Residential land sales fall but prices paid rise? Terry Ryder

Residential land sales fall but prices paid rise? Terry Ryder
Residential land sales fall but prices paid rise? Terry Ryder

Two apparently contradictory things are happening in real estate – sales of residential land have fallen (a lot) but the prices being paid are rising (sharply).

In Sydney the rate of sale of residential lots has almost halved over three years, but prices (to quote a popular pun in real estate media) have gone through the roof.

How can that be? Do the laws of supply and demand no longer apply in Australia?

The answers to these questions lie at the heart of the affordability discussion.

And a clue to the answers lie in an announcement earlier this week: that a New South Wales state government decision is set to add as much as $50,000 to the cost of new house-and-land packages in Sydney.

Prices for residential allotments and new dwellings are rising so sharply because the costs of creating new shovel-ready land, and the homes that are built there, are constantly rising.

Those costs are escalating primarily because the housing industry is a beloved cash cow for politicians everywhere. All three levels of government milk the housing sector for revenue like there’s no tomorrow. 

NSW Premier Gladys Berejiklian came to power mouthing platitudes about making housing affordability one of her key priorities. But her government regularly announces decisions that make the problem worse.

Gladys is not alone. This is an issue across the nation. Every time a state or territory government that brings down an annual budget, affordability gets worse because there are always new taxes, fees and charges imposed on the industry that creates dwellings for Australian households.

On 19 February The Australian reported that “house prices on greenfield sites in Sydney could rise by as much as $50,000 following the NSW Government’s decision to uncap infrastructure levies on developers”.

It reported: “The government is about to lift the cap on section 94 levies — how much councils charge developers for infrastructure. A recent application by Blacktown council for the Marsden Park development, successful with the government’s Independent Pricing and Regulatory Tribunal, was for the $30,000 per home cap to be lifted to $87,000.

“In August, the UDIA and the Property Council wrote to the Premier saying: “Housing affordability is one of the NSW government’s three chief priorities announced when you became Premier this year. However there are several recent policy initiatives from the government that run contrary to achieving this outcome looking ahead. Changes to biodiversity regulations ... could add between $20,000 and $30,000 per lot while uncapping section 94 could add anywhere between $30,000 to $80,000 per dwelling.’’

When you understand that these decisions are a few among many that add to the cost structure of those who create new dwellings, you begin to see why real estate is so much more expensive in Sydney than elsewhere.

The latest Residential Land Report published by the Housing Industry Association shows that the median lot price in Sydney is more than double those in Brisbane and Adelaide, almost four times the median price in Hobart, and 55% higher than in Melbourne.

The report found that the median vacant residential land lot price nationally hit an all-time high of $267,368 in the September 2017 Quarter, up 10.9 per cent on the same period in 2016.

But land prices rose faster in the capital cities, up 12.8 per cent annually on average.

Sydney was the most expensive capital with the cost per square metre at $1,051, followed by Perth ($752), Melbourne ($737) and Adelaide ($637), while Hobart was the cheapest ($180).

HIA senior economist Shane Garrett says supply is struggling to keep pace with demand, leading to greater housing affordability issues.

“The high cost of new residential land is at the heart of Australia’s housing affordability crisis,” he says. “The housing industry’s ability to ramp up the supply of new dwellings as demand dictates is hampered by the inconsistency of the land supply pipeline. The time it takes for land to be made available to builders is unnecessarily long.”

These delays add to costs. Mix in the constant intrusion of new taxes, fees and charges, and you have the nub of the affordability issue.

It’s easy to see why it’s difficult for find an affordable house in Sydney, when you pay $480,000 for the typical home site, even though the average lot size keeps gets smaller – and despite the reality that the number of lot sales fell to below 250,000 in the September 2017 Quarter, compared to around 470,000 in the December 2014 Quarter (but the median price has risen from $340,000 to $480,000 in that time).

In Melbourne you pay $310,000 for the typical block of land, before considering the cost of building the house.

“The ability of new home building activity to respond to this increased demand has been held back by insufficient supply of shovel-ready residential land,” says the Residential Land Report.

So it means that the number of land sales has dropped not because of lower demand, but because of lower supply. That shortage, plus the rising cost structures imposed by state governments and local councils, means prices rise relentlessly.

In capital city Australia, the number of lot sales peaked in mid-2015 and has been trending steadily downwards ever since. But the median lot price has risen from around $250,000 to over $310,000 in that time frame.

 

Terry Ryder is the founder of hotspotting.com.au

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Terry Ryder

Terry Ryder

Terry Ryder is the founder of hotspotting.com.au.

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