The Housing Industry Assocation (HIA) and RP Data have put out their latest residential land update for 2012 this morning. It’s not pretty reading, as it shows land sales “hitting a fresh low and median land values rising further in the December 2011 quarter.”
In other words, a supply squeeze with a likely price shock to follow. From the press release, attached below:
“The volume of residential land sales has been below the previous trough set during the GFC for five consecutive quarters now,” said HIA Chief Economist, Harley Dale. “Over the five quarters to December last year land sales ran at a volume 40 per cent lower than their long term average.”
“This situation points to there being no discernable recovery on the horizon for new home building, further highlighting that current policy settings in Australia are inappropriate,” Harley Dale said.
The rationale seems fair, if a little one sided – its really the flexibility of supply at issue here, which is then exarcebated by affordability problems:
“Interest rates are too high, plans for contractionary fiscal policy untimely and too tight, state housing reform too slow, and cooperative reform efforts across levels of government too difficult to find,” added Harley Dale.
The overall numbers are bleak, with the volume of residential land sales falling by 27% through 2011, whilst land values went up by 1.7% in the December 2011 quarter, still only 0.7% higher over the year.
Compared with actual home sales, land sales are even worse off:
“Over the 2011 calendar year we have seen just under 44,000 land sales which is 46% lower than what was recorded over the 2009 calendar year. Compare that to the dwelling market where transaction volumes are about 28% lower compared with the 2009 highs, which is a weak result in itself, and the significant weakness in the vacant land market becomes even more apparent.”
What stood out for me was the table on page 2, showing the most expensive regional markets including the Gold Coast and Sunshine Coasts, areas that have both had significant price falls in dwelling values, yet it seems land prices have not yet caught up.
This result is sure to be put a damper on the continued slump in new home construction and comes on the back of the HIA/AIG March construction index released recently, which showed a 2 year long contraction, and the December results for building activity from the ABS, which showed a nearly 16% fall over the year.
With so much unsold housing stock on the market, according to SQM, where is the impetus going to come from for new construction if prices remain so high?
And I thought negative gearing was supposed to encourage construction of new homes?
Land Report Media Release Dec 11 Qtr