By Leith van Onselen

Business Spectator’s Florence Chong has written an interesting article on the supply-side squeeze taking place on the fringes of Sydney, where buyers are desperately trying to secure land for housing, and prices are rising as demand exceeds supply:

Sydney-based land developer Handley Partners Property, describes land shortage as a “sleeping issue” for governments. In Sydney, buyers began buying land off the plan in the second half of last year. It was something unheard of for land sales in the area until then. But prices are another trait setting apart the current residential land boom – with some bigger blocks surpassing the $700,000 mark in some new developments, like the Blue Horizon Estate in North Kellyville, 40 kilometres from the centre of Sydney. “When you consider the all-up cost of building a house on the land, you are looking at homes easily priced over $1.2 million,” says Barry Goldman, managing director of Leda Real Estate, a Sydney-based agency. “This really is Blue Sky stuff”… UrbanGrowth, previously Landcom, owned by the New South Wales state government, says that for every block of land released, especially in a popular area, there are at least two, and often more, buyers. Typically, there are 40 blocks on each release and up to 80 or more people would be chasing the land, says Robert Sullivan, UrbanGrowth’s head of transition, who adds that UrbanGrowth has brought in a numbering system to stop buyers camping outside its estates…

The above article certainly questions the common view that Sydneysiders are voting with their feet and choosing apartment living over attached housing because if its greater convenience.

While convenience is no doubt a factor for some buyers, perhaps exacerbated by the retirement (and downsizing) of the large baby boomer generation, the drive for urban consolidation by New South Wales State Government – in an effort to ‘save’ on infrastructure costs and prevent so-called environmentally destructive ‘urban sprawl’ – and the choking of land supply is likely playing an equally important role. If not, then why would demand for fringe lots be roughly double supply, and prices be shooting-up?

It seems just as likely that many Sydneysiders are being ‘forced’ into apartment living purely out of necessity (due to its relative affordability), rather than through choice. The excessive cost of fringe lots in the outer suburbs of Sydney also helps to explain why first home buyer demand is plumbing near record lows.

The ongoing land supply restriction will also make it more difficult to engineer a meaningful uplift in dwelling construction in New South Wales. While apartment approvals have picked-up strongly over the past year, the actual number of homes built in New South Wales has fallen sharply over the past decade, when adjusted for population, with detached houses bearing the brunt of the decline (see next chart).

Choking land supply, at the same time as Australia runs a high immigration policy, is a toxic recipe for skyrocketing urban land values, deteriorating housing affordability (despite shrinking home sizes), and hardship for those yet to enter the market (including future generations).

[email protected]

www.twitter.com/Leithvo