Constrained land supply has seen Australia’s knock-down rebuild housing market grow, with median lot prices increasing 19.7% over the year to the March 2022 quarter.  

The rise in median lot prices marked the strongest annual growth rate since 2004, according to research from Housing Industry Association (HIA) and CoreLogic.  

“An unusually sharp rise in the price of residential land indicates the supply of land is not keeping up with new demand that has emerged during the pandemic,” HIA Senior Economist Nick Ward said.  

“Constrained supply of land will limit housing activity in Greenfield areas from mid-2023 onwards.” 

Ward said new Australian Bureau of Statistics data on demolitions suggested that knock-down rebuilds and small redevelopments were around 25% of the market for house and townhouse builders in New South Wales.  

“Encouragingly, this segment of the market appears to be growing rapidly, creating new opportunities for the industry,” Ward said.  

CoreLogic Economist Kaytlin Ezzy said the scarcity of available residential land continued to be a driving factor across Australian land markets, with land prices surging at a time when the number of lots sold is declining. 

“While increasing interest rates, rising construction costs and increased uncertainty, particularly across the building industry, has likely smothered some land demand, the surge in land prices suggests that those that want to build are finding it difficult to secure lots,” Ezzy said.   

“With land often taking more than a decade to move though the development pipeline, it’s unlikely we’ll see any material change in land supply for some time.” 

It comes as new home sales fell by 1.6% in August after a 13.1% decline in July.  

July and August represented the weakest pair of months for new home sales since the lockdowns in 2021, according to HIA.   

“Sales of new homes over the past two months are reflective of a slowing in the market as the impact of the rise in the cash rate hits households,” HIA Economist Tom Devitt said. 

“This rise in borrowing costs compounds the impact of the rise in the cost of construction. 

“The full impact of recent and future rate increases will continue to flow through as an adverse impact on the sale of new homes in coming months. 

“There remains a significant volume of work under construction and approved-but-not-yet-commenced that will provide a buffer for the industry and ensure building activity and demand for skilled trades remains exceptionally strong through the rest of 2022 and into 2023.  

“The concern remains that that the adverse impact of rising rates on the wider economy will be obscured by this volume of ongoing work and that the RBA goes too far, too soon.” 

Victoria drove the declines in sales in August, down by 15.2%, followed by a 1.8% fall in Queensland. 

The other states saw increases, including South Australia and NSW, which rose 18.2% and 14.2% respectively.