The Housing Industry Association (HIA) has today released its residential land sales report for the June quarter, which revealed a solid pick-up in the volume of sales, albeit from a very low base:
The volume of residential land sales posted strong growth of 18.2 per cent in the June 2013 quarter to reach a level of 17,170.
“This is the highest quarterly volume achieved since the March quarter of 2010,” said HIA Chief Economist, Harley Dale. “The recovery in residential land sales is impressive, but from a very low base.”
“There is a close (lagged) relationship between RP Data-HIA land sales and the number of detached house starts,” noted Harley Dale. “Land sales volumes highlight the prospect of further growth in detached house starts in 2013/14 following a modest lift of 3.7 per cent in 2012/13. That would be a very positive outcome for both the new home sector and the wider economy”.
“The level of sales in 2012/13 was 56,782. Sales are therefore now back to a level equivalent to the GFC trough but no higher – the level is still 21 per cent below the historical average. Obviously it will be important to see further strong momentum in land sales for some time to come. For that to occur there needs to be a keener policy focus on ensuring adequate and affordable shovel-ready land is available,” remarked Harley Dale…
“The improved number of land sales reflects a higher level of buyer demand, but we need to keep in mind that the figures are moving higher from a low base and we are continuing to record a substantially lower number of land sales than what was recorded during the last growth phase back in 2009/10. Nevertheless, policy makers such as the RBA should see the stronger housing market conditions as reinforcement to the current policy settings; not just low interest rates but also the incentives available to purchase or build a new home rather than an established one.”
Indeed, a quick look at the ABS dwelling construction data shows that the rate of detached house construction has been very weak when adjusted for Australia’s population (see next chart), and it is hoped that this latest pick-up in land sales will help to stimulate house building.
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However, while some of the factors that would usually stimulate dwelling construction are in play – namely low interest rates, strong population growth, and government stimulus aimed at new construction – high land prices continues to constrain supply, with the median price of residential land lots across Australia’s capitals hitting nearly $220,000:
In the June 2013 quarter the weighted median residential land value for Australia’s six state capitals increased by 0.2 per cent to $219,863. This value was 2.4 per cent higher when compared to the same period in 2012. The median value for Regional Australia was $153,710 in the June 2013 quarter. This represented a quarterly decline of 1.0 per cent and a 0.1 per cent annual reduction.
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It must be kept in mind that this $220,000 median price tag is on lots that are substantially smaller than those that were available a decade ago. As such, new house buyers are effectively being asked to pay much more to receive less in return, which is a key reason why demand remains weak.
If the HIA truly wants to promote dwelling construction, it should lobby to remove the myriad of land-use, planning restrictions, tax, and infrastructure bottlenecks that are working to inflate the value of fringe residential land and pushing the cost of new homes above what many buyers can afford or are willing to pay.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
