Realestate.com.au posted an article claiming that the price of vacant land in Victoria has risen above the cost of established homes, creating a major barrier to the Albanese government’s housing targets.
Despite the median home price falling over the past two years to make Melbourne the nation’s fifth most affordable capital, new figures show the city’s typical patch of dirt costs $1070 a square metre — the second highest figure in the country, behind Sydney.
Housing Industry Association economist Maurice Tapang said the price of land was now the biggest constraint on new housing construction in Australia’s capital cities, and that Melbourne might not have an increase in new housing construction even after there is an interest-rate cut given established homes could be bought for less…
“It’s becoming increasingly hard to make new housing equations stack up”, PropTrack economist Paul Ryan said.
“There’s lots of choice for established homes and the prices have gotten relatively more attractive compared to new homes, and that’s something we’ve heard a lot of from developers”.
The following chart shows the growth in median lot price across Australia’s major capitals in the decade to September 2024.
The HIA-CoreLogic Residential Land Report showed that the median price of a capital city lot increased by 9.2% in the September quarter to $408,160 compared to a year earlier.
“Land prices have risen three times faster than the rate of growth in the ABS Consumer Price Index (CPI) and five times faster than growth in the cost of home building materials as measured by the Producer Price Index for the September quarter 2024”, HIA Economist Maurice Tapang said.
At the same time, the cost of building a house averaged $537,000 nationally, according to the ABS, following the hyperinflation of construction costs since the pandemic.
Assuming the national average construction cost applied to each capital city, it would cost the following to build a median house across each jurisdiction.
- Sydney: $1,247,000
- Melbourne: $932,000
- Brisbane: $937,000
- Adelaide: $805,700
- Perth: $889,000
- Hobart: $814,500
- Capital cities: $945,160
Now compare the above figures against the median established house prices across the capital cities.
As you can see, it costs a similar amount to buy a lot and build a house as purchasing an established house.
The median established house would also be located closer to the city centre and would be a larger lot than the median new housing estate.
It is hard to see how the Albanese government’s housing targets can be met under such conditions.
Land prices and construction costs need to fall to make new housing developments viable.
