Declining vacant land sales deepen housing supply challenges

Residential land sales in the eastern states took a significant hit in FY23, declining by 13.6 per cent, further deepening the housing crisis in the region, according to the latest data from PEXA.

PEXA’s residential land sales data revealed a substantial drop in vacant residential land settlements across NSW, Queensland, and Victoria, totaling 73,901 settlements in FY23, marking a 13.6 per cent decrease.

NSW and Queensland experienced a more severe decline, with land settlement sales plummeting by 16.4 per cent and 16.2 per cent annually, resulting in 15,828 and 24,226 settlements, respectively.

In Victoria, residential land settlements saw a 10.1 per cent drop, totalling 33,847.

Of these settlements, NSW cash settlements remained fairly stable compared to FY22, while Queensland saw a fall in cash settlements alongside Victoria, indicating an increase in finance purchases.

The decline in sales volumes in each state in FY23 can be attributed in part to the HomeBuilder Grant’s effects, which advanced demand for new housing, rising interest rates dampening demand, shortages of building materials, and collapses of building companies.

Consequently, these factors have impacted the sentiment of new home buyers and further softened vacant land settlements.

This decline in land sales comes at a critical juncture when the eastern states are grappling with a rental crisis and persistent housing affordability concerns, driven by an inadequate supply of housing to meet the soaring demand.

This challenge is compounded by expectations of continued population growth, driven by immigration.

PEXA’s head of research Mike Gill highlighted the vital role of land supply in boosting the overall housing stock, emphasising that many Australians, especially families and first-time home buyers, prefer building new homes in greenfield housing estates.

“They are drawn to the lower prices compared to established suburbs and the ability to build a large, new, freestanding home to their own specifications,” Mr Gill said.

In contrast, international buyers are required to purchase new homes by government regulation and they often prefer new apartment projects, aligning with rental market trends and minimising buyer involvement during construction.

The report underscored the urgent need for local government authorities in NSW and Queensland “to construct thousands of new units within the next five years to meet forecasted demand”.

Currently, Victoria appears to be releasing enough new land to accommodate dwelling growth over the same period.

“What this report highlights is that we can’t rely solely on greenfield developments on our urban fringes to meet the housing demands of a growing Australia,” Mr Gill said.

“People want to live in cities for access to education and employment, and it’s our cities that are best placed to deliver these services, as opposed to creating new and disconnected communities on our cities’ fringes.”

Looking forward, the demand for residential land is expected to remain robust, driven by substantial net overseas migration and the long-term trend of smaller yet more numerous households, increasing the demand for dwellings independent of population growth.

This sustained demand has led to significant price increases for vacant land, with Greater Sydney’s median reaching $489,764 (up 13.5 per cent), Greater Melbourne’s at $288,607 (up 6.3 per cent), and Greater Brisbane’s at $248,295 (up 9.4 per cent).

Despite these price increases, the total value of settlements across the three states decreased by approximately 7.4 per cent to $36.8 billion, partially due to delayed land possession, which has subsequently slowed down the construction of new dwellings.

Mr Gill emphasised the need for improvement in land release practices to address the challenges posed by a growing population, either by expanding greenfield land availability or embracing more apartment construction within urban centres.

[Related: Immigration needs to be lower to improve affordability: Shane Oliver]