By Leith van Onselen
Core Logic-RP Data has released its Capital Markets Report for 2015, which contains some disturbing data on Australia’s land costs, which have gone vertical despite shrinking in size:
The price of vacant residential land across the capital cities has increased sharply over recent years. Over the 20 years to December 2014, the median price of vacant land across the combined capital cities has increased by 382 per cent or at a compound annual rate of 8.2 per cent. The ongoing rapid escalation in the cost of vacant land has contributed significantly to the overall rise in housing costs.
These increases are further exacerbated by a number of other factors, namely:
– Slow development approval processes;
– Restrictions to urban development boundaries;
– Significant land banks owned by a handful of developers;
– Most new development being undertaken by the private sector.
The median selling price of vacant land across the combined capital cities was recorded at $283,000 over the three months to December 2014. Over the past 12 months, vacant land prices have increased by 17.4 per cent. When construction costs are factored in, it becomes easier to understand why established home prices are often cheaper than new homes.
While land prices have increased significantly over the past 20 years, the typical size of vacant land has gone the other way, and significantly reduced. As a result buyers of vacant land are now spending more and getting much less for their money. Importantly, the vacant land which is available is now often located further away from the city centre with less local infrastructure and amenity.
At the end of 2014, the median vacant land area was 509 square metres (sqm). Ten years earlier, the median land area was 624 sqm and 20 years ago the typical land area was 684 sqm. Although land sizes have shrunk over time, they are slightly larger than the 463 sqm recorded at the end of 2013.
With land prices rising and the average land area falling, there has been a sharp rise in the rate per square metre of vacant residential land over time. At the end of 2014, the typical vacant land lot cost $534 per square metre. On a rate per square metre basis the figure was slightly lower than the $538 per square metre a year earlier. Ten years ago the rate per square metre for vacant capital city land was $239 and 20 years earlier it was recorded at $84.
As previously mentioned, buyers now get much less for their money than they did 20 years ago. As an example, 20 years ago the typical lot size was 684 sqm and cost $58,750. Based on current prices if you purchased 684 sqm of vacant land it would cost $365,256.
That is as damning an assessment of Australia’s land supply system as I have ever read.
How a country with such an immense land mass could engineer a land shortage is the hallmark of idiotic policy.
If ever there was a time to relax artificial restraints on land supply and the first-user-pays-all principle, as well as introducing a broad-based land tax, it is now. Australia’s expensive lot prices are a direct result of poor government policy, pure and simple.