Residential land sales drop 40%, recovery nowhere in sight

The volume of residential land sales fell 40% during the 12 months to March 31, the latest HIA-RP Data Residential Land Report reveals, representing a second consecutive quarterly decline.

The report also shows the weight median land price for Australia remained steady during the first quarter at -0.1%, representing annual growth of 6.9%.

HIA chief economist Harley Dale says the report indicates the so-called housing recovery is running out of steam, and the industry faces a very real threat of a downtrend in new home building if things don’t recover.

“This report really reinforces the story that’s been running for some time now, where you have a loss of first home buyer stimulus, you have rates continuing to rise, and you have this environment of economic uncertainty,” he says.

“You couple that with problems like lack of adequate land supply, adequate access to finance for home buyers, and you’re seeing a reduction in lending for new home building. It really is making things harder for the industry.”

Sydney has the most expensive residential land with a median price of $305,000, while the Sunshine Coast remains the most expensive area outside the capital cities with a median price of $260,000.

The HIA-RP Data report identifies 12 areas where median land prices are below the $100,000 mark, including the Mallee region of Victoria, which is the cheapest at $72,000, followed by Murray Lands at $77,000 and the South East in Southern Australia at $80,000.

RP Data national research director Tim Lawless said in a statement the second consecutive quarterly decline is due to current price sensitivity prompted by interest rate rises.

“The interest rate rise in March, which followed monthly increases over the December quarter last year certainly dampened market conditions, particularly among the first home buyer and low income segments of the market.”

“The continued weakness in vacant land sales is a bit of a worry considering the ongoing demand for housing remains high. The low volumes of land sales suggest continued price sensitivity from the market and further housing pressures ahead.”

As for moving forward, Dale says the HIA “hopes” the decline begins to stabilise but there are a number of different issues at play.

“There are several issues working here, and that has to do with the response to rising interest rates, and a number of different economic factors like employment. There’s also an enormous amount of weight applying to precisely what decision the RBA takes on August 3.”

Dale says if interest rates rise on August 3 and onward, and finance becomes increasingly more difficult to obtain, then he says we will continue to see negative housing indicators.

“If you get that combination of high interest rates and low access to credit, I think you’ll continue to see weak land figures for some months to come.”

Lawless isn’t optimistic, either. He says the June quarter doesn’t hold much chance for an improvement over the recent figures.

“Considering the rate rises in April and May, lower consumer confidence, and lower housing finance commitments over the June quarter, we don’t expect any real improvements in the vacant land figures soon”.