Capital city vacant land prices continued to rise in 2015 however, land sizes have recently bucked their trend towards smaller lots and actually shown an increase which has resulted in a decline in the average rate per square metre of land.
At the end of 2015, the median price of vacant land across the combined capital cities was recorded at $265,000 while the median land price across the combined regional markets was $156,000. The $109,000 and 69.9% difference between regional and capital city prices are both the largest differentials on record. It also goes some way to explaining the differences in the cost of built form (houses or units) in the capital cities relative to non-capital city areas. Over the past year, capital city vacant land prices have increased by 4.0% compared to a -5.2% fall in prices in regional areas.
At the end of last year the median lot size for capital city vacant land was 466 sqm having increased by 3.6% over the year. Across regional markets the median land size was a much larger 809 sqm having increased by 8.3% over the past year. The second chart shows that land sizes have fallen over time in capital city and regional markets however, lot size compression has been much greater in capital cities. To put this in perspective, median lot sizes have fallen at a rate of -2.5% annually in capital cities over the past decade compared to falls of -0.5% per annum in regional markets.
Across the combined capital cities the median rate/sqm for vacant land was recorded at $552 at the end of last year. At the same time the rate was a substantially lower $179/sqm in regional markets. Capital city rates/sqm have fallen by -2.5% over the past year while in regional markets they are -12.4% lower. The fall in capital city rates/sqm is due to the increase in land sizes while in regional markets it is due to both prices falling and land sizes increasing over the past year.
The final table highlights the key vacant land statistics across each of the state capital cities. Sydney’s median land price ($410,000) is substantially higher than the other capital cities. Compared with the second most expensive city, Perth, at $299,000, Sydney’s median land price is more than $100,000 higher. The two cities which have seen the highest rates of housing value growth in recent years, Sydney and Melbourne, have also recorded an exceptional increase in median land prices over the past year at 20.2% and 23.5% respectively. Although Sydney is the most expensive on a rate per square metre basis, vacant land in Perth is the nation’s most expensive by virtue of the fact that only Adelaide has smaller lot sizes.
The data provides really valuable insight, particularly into the reasons why housing costs in the capital cities are so high. In a market like Sydney for example, if the typical land costs $410,000 it is difficult to imagine being able to buy the land and build a home for less than $550,000.
With housing affordability now back on the national political agenda it is likely we will some renewed focus on the high cost of developable land in our capital cities. Reforms to reduce the cost of the vacant land would go a long way to improving housing affordability, particularly for new homes. Of course the other alternative is to encourage greater economic development of regional areas where the cost of housing is significantly lower than it is in the capital cities.