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The rising price tag for new builds

By Juliet Helmke
28 October 2021 | 1 minute read
The rising price tag for new builds

The cost of building a new home has risen substantially over the past year, with increases in land prices compounded by a materials shortage, according to a report.

The research, compiled by CoreLogic and the Housing Industry Association (HIA), indicates that the price of residential land has increased more than twice as fast as the cost of building materials. 

HIA chief economist Tim Reardon explained: “The shortage of building materials has caused delays to home building across the country and added 4 per cent to the cost of home building in 2020/21, according to the ABS. At the same time, the cost of residential land prices rose by 8.5 per cent, adding further to the cost of new home building.”

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And some markets are feeling the squeeze more than others.

“Land supply has been in tight supply for the past two decades, and the surge in demand in 2020 has seen land prices in Sydney rise 27.1 per cent in the past year alone. The strength of demand for land is set to continue throughout 2022 and into 2023,” Mr Reardon said.

With land a key component of housing, the report warns that price growth in the sector has been and will continue to be a substantial driver of the rising cost of homes and the decline in housing affordability.

When it comes to measures to ensure that adequate housing is available to the Australian public, Mr Reardon noted that while there’s little governments can do to improve the global supply chain issues impacting the availability of materials, they do have the power to address surging land prices.

“They are in direct control of the volume of land available for home building,” Mr Reardon commented. “Ensuring there is an adequate supply of land to meet housing demand is a key responsibility of state and territory governments and one of the necessary steps to addressing the affordability challenge.”

Tim Lawless, CoreLogic’s research director, agreed that rising land prices would continue growing as a barrier to affordability.

“The sharp rise in vacant land prices over the year, together with rising construction costs, will place further upwards pressure on the cost of new housing, Mr Lawless said. 

“The lift in land prices and residential construction costs along with the value of established housing rising rapidly is set to add further pressure to housing affordability challenges that are becoming increasingly apparent across the country.”

Though the government’s HomeBuilder program had created incentives for many to embark on new builds, Mr Lawless cautioned that cost factors would exert pressure against the trend.

“The number of vacant land sales has been easing over recent quarters due to a combination of less stimulus along with scarcity of supply,” he noted. 

“The HomeBuilder grant saw demand for vacant land brought forward, with land sales surging through the second half of 2020. However, the more recent trend has been a slowdown in land sales but a surge in detached housing construction as the nation moves into the early stages of what is likely to be an extended period of residential detached housing construction.”


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ABOUT THE AUTHOR


Juliet Helmke

Based in Sydney, Juliet Helmke has a broad range of reporting and editorial experience across the areas of business, technology, entertainment and the arts. She was formerly Senior Editor at The New York Observer.

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