Land sales slump to near decade lows, but prices strong

The Housing Industry Association of Australia says governments must do more to increase the land supply, after new figures revealed residential land sales have slumped to near-decade lows despite prices remaining high.

The HIA-RP Data Residential Land Report found sales dropped 40.4% in the December quarter, while the weighted median land value Australia-wide lifted 4.1% over the same period.

The figures were particularly stark for Melbourne, which recorded a 50.1% drop in land sales for the three months to December 31.

HIA chief economist Dr Harley Dale says inadequate land release is a key element in rising prices.

While other factors – such as infrastructure charges, interest rates, and taxes on developers and home buyers – obviously have an impact, Dale says inadequate land release is a structural problem that has yet to be addressed.

“There was a clear increase in land values in late 2010, at the same time as we saw – not coincidentally – the sale of residential lots at the lowest level in December quarter at a decade low,” Dale says.

“Something needs to be done about serviceable land,” Dale says, adding in Sydney you need $300,000 just for the land alone.

“Looking at a standard house and land package, over 50% of the cost now goes on land rather than construction of the home.”

“That’s the complete reverse of what used to be the case 10 or 20 years ago.”

Dale says the solid increase in land prices versus the muted increase in the cost of building a dwelling highlights the need to expedite reforms to make housing more affordable.

“If the rate of increase in the land side of the equation hadn’t been as rapid as it had been, you wouldn’t have had such a gap emerge between what it costs to buy a new home compared to buying an existing property.”

His comments come as Merrill Lynch flags a more cautious approach on home lending as the banks take a closer look at individuals’ disposable income levels amid concerns about rising utilities and food prices.

”We believe the strain on the household budget is too big to ignore, and banks don’t accurately measure household costs,” Merrill Lynch’s Matthew Davison says in a report.