated by big oil and energy, Ford, General Motors, and IBM, for example, but the economic landscape has shifted dramatically away from the dominance of these businesses.

“Property will continue to go through cycles, but well-located residential land in cities such as Sydney and the desirable coastal suburbs of NSW will still be in extremely high demand 40 years from now, hence its enduring popularity.”

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.