There is a somewhat misguided debate going at present, suggesting that Australia’s houses are too big, especially when compared to other countries, and that is one of the main reasons why housing here is expensive.
Putting aside the differences in how house sizes are actually measured across countries, the local evidence strongly suggests that building the biggest house you can afford makes sense in Australia, as it is the land the grows in value and not the actual dwelling.
Let’s explore this notion a bit further.
Over the last 20 years, house prices in Australia have grown by 4.5x, whilst the cost of building a home has risen by just 1.8x.
When looking at the established housing market, in 1998 the land’s value accounted for 45% of a dwelling’s resale price. Today, the land’s average value is closer to 65%.
Land is becoming more expensive – blame town planning, developer land banking, dribble release management, a general lack of supply or population growth – and as a result two trends are evident:
- land sizes are falling, and
- the land price per square metre is rising.
Also adding to weigh behind these two trends are changing demographics, and sociographics, too. Many want to live closer to the action and/or have little time for backyard maintenance. A yard, to many these days, isn’t worth the cost anymore.
When looking at our capitals, average lots sizes have shrunk from 700m2 in 1998 to about 450m2 today. Whist the price per square metre of the land sold has increased and, in some cases, dramatically.
For example, in Sydney new land values averaged $500/m2 ten years ago, but today they have more than doubled to $1,150. A similar escalation rings true for vacant land sold in SEQ, up from $300/m2 in 2008 to $600/m2 today. And in Melbourne the growth rate has been on a tear, up from $250/m2 a decade ago to $900/m2 as at June 2018.
Across south east Queensland, a similar trend is apparent with new urban land values (on a rate per square metre basis) increasing between 42% and 130% over the last ten years.
The average size of lots sold across SEQ have dropped by 33% over the same time frame.
In summary, land values have doubled, whilst lot sizes have shrunk by a third. See table 1 below.
Change in land values and lot sizes over the past decade
South east Queensland
|LGA||Total change in land values and lot sizes|
|Gold Coast (C)||96%||-35%|
|Lockyer Valley (R)||42%||1%|
|Moreton Bay (R)||124%||-35%|
|Scenic Rim (R)||60%||-10%|
|Sunshine Coast (R)||72%||-24%|
|Queensland Treasury, Years ending Sept Qtr. 2008 v Sept Qtr. 2018|
Much more needs to be done regarding the price of land when it comes to making housing more affordable.
Thoughts needs to embrace how we tackle:
- Land use
- Lot sizes and frontages
- Vehicle use, access and storage
- Road access including ingress and egress
Some ideas include:
Allowing front yards to be used for a range of activities including commercial use such as ‘pop up’ stalls. Having no minimum lot sizes or frontages. Parking cars elsewhere overnight and on weekend like in nearby schools or even shopping centres. Providing rear lane access and shared road reserves in low trafficked areas. Leasehold not freehold. More off grid – or at least semi off grid – development.
I recently discussed land supply in some depth. To revisit go here: SEQ: Land Supply.
Changes regarding how we build homes in the future is much needed to, but for mine getting the cost of the land down is key to improving housing affordability.