Rising Land Costs Fuel Australia's Housing Dilemma
Rising Land Costs Fuel Australia's Housing Dilemma
1
Australia's housing market is grappling with stark increases in land costs, which are driving home prices to unprecedented heights.
Recent data from the Australian Bureau of Statistics indicates that residential land values surged by 8.8% between 2023 and 2024, reaching a staggering $7.7 trillion.
Over the past 35 years, these values have ballooned from 1.1 to 2.9 times the nation's GDP.
Contrastingly, the value of structures has seen a modest ascent, climbing from 0.88 to just 1.04 times GDP within the same period. Analyst Cameron Kusher from Oz Property Insights points out that since the late 1990s, housing values have consistently outpaced GDP growth. Residential land now comprises 70.5% of Australia's overall housing value, with buildings forming the remaining 29.5%.
Kusher stresses the need to curb land value inflation to temper housing price spikes. He suggests that policymakers focus on reducing land costs and increasing availability to alleviate housing expenses sustainably. The escalation in land prices presents significant challenges for new housing developments, particularly as median lot prices have risen sharply across capital cities within the past decade, per CoreLogic (Cotality) data.
The HIA-Cotality Residential Land Report for Q1 2025 paints a grim picture, with Australia's median residential land price achieving a new peak of $372,620. This marks a 39.2% hike compared to 2019. Additionally, only 8,250 residential lots were purchased in the first quarter of 2025, the weakest sales quarter in 25 years.
This surge in land costs represents a substantial hurdle for housing construction, crucial to accommodating Australia's growing population. Buyers find themselves paying more for less, as median lot sizes decrease but prices per square metre climb. The imbalance between available land and rising demand could exacerbate the already severe affordability crisis.
Without an influx of "shovel-ready" land projects, rising housing demand—stoked by a robust population increase, tight job markets, and improving household incomes—is likely to direct focus to the established housing market. This shift not only amplifies property prices but also restricts new home construction, exacerbating supply issues.
The next steps include addressing the supply-demand imbalance by ensuring a healthy pipeline of development-ready lands complemented by proper infrastructure. At the government level, there's a need for strategic intervention, including a potential reevaluation of immigration policies to regulate demand.
Expectations are high that recent interest rate cuts could revitalise the market, drawing buyers back. However, as senior economist Tom Devitt highlights, without a sufficient land supply across Australian capitals and regions, potential new homebuyers will be pushed towards existing properties, further inflating prices.
Moving forward, decisive government action will be crucial to mitigate the impacts of surging land costs. Mobilising both policy and infrastructure development to stimulate land availability holds the potential to counter this housing affordability crisis.
Published:Friday, 8th Aug 2025 Source: Paige Estritori
As financial planners await forthcoming updates to the Delivering Better Financial Outcomes (DBFO) legislation, many are grappling with significant challenges arising from the first tranche, specifically concerning fee consent requirements. These issues, unfortunately, seem to require legislative amendments as they fall outside the scope of regulatory fixes, amplifying the compliance burden on financial advisers, especially regarding breach reporting. - read more
The Reserve Bank of Australia (RBA) has recently initiated a 0.25% cut to the official cash rate, stirring dialogue among industry leaders about the timing and necessity of potential future cuts. Despite the reduction aligning with broad expectations, there are diverging opinions about further reductions this year. - read more
Charlie Viola, executive chairman of Viola Private Wealth, recently highlighted a promising opportunity for financial institutions to better serve the mass affluent market. Despite the recent trends stemming from the royal commission that have seen personnel changes across the financial advisory sector, Viola asserts that there remains a strong clientele base. The financial advisory business, he notes, benefits from a steady stream of increasingly wealthy individuals, but the challenge lies in effectively serving those with moderate wealth. - read more
Welcome to the world of savvy home financing! Whether you’re a first-time homebuyer or seasoned investor, navigating the ocean of home loan options can be daunting. In this digital era, one tool stands out for its effectiveness in simplifying this journey: the online home loan calculator. - read more
In the dynamic world of Australian finance, securing a loan can be a pivotal move for individuals seeking to achieve their financial goals. Whether it's for purchasing a dream home, expanding a business, or simply consolidating debt, the importance of smart loan comparison cannot be overstated. With an array of lending products available, borrowers are often faced with a bewildering choice. That's why equipping yourself with powerful loan comparison strategies is not just important, it's essential. - read more
Welcome to the world of car ownership! If you're a first-time borrower in Australia, you're likely to feel a mix of excitement and apprehension. Acquiring a car loan is a significant financial responsibility, and navigating through the options can be daunting. This introductory guide is designed to set you on the right path to making a well-informed decision. - read more
Knowledgebase
Interest-Only Loan: A type of loan where the borrower only pays the interest on the principal balance for a set term.
