Killer blow for home building as Sydney land costs explode
Prices for vacant blocks in some Western Sydney councils are now four times higher than in other capitals – in what could push an already struggling building sector over the edge.
Prices for shovel-ready Sydney blocks of land have ballooned to double those in other major capitals in what will be a blow to state efforts to build more homes and combat the housing crisis.
And Western Sydney’s Parramatta region is at the centre of the escalating land price gouging, with the cost of land per sqm rising to the highest among councils in the country with at least 10 lot sales.
Surging land values are problematic for the struggling development sector, which is already battling soaring labour and materials costs, the Housing Industry Association has noted.
Extreme block costs have also coincided with falling prices for established houses – making the significant premium on brand new homes a hard sell to buyers.
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It comes as the NSW government continues to lag behind housing targets, with completions in the September quarter 40 per cent below the level needed for the Minns government to hit its housing targets of 377,000 new homes by 2029.
Housing Industry Association figures showed the median price of land across Greater Sydney now stands at $2000 per square metre.
This compared to $1071 per square metre in Melbourne, $1030 in Perth, $938 in Brisbane and $691 in Perth.
Sydney vacant land costs were also the highest in the country in absolute terms. Sydney’s median lot price of $710,000 compared to $268,700 in Adelaide, $352,000 in Perth and $395,000 in Melbourne.
Brisbane, where vacant blocks were the largest among capitals, had a median lot price of $400,000 – making it a distant second among most expensive land markets.
Housing Industry Association economist Maurice Tapang said the dramatic extra costs of buying land and building versus buying established homes could squash demand for new homes.
This is turn could restrict development, he said. “At the moment land is the biggest constraint to detached housing approvals and starts across all markets in the five largest capital cities,” Mr Tapang said.
“If they continue to go up, they will put a cap on building detached homes.”
Western Sydney – one of the few regions in Sydney with space to grow – now has some of the highest land prices
A patch of dirt and grass with approval for a new home in Parramatta Council costs an average of about $1.2m – or about $4,700 per sqm.
This is about $1,000 per sqm pricier than the country’s second most expensive major land market, Moreland in northern Melbourne.
Costs were nearly $2500 per sqm in the Hills, about $2000 in Penrith council and $2200 in Blacktown. These costs were close triple lot prices in much of Brisbane, Adelaide and Perth.
PropTrack economist Paul Ryan said high land prices could be partly explained by increased demand during the pandemic, coupled with delays in approvals for Greenfield sites.
Interest rate cuts have historically boosted demand for new builds and Mr Ryan said things could improve if the Reserve Bank slashed the cash rate – a move widely expected to occur in mid-February.
Property Council NSW executive director Katie Stevenson said policy settings were part of what was putting land prices out of reach.
“Sydney’s land prices are in a league of their own because supply can’t keep up with demand. Red tape, planning delays, and sky-high government taxes and charges are keeping prices high and locking people out of home ownership,” Ms Stevenson said.
“The NSW Government has introduced positive reforms, but we now need a level of urgency and commitment beyond anything we’ve seen before. That means more certainty and fewer barriers to building the homes people need.”
Originally published as Killer blow for home building as Sydney land costs explode