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Land sales shine brighter light on new home building

22 October, 2013

The latest HIA-RP Data Residential Land Report provided by the Housing Industry Association (HIA) points to further upward momentum in detached house construction in 2013/14.

The volume of residential land sales posted strong growth of 18.2 per cent in the June 2013 quarter to reach a level of 17,170.

"This is the highest quarterly volume achieved since the March quarter of 2010," Harley Dale, HIA chief economist, said.

"The recovery in residential land sales is impressive, but from a very low base.

"There is a close (lagged) relationship between RP Data-HIA land sales and the number of detached house starts.

"Land sales volumes highlight the prospect of further growth in detached house starts in 2013/14 following a modest lift of 3.7 per cent in 2012/13. That would be a very positive outcome for both the new home sector and the wider economy.

"The level of sales in 2012/13 was 56,782. Sales are therefore now back to a level equivalent to the GFC trough but no higher — the level is still 21 per cent below the historical average.

"Obviously it will be important to see further strong momentum in land sales for some time to come. For that to occur there needs to be a keener policy focus on ensuring adequate and affordable shovel-ready land is available.

"In terms of residential land prices, growth has generally been modest. A flat June 2013 quarter for the weighted median residential land value saw an increase of only 1.7 per cent over the year, less than general inflation."

According to Tim Lawless, RP Data's research director the improved vacant land market conditions are in line with the improvements across the broader housing market.

"The housing market has been back in growth since mid-2012 with both the rate of capital gains and transaction volumes gathering some momentum during 2013," he said.

"It should come as no surprise that the Sydney housing market, which remains well undersupplied relative to the rate of population growth and is recording the highest rate of capital gain currently, is one of the primary drivers behind the lift in national vacant land sales.

"According to the data, the number of land sales across Sydney was 33 per cent higher over the year to the June quarter to reach an eleven year high.

"While Sydney has posted a solid improvement in land sales, we are also seeing a substantial increase in the number of blocks sold in Melbourne, Brisbane and Adelaide over the June quarter.

"The improved number of land sales reflects a higher level of buyer demand, but we need to keep in mind that the figures are moving higher from a low base and we are continuing to record a substantially lower number of land sales than what was recorded during the last growth phase back in  2009/10.

"Nevertheless, policy makers such as the RBA should see the stronger housing market conditions as reinforcement to the current policy settings — not just low interest rates but also the incentives available to purchase or build a new home rather than an established one."

In the June 2013 quarter the weighted median residential land value for Australia's six state capitals increased by 0.2 per cent to $219,863. This value was 2.4 per cent higher when compared to the same period in 2012.

The median value for Regional Australia was $153,710 in the June 2013 quarter. This represented a quarterly decline of 1.0 per cent and a 0.1 per cent annual reduction.

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