Residential lot now accounts for over 70% of housing value
The rising cost of residential land is a key contributor to Australia’s housing affordability issues, according to new data highlighting long-term value trends.
Figures from the last two years show residential land values increased by 8.8%, pushing the total valuation to $7.7 trillion. Over the past 35 years, these values have surged in comparison to the broader economy, growing from 1.1 to 2.9 times Australia’s gross domestic product (GDP). By contrast, the value of housing structures rose more modestly — from 0.88 to 1.04 times GDP during the same period.
New analysis by Cameron Kusher (pictured above) of Oz Property Insights underscores the pace at which housing values have outstripped economic growth, particularly since the late 1990s. Kusher reports that land now accounts for 70.5% of total housing value, while buildings make up the remaining 29.5%, valued at $3.12 trillion.
“The annual change in residential land values has been both much more volatile and typically much stronger than the change in dwelling values,” Kusher said. “Of course, this is also due to the fact that dwellings depreciate in value while land typically appreciate. If you want to make housing cheaper or, at the very least, increase in value at a slower pace, the key is to reduce the inflation in the value of the land.”
He also stressed the need for policy change to make land more available and affordable. “With land cost escalation being the key driver of increasing property values, policymakers that are serious about making housing costs cheaper and more sustainable should be doing everything in their power to reducing the cost of residential land and making that land more abundant.”
The trend is also visible in the new home market, where median lot prices have climbed while lot sizes have decreased, according to data from the Urban Development Institute of Australia (UDIA). This means buyers are paying more for less space, with price per square metre rising faster than the overall lot price.
A new report from property analytics firm Cotality revealed that over a third of dwellings across the country are now worth at least $1 million.
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