Land costs increase at double the rate of building materials

Land supply constraints and the housing boom induced by homebuilders have caused the cost of residential land to skyrocket twice as fast as the rise in prices of building materials over the past year.

The HIA-Corelogic Quarterly Residential Land Report analyzing transactions in 51 Australian housing markets showed that building material costs rose 4% over the past year, while land prices rose by 8.5%.

HIA chief economist Tim Reardon said a shortage of building materials and land supply constraints had drastically increased prices over the past 12 months.

“The cost of residential land has increased more than twice as fast as the cost of building materials over the past year,” Reardon said.

“The shortage of building materials has delayed home construction across the country and added 4% to the cost of building homes in 2020-2021, according to the Australian Bureau of Statistics.

‘At the same time, the cost of residential land prices rose 8.5%, further adding to the cost of building new homes. “

The surge in demand for land has propelled prices to new highs in Sydney, which has seen a 27.1 percent increase in the past year.

“The strength in demand for land is expected to continue through 2022 and into 2023,” Reardon said.

“Since land is a key component of housing, this price increase has been a key factor in driving up the cost of homes and lowering housing affordability.

“There is little that federal and state governments can do to improve global supply chains and the availability of construction products, but they directly control the amount of land available for home construction.

“Ensuring that there is an adequate supply of land to meet the demand for housing is a key responsibility of state and territory governments and one of the necessary steps to meet the challenge of affordability. “