Rising Land Costs Fuel Australia's Housing Dilemma

1

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

Share this news item:

Finance News

Clear

Pressures Mount as Australian Wage Growth Slows

28 Aug 2025: Paige Estritori

Australian real wages have hit a challenging plateau, currently trailing 6.1% below their mid-2022 'covid-bubble' heights. The Reserve Bank of Australia's (RBA) recent Statement of Monetary Policy provides little solace, projecting that real wages will stay 5.5% beneath their peak by the close of 2027. This comes amidst SEEK's latest advertised salaries index, which paints a picture of slowing wage growth. - read more

Unexpected Inflation Surge Puts RBA Rate Cut on Hold

28 Aug 2025: Paige Estritori

The latest inflation figures from the Australian Bureau of Statistics have disrupted expectations for a rate cut by the Reserve Bank of Australia (RBA) in September. July's monthly CPI inflation escalated to an annual rate of 2.8%, rising significantly from June's 1.9% and outstripping forecasts from multiple market analysts. This unexpected inflationary surge is mainly attributed to a dramatic 13.0% hike in electricity prices and robust travel costs. - read more

Home Loan Scheme Could Drive Up Prices, Warns Insurance Body

27 Aug 2025: Paige Estritori

A new federal scheme, designed to lower the demand for lenders’ mortgage insurance (LMI), may inadvertently escalate home prices and hinder lower-income earners' ability to purchase property, according to concerns raised by Australian insurers. The Home Guarantee Scheme, set to expand in October, offers first-time buyers the opportunity to bypass the usually required LMI if they have managed a deposit of just 5%. - read more

Labor Speeds Up Mortgage Guarantee Extension

26 Aug 2025: Paige Estritori

The Australian federal government has announced an earlier implementation of its expanded program guaranteeing low-deposit loans for first-time home buyers, set for October. This program aims to eliminate the need for lenders' mortgage insurance (LMI) by allowing first-home purchasers with just a 5% deposit to enter the market. Previously planned for next year, the revamped policy also removes income caps and raises property price limits. - read more

Australian Household Spending Set to Surge with Rate and Tax Relief

25 Aug 2025: Paige Estritori

A significant financial shift is on the horizon for Australian households. After years of stringent budgeting, new data suggests a revitalisation in household spending, thanks to recent interest rate cuts and tax relief measures introduced last July. - read more

Australian Dollar Faces Pressure Amid Federal Reserve Uncertainty

22 Aug 2025: Paige Estritori

The Australian Dollar (AUD) is experiencing increased pressure as uncertainties surrounding the Federal Reserve's stance on interest rates and U.S. economic growth persist. Meanwhile, the U.S. Dollar Index (DXY) maintains its strength, creating a challenging environment for the AUD. The Federal Reserve recently shared insights that inflation remains above its long-term goal of 2%, with notable impacts from tariffs influencing goods price inflation. - read more

Summit Considers Comprehensive Tax Reforms with Focus on Negative Gearing

21 Aug 2025: Paige Estritori

The Australian federal government's economic reform summit in Canberra is drawing attention with discussions on major tax overhauls, specifically scrutinising negative gearing as part of a broader suite of fiscal reforms. As the three-day summit reaches its final discussions, key elements such as tax reform and budget sustainability are at the forefront. - read more