Land costs are high, but that's not stopping the construction of McMansions

Land costs are high, but that's not stopping the construction of McMansions
Land costs are high, but that's not stopping the construction of McMansions

Data released by the Australian Bureau of Statistics earlier this week showed that the average size of Australian homes has started to trend lower over recent years. However, there are some surprising results at an individual state level.

Sydney is the most expensive capital city in the country and the New South Wales results act as a good proxy for that city. Despite the fact that Sydney is the most expensive city, the average size of a new house in New South Wales over last financial year was 266.20 square metres; the largest average floor area of any state.

avg floor area of new houses

Despite the fact that New South Wales residential property is typically more expensive than other states, they continue to build the largest new homes. Across the other states, the average floor area of new homes were recorded at: 243.0 square metres in Victoria, 239.6 square metres in Queensland, 203.90 square metres in South Australia, 234.5 square metres in Western Australia and 200.30 square metres in Tasmania. 

The average floor area in New South Wales is much greater than all other states while the floor area in Victoria, Queensland and Western Australia are quite similar.  Typical new home sizes in South Australia and Tasmania are significantly lower than those across the other states.

land table

You can’t build a house unless you have a vacant block of land to construct the home on.  The median land prices across the states as at June 2013 were recorded at: $204,000 in New South Wales, $189,000 in Victoria, $190,000 in Queensland, $150,000 in South Australia, $229,100 in Western Australia and $100,000 across Tasmania. 

This data highlights that the cost of vacant land in South Australia and Tasmania is significantly lower than that across the other states.  Not only are South Australian and Tasmanian new houses much smaller than those across the other states, the cost of purchasing the vacant land is also significantly lower.

Another component to consider is the typical size of the vacant land and how that impacts both the size and type of home that can be built but also the cost of purchasing the land.  Across the states, the median land sizes are recorded at: 700 square metres in New South Wales, 570 square metres in Victoria, 696 square metres in Queensland, 496 square metres in South Australia, 480 square metres in Western Australia and 933 square metres in Tasmania.

Outside of Tasmania, lot sizes in New South Wales are the greatest of all states.  Tasmania which has comparatively cheap land has a much larger typical lot size whereas; South Australia has a comparatively small lot size.

income table

Of course there are other factors outside of just the cost and size of land which determines the size of homes.  Specifically it is important to consider incomes, according to data released in the 2011 Census, median household incomes in South Australia and Tasmania are much lower than those across the other states.  This obviously has an impact on the price at which residents can purchase homes.

people per dwelling

If we also look at the average number of people per household along with the average number of bedrooms per dwelling we see that there is an excess supply of bed rooms.  In all states we have a greater number of bedrooms than we do persons per household, keeping in mind that most couples will share a bed.  Given this, we don’t actually need as much space as we have in most homes. 

Certainly some younger families will buy larger homes than they need to cater for their growing needs but the broader trends show we have an excess supply of units.  Builders, developers and price sensitive purchases probably need to consider foregoing an extra bedroom in order to reduce the cost of houses.

Overall, it seems somewhat counter-intuitive that the states where housing is most expensive they continue to build much larger new houses while the more affordable states build smaller homes.  Smaller homes and potentially smaller lot sizes would help to improve the affordability of homes in the more expensive states. 

From a potential buyers perspective they probably need to reassess just how much space they need when they are considering their purchase.  Of course, a reduction in the cost of land which could be aided by quicker development approvals, greater supply of land and reduced development fees and charges would also help reduce the cost of housing.


Cameron Kusher is senior research analyst at RP Data.

 

 


Cameron Kusher

Cameron Kusher

Cameron Kusher is senior research analyst at CoreLogic RP Data.

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