Residential land

Residential land reporting

Australia’s future residential land supply moves through seven distinct stages to get from raw land to shovel-ready lots for sale.

Author

Kristin Brookfield

Land is the largest and most expensive component of every newly-built home – both greenfield and infill. In Sydney, almost 60 per cent of the ticket price of a new detached house is made up of land costs. The land component is also very substantial in all other large Australian housing markets. The results from our latest residential land report show why.

The second edition for the year of the HIA-CoreLogic Residential Land Report has now been released. As Australia’s most comprehensive regular review of developments in the market for residential land, the report provides a wealth of data relating to land prices, lot sizes and transaction volume in 47 regions around Australia – including six of the eight capital cities.

Over the past ten years, the typical lot price in Sydney has increased from $270,000 to $467,500. Melbourne lot prices have more than doubled from $148,500 to $359,000 in the past decade. As well as becoming significantly more expensive, land lots have also been getting steadily smaller.

The typical Sydney lot size has fallen from 555 square metres ten years ago to 480 square metres today. Over the same time period new residential lots in Melbourne have declined from 530 square metres to 448 square metres. The big uplifts in house prices in these markets over the past six years have been driven by land price pressures. In contrast, construction costs have only risen in line with general price inflation.

So why has the increase in land prices been so unrelenting? Unlike other items in the economy, the land supply tap is not easy to adjust in response to the ebb and flow of demand for new housing.

The typical Sydney lot size has fallen from 555 square metres ten years ago to 480 square metres today

To reach the point of being a fully-fledged lot suitable for the construction of a new house, greenfield land must first pass through a drawn out process which can often last a decade or longer. This means that stronger demand for new housing cannot immediately be met by more supply. So the price of land goes up while only a modest increase in land supply can be realised over the short to medium term.

In analysing how raw land becomes shovel ready, HIA has drawn on previous work by the former National Housing Supply Council and developed a seven-stage model to characterise the lifecycle of new residential land. The pace at which the land traverses the first few stages is largely the remit of state and local governments: stage one involves the designation of raw, greenfield land for urban development. This is normally a high-level decision undertaken by the state government as part of a regional plan or equivalent strategic planning exercise and involves large tranches of land being identified for urban use. At stage two, land is then zoned for urban development.

From this point onwards, the role of local government and residential developers becomes more prominent. Large-scale land development is an expensive and risky business activity involving very substantial sums of money being tied up for a number of years before any actual earnings are made. The lengthy time gap between the initiation and completion of any residential land development process means that developers run the risk of eventually selling their finished product in an environment of weak demand and declining prices.

The seven-stage process

HIA has identified seven stages in the land release process.

Stage 1: Designated for Urban Development

Stage 2: Zoned for Urban Development

Stage 3: Subdivision Planning Approval

Stage 4: Subdivision Works Approval

Stage 5: Subdivision Completion Approval

Stage 6: Registration of Title

Stage 7: Lots Sold to Market

Based on the heavy expense and considerable risk, new residential land projects will only proceed once the business case is solid. Residential developers will seek subdivision planning approval for new projects – this is stage three. These approvals involve lengthy negotiation with the local government to address a range of matters including environmental constraints on the land, the timeframe for the construction of essential utilities and the provision of the public infrastructure necessary to support the proposed development.

At stage four, a subdivision works approval is sought by the developer. This stage relates to the nitty-gritty logistics of constructing the development including arrangements for utilities. Like stage three, this can be a drawn out and time-consuming process of negotiation between the developer, local government, and a number of state agencies and utility providers. The completion of stage four marks the point at which the developer can commence actual work on the ground.

The last stage in construction will be subdivision completion approval, or stage five. The physical construction of new lots, roads, installation of utilities and other public infrastructure are completed at this time.

Once physical construction is complete, the land has reached stage six and the new lots are registered individually with the state authority. This provides each lot with a legal identity allowing it to be bought and sold.

The process of land development concludes when lots are sold to market, in stage seven. Only then can the construction of new homes on the land begin.

This lengthy seven-stage process means that land cannot be released quickly to meet demand

This lengthy seven-stage process means that land cannot be released quickly to meet demand. Solving this dilemma is not a simple task. But for a problem to be solved, it must first be measured properly.

Ensuring that a better balance of supply and demand is made in the residential land market would be aided by state governments collecting and publishing data on the amount of land at each point in the seven-stage process.

On this score, HIA research has found that the performance of the states varies. Neither Tasmania nor the Northern Territory produce any regular figures on residential land supply. Western Australia offers figures for three of the seven stages. Victoria, Queensland and South Australia all provide figures for five of the seven stages. In the past, NSW had also made figures available for five of the stages, but has not produced new information in over two years.

Collecting this information is essential to understanding the changing nature of house prices. National coordination and public reporting of the information in a consistent and timely manner is equally critical. HIA’s research findings highlight the lack of consistency in the reporting. The timeliness of reporting is poor and there is no nationally coordinated approach. The issue of land supply would benefit from governments, both state and federal, taking a cohesive approach to collecting and reporting on the various stages of land-supply information.

Related Articles

New privacy laws

Keeping customer and staff information secure is even more important after new laws came into effect on 22 February 2018.

Cash or card?

HIA is participating in the Black Economy Industry Reference Group to work towards a level playing field.

Rising from the ashes

Deliberately liquidating a company to avoid tax is illegal, but governments can struggle to determine intentional corporate phoenixing from genuine liquidations.

Housing Australians @ 25 million

Population growth is a positive for the housing industry and more years of stable housing supply are needed to make up the historical shortfall in supply.

Join more than 120,000 like-minded subscribers