Land prices in Sydney have jumped (again) by $100k

Jennifer Duke writes an article for the website Domain where she talks about the plight of first home buyers (FHBs) who are heavily pinched by increasing land prices in Sydney. In the fringes of Sydney the median land price has shot up by $100,000 over the last couple of years. This increase is hitting the FHB’s ability to save for the initial deposit very hard, writes Duke.

Land prices in Sydney suburbs

To put things in perspective, the article proposes these stats. In the year 2014, a block of land in suburban Sydney costs $339,750. The same block costs $440,275 now. This median price is equivalent to $975 per square metre of the plot. This cost is twice what buyers had to pay in 2010 and 33% higher than what they would have paid in 2014.

Block of land is shrinking in size

To add to the buyers’ woes, the block of land in itself is shrinking. This can be put down to the geographical barriers of Sydney and its rising population. In 2010, the median size of the block was 524 square metres. It has come down to 454 square metres now.

Population increase and geographical barriers to worsen matters

Sydney will add about 80,000 people to its population each year till 2031 and its geographical perimeters won’t be changing any. This implies that the land block sizes will keep coming down. To meet the chronic housing shortage, the construction sector will have to work at three times its present pace for the coming 16 years, says Duke.

Sydney median land cost much higher than peers

While the new land lots’ median cost is still modestly placed near $200,000 in Adelaide and Melbourne, the figure is an exorbitant $440,000 in Sydney. The high cost of land is also partially because of the land tax incentives which allow buyers to hoard land. It is natural that such trends will encourage price spike.  The planning system is failing to respond to the quick increase in demand and this is also hitting land prices and, in effect, first home buyers rather badly.

Another point worth noting is the high developer contribution in Sydney. The end result is higher property and land prices.  I would like to comment a little bit more on this later in the article.

Areas which can still offer value for money

Duke advises that those Sydneysiders looking for their first home may be better served by places like the Greater Macarthur Investigation area. These are locations which will see a fair amount of supply till 2036–34,700 lots, to be precise. Moreover, in these locations spread 50 kilometres beyond the CBD, townhouses are available for $500,000.

You can read the original article here.

The ugly matter of developer contributions

Developer contribution is more like a backdoor taxation system which hurts buyers and investors. Not only does it limit the rate at which new houses are built but it also inhibits land supply and has a harmful effect on urban infrastructure. Sadly, the component of developer’s contribution is rising in the local government revenue. Another thing that comes to the fore is the gap between the developer charges levied in different areas, say, for example, the central coast and southwestern Sydney. This shall stop.