Handsome looking trend emerging in residential land sale: Pete Wargent

A handsome-looking trend is emerging in residential land sales in this week's Housing Industry Association (HIA) release for the June 2013 quarter, which should be a precursor to a desired pick-up in dwelling construction.

Source: HIA

Residential land sales volumes are on the up now for several consecutive quarters and now sit at their highest level since March 2010.

This is what the Reserve Bank of Australia (RBA) has been hoping for, the favoured outcome being a strong increase in dwelling construction to offset the mining construction boom moving over its hump.

Plenty have written off a material increase in dwelling construction coming to the fore, but low interest rates necessarily must take time to work and for their full effect to be seen, and therefore it is often difficult (or simply nigh on impossible) to predict outcomes in advance.

Clearly land sales are up from a low base over the past few years as the HIA chart above shows, but the trend is incontrovertibly an upwards one.

Nationwide, land sales are now 21% below their historical average, but that said, they were up by more than 18% in the last quarter alone.

Notably residential land sales are up very strongly by 33% over the past year in Sydney.

This is perhaps unsurprising as Sydney has an under-supply of appropriate dwellings and a very strong population growth.

And still further, the harbour city is seeing very strong dwelling price gains, up by more than 12% already in 2013 with more than two months of the calendar year left to run.

There certainly looks to be unit construction aplenty underway: Barangaroo, Broadway and the inner south being stand-out examples.

It's certainly looking to be all on around Sydney, my eyes tell me, although there is of course commonly a lag between construction becoming visible around the city and units becoming inhabited.

This will represent positive news for the Australian economy as and when increasing residential land sales are ultimately reflected in dwelling construction.

The corresponding test will be to gauge whether mining construction capital expenditure drops off quickly as some have feared or whether a somewhat brighter global outlook and stabilising growth in China (and potentially some resources project overruns or cost blowouts - anecdotal evidence suggests that there may be plenty of these ongoing) mean that the mining cliff is rather a gentler tailing off than a capex apocalypse.

The impact to date of 'actual' declining mining construction has been limited in its scope but the 'expected' level of capital expenditure surely looks set to tail off.

This will begin to represent a headwind for the Australian economy through 2014 and beyond, but so far the RBA appears to remain confident of its stance.

A favourable inflation (CPI) print this week may help to strengthen its position.

Chart: Financial year actual and expected expenditure- Mining Capital Expenditure

Source: ABS

Pete Wargent
is the co-founder of AllenWargent property buyers (London, Sydney) and a best-selling author and blogger.

His new book 'Four Green Houses and a Red Hotel' is out now.

Pete Wargent

Pete Wargent

Pete Wargent is the co-founder of BuyersBuyers.com.au, offering affordable homebuying assistance to all Australians, and a best-selling author and blogger.

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