HIA: land prices rocket as sales evaporate

By Leith van Onselen

The Housing Industry Association (HIA) has released its land sales report for the September quarter of 2015, which revealed a widening divergence between vacant land prices, which continue to climb to record highs, and the number of land sales, which fell again in the latest quarter and have tanked over the past two years (see next chart).

ScreenHunter_11564 Feb. 17 11.13

According to the HIA release:

During the September 2015 quarter, the number of residential lot sales fell by 2.7 per cent while median lot prices rose by 4.2 per cent. The tightening of market conditions was concentrated in the capital cities, where prices increased by 5.4 per cent but the number of lots transacted actually fell by 4.5 per cent.

“At about 12:50am yesterday morning, Australia’s population broke the 24 million barrier for the first time,” remarked HIA Senior Economist, Shane Garrett. “Today’s report provides a sobering indictment of how land supply policy is not keeping pace with the housing needs of our growing population,” Shane Garrett added.

“The combination of strong land price growth yet declining transaction volumes are hallmarks of a market constrained by supply bottlenecks,” Shane Garrett pointed out.
“Ineffective land supply policy will limit Australia’s long term growth potential and erode competitiveness by forcing costs up,” warned Shane Garrett.

“The key supply side issues like planning delays, efficient infrastructure provision and the mammoth taxation burden on new housing need urgent attention. Otherwise, living standards for Australia’s 24 million residents will never reach their full potential,” concluded Shane Garrett…

According to CoreLogic RP Data research director Tim Lawless, the number of vacant land sales has been trending lower since reaching a recent peak over the June quarter of 2014, with the median land price continuing to push higher despite lower volumes. “Buyer demand across the vacant land market has remained strong, which is why prices are rising on lower sales, however, as land prices rise it is likely block sizes will have to reduce in order to maintain an affordable price point for buyers.”

I have said it before and I will say it again: Australia’s land supply system is clearly busted. In a period of ultra cheap credit, strong immigration, and strongly rising house prices, land sales should be increasing, not decreasing.

Sadly, Australia is fast becoming a nation where housing choice is limited to an expensive shoebox apartment, or an expensive tiny lot on the fringe.

A country with such an immense land mass with a land shortage is the hallmark of idiotic housing policy.

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  1. “A country with such an immense land mass with a land shortage is the hallmark of idiotic housing policy.”

    One could conclude that it’s not longer a housing policy, with the desired outcome to provide the utility of shelter for families.

    You may conclude it is now a wealth creation (and preservation) policy for a privileged class, a class determined by their year of birth… that coincidentally offers shelter.

    We had greater levels of immigration, greater capital inflows and greater demands on infrastructure in the post-WWII period, and it didn’t resemble this.

    • FiftiesFibroShack

      “You may conclude it is now a wealth creation (and preservation) policy for a privileged class, a class determined by their year of birth… that coincidentally offers shelter.”

      Or as treasury calls it “capital formation”.

    • Incisive summation Rusty.

      This reminds me of one of Bob Day’s many housing policy missives http://www.bobday.com.au/PDF/Senate-Inquiry-into-Affordable-Housing.pdf

      in which he noted ” the blatant shift of emphasis from the original mandate – from the interests of the buyer – “those members of the community who do not have large financial resources” to the interests of the seller, the Land Management Corporation; from “maintaining land affordability” to “maximizing returns to government”.

    • Well, yes. And we had housing authorities building public housing to keep a lid on prices. Those housing authorities had big political clout within government. That political clout suppressed the planning bureaucrats whenever they came up with some idea that restricted supply.

      Now we have “the markets and private enterprise”.

      This very outcome was predicted when the housing authorities were dismantled in the early 1980s.

      Even today, economists won’t admit it wss wrong.

      Society has got the inevitable result of a deliberate policy choice. A choice that still has wide support, despite evidence of its failure

  2. While Scott Morrison appears to be allergic to sensible policy – even policies that any old school Liberal Treasurer would support, here is an easy suggestion to divert attention from the ALP negative gearing policy.

    Announce Commonwealth government funding of servicing and development costs for several billion dollars worth of land supply. The offer of Federal funding for access roads, kerbing, sewerage, the NBN, duck ponds, playgrounds, parks on a first come first served basis will have State Government Land Gouge Departments and Developers on the first flight to Canberra.

    The only condition is that the land must be serviced and auctioned within 18 months of receiving the grant or the Commonwealth can seize the land and sell it to recover the grant money paid.

    How to pay for it?

    Choose between

    1. A Commonwealth Land Tax administered by the ATO using all that wonderful State Land Title Office data they now have access to.

    2. Establish a Municipal Bond Development scheme and attract investments from SMSF and all those mum and dad investors keen for a secure investment that does not involve housing ponzinomics. The bonds could be linked to particular developments or regions if a state or Local Council will be the developer.

    Any state that wants to participate in the development funding would need to pass the necessary laws to allow the levy paid by the home owner to be a first charge on the title.

    Getting plenty of land auctioned into the market with all development and servicing costs paid will address housing affordability and snuff out interest in negative gearing at the same time.

    Negative Gearing loses its appeal in a market for land that is efficient and responsive to the demand for housing.

    The above was offered to Mr Hockey but he was too busy planning life post politics in Washington.


    • Good stuff, Pfh. We clearly have market failure in land supply.

      A deliberate and large scale intervention by the Commonwealth to increase supply might interrupt the stranglehold private interests currently enjoy. However, it would not alter the special role land occupies in our economic system – the real issue we need to get our minds around.

      Australia has abundant land – a vital national advantage we should make dirt cheap to foster activity – even if we only consider the part that gets sufficient rain to be habitable. The ability of existing land owners to withhold it from best and highest use is the key.

      This is why I advocate land tax to change landowner behavior and drive it into use. The proceeds could cut the taxes on labour and capital, both of which are sorely tried by bad taxes.

      Even the simple exchange of Stamp Duty for State Land Tax would be of immediate benefit in freeing up access to land.

      • I agree but as we know Land Tax is a challenging political issue.

        For me the question is how can we defuse the land price ponzi scheme politically and I think that the easiest approach is to remove some of the impediments to supply and the major one is the servicing and development gold plating and gouging “first user pays all with a bank mortgage” approach.

        A move away from stamp duties to a “Land Infrastructure and Services levy” (I prefer that to Land Tax) can be introduced at the same time, if the political will can be found, but I don’t think it will be as easy to sell as a scheme where the government creates competition amongst developers, state governments and councils for funds to bring new land to market.

        The introduction of a scheme for funding servicing and development costs from ongoing levies lends itself to being extended to a scheme to levy the costs of infrastructure improvements and ongoing services connected to land.

        In other words – I think it will be easier to get the general idea of taxes linked to the value of land up and running if we start with the purpose of funding the servicing and development of new land.

      • Today's Empire Tomorrow's Ashes

        All well and good but missing piece of this puzzle is commuting infrastructure (high speed rail, cycling, roads, light rail) and an incentive to decentralise.

        For the love of Dog when can we decentralise?!

      • “For the love of Dog when can we decentralise?!”

        When Nationa party voters stop voting for those that inflate regional and rural property prices.

        They’d arbitrage the hell out of capital cities if they knocked the last zero off land prices.

      • TETA,

        One of the key obstacles to decentralisation is that:

        1. Land owners in the cities do not contribute enough to the cost of the infrastructure that supports the value of their land. As a result everyone wants to own land in the city and live in the city because that land effectively benefits from a subsidy.

        2. Land that benefits from infrastructure that would allow more decentralisation do not currently contribute to the cost of providing infrastructure so the infrastructure does not happen as it could not be justified on the price of user charges ‘fares’ alone. High speed (or even moderately fast rail) rail suffers from that.

        So the problem works both ways – there is little incentive to build infrastructure that would allow decentralisation and an active subsidy to jam everyone in like rats in a bucket.

        If good infrastructure that supported decentralisation was paid for by a combination of user charges AND charges on the land that benefits, it would be much easier to get decentralisation projects off the ground.

        And if they do not then get off the ground that will be because the projects require an explicit subsidy – which may be warranted but that is a more difficult argument as it will require particular choices on where to live to be subsidised by those who reside in other locations.

  3. I was looking to buy in the huon valley, tassie about 5 years ago and the real estate said there was large numbers looking to do what i wanted, 5 acres to grow my own food. There was also large numbers of farmers going broke desperate to cut up large chunck into smaller blocks. Council did not want it. But they were cutting the towns into tiny pieces. You could buy 600 squares that was surrounded by beautiful unused land. At the same time tassie was banging on about becoming our food bowl. I guess they wanted all the land cheap intact to sell to big farms. So sad and backwards, hows it all working out now tassie?

  4. I’m wondering whether greedy govt will one day wake up to the giant opportunity to make money from our housing ponzi.
    Once prices peak and the stamp duty dries up, govt might decide to acquire farmland from its current owner – paying farmland prices – and then rezone the land, run pipes and roads and sell it to citizens seeking shelter at today’s huge prices.
    Why mess around trying to stop mum and dad from deducting $5000 on tax, when you can make $400,000 by rezoning 300 square metres of farmland?
    The serious money is there to be made.

  5. A country with such an immense land mass with a land shortage is the hallmark of idiotic housing policy.

    and more importantly : NIMBY – the ultimate hallmark of failed policy

    even if new land supply is completely made free we would end up with two poor options: shoebox apartment close to city and lots on the fringe far from everything (most of our capital cities are already too large to be able to grow in area while still providing decent standard of living)

    the very reason why we ended up with these options are NIMBY rules that prevent developers from knocking down old mouldy terraces and fibroshacks and building smaller livable blocks of units
    With NIMBY in place higher density developments are limited to old industrial sites. In such environment developers are allowed to build huge high-rises to produce enough units to meet demand for inner city living. that’s how we end up with numerous places where on one side of the street we have new and crappy 30 floor high-rises and on the other old and crappy single story terraces
    If we instead let anyone to buy few old houses in inner city areas and build few story building with a dozen of units none would ever consider buying shoebox units in high-rise blocks. With that we would be able to provide enough of high quality homes for people who don’t want to waste life in a car or public transport.

    In civilized countries, master plans decide what can be build and where not old grumpy and bored neighbors who want to protect their lifestyle at the expense of young generations.

    • Yes – and reform would not be that difficult.

      Reduce the number of zonings (they multiple like swamp larvae) to something simple like

      Quiet 5 – up to 5 storeys (Can be used for residential, retail, commercial, offices etc)

      Quiet 10 – up to 10 storeys (Can be used for residential, retail, commercial, offices etc)

      Smelly/Noisy (no height limit) (Can be used for any smelly or noisy industrial use)

      Reserved (for heritage, transport corridors, parks, public facilities, etc)

      The above would allow land to organically change purposes as the demand arose, if people want to huddle around a main road the developers can build up.

      If govt wishes to preserve some farmland close to the city they can by purchasing the land and rezoning it reserved and then sell it off for farming purposes only.

      Sure this may mean that people may find the houses next door get knocked down and an apartment block built but that is what should happen if lots of people want to live in the neighbourhood. If you live close to a popular location but want to live in a detached housing street the solution is simple – move to a place where there is no economic demand to build a block of apartments.

  6. Supply and demand chaps. There is less and less land to go around – no wonder prices are rising.

    Same thing happened with bananas a while ago. Small volumes, high prices!

  7. So is the price of land only going up after state govts have farmed lots out to developer mates who sit on it and gradually sell of the crumbs at inflated prices, all the while lamenting how long a block takes to develop and labor shortages that dont exist.

  8. Reducing volume in line with increasing prices… one of my favourite trade setups (exhaustion). Cut teh rates! 🙂
    MB is full of good news lately!

    • What Andy said! Based on those decreasing volumes, the nominal change required to change market direction is decreasing all the time. Bring it on!

  9. allow housing on some of the Cwlth-leased airport sites. that’d shake up the state governments a little. allowing the businesses has been great.
    (…it won’t happen).

  10. HIA cut the BS and tell this to your mates holding onto swathes of land on their books for years at a time. They are purely and simply, specufesting away the Australian dream for the sake of profit for a few. MBA is a clear example!