As cost of land continues to increase and the size of new house block continues to shrink, residential land sales across Australia have fallen away to their lowest level in at least 10 years.
The Housing Industry Association – RP Data residential land report showed that the volume of land sales dropped to about 11,500 lots in the three months to December 2010 from 12,500 in the previous quarter.
If we were to look at land sales statistics a year earlier we would see a drop of just over 40 per cent. The quarterly drop was the biggest since 2001 when the HIA-RP Data survey began.
At the same time that land sales are dropping the weighted price of a residential block increased 4.1 per cent to $194,161 across the country.
“The sharp drop in the volume of land sales signals a very weak 2011 for new home building,” said HIA economist Matthew King. “The escalation in land values highlights an on-going deterioration in new home affordability driven by constraints on supply.”
The latest residential land price data follows a report from the Real Estate Institute of Victoria over the weekend showing that Melbourne home prices had posted their biggest decline since 2008. The median Melbourne house price for the March quarter fell by 6 per cent to $565,000 from $601,000.
Auction clearance rates have also deteriorated to about 60 per cent in Melbourne and Sydney since the beginning of 2011, significantly lower than the highs of 80 per cent seen last year, as the effect of higher interest rates, crumbling affordability and economic uncertainty took their toll.
REIV chief Enzo Raimondo said “the current residential market in Melbourne and Victoria has entered into a different phase of lower transaction numbers and reduced price growth.”
Nationally, home prices were flat in February, following a revised 1.5 per cent drop, seasonally adjusted, in January, according to RP Data-Rismark figures released last month, with January’s fall the biggest decline since 2005 when the index began.
In addition to the increasing cost of purchase and the tighter regulation in lending for residential purposes, there are a number of other adverse influences driving down land prices. There are the high costs of land tax, the difficult lending conditions, the increasing costs of living and the list goes on.
The Reserve Bank raised our cash rate to 4.75 per cent in November, a move that was followed by even larger rate increases for borrowers from most lenders.