The gap between the Sydney and Melbourne median prices for buying a lot to build a new house is narrowing rapidly. PHOTO: PAT SCALA
Melbourne’s long-held status as the country’s most affordable new housing market is under severe threat with median lot prices hitting $300,000 in October, pushing the total cost of building a new house to well over $500,000.
The figures, compiled by project marketers Red23, show lot prices rose $355 a day across Melbourne’s growth corridors in October, or $11,000. Over the past year they are up almost 25 per cent.
While buying a lot to build a new house in Melbourne is still cheaper than Sydney, where the median lot price hovers around $475,000 according to the Housing Industry Association, the gap is closing rapidly.
‘‘Developers will tell you its supply-driven, but it’s mainly due to demand – Melbourne has been caught on the hop,’’ said Red23’s general manager of research Andrew Perkins. ‘‘We’re getting 145,000 new people here a year and 60 per cent of them are moving into the new growth areas. That means we need 29,000 new homes a year in these areas.’’
Developers argue they can’t keep up with demand because of delays in approvals and a shortage of tradesmen, but many are also taking advantage of the competition for a limited supply of lots from first-home buyers and new immigrants to release only small batches of lots ata time and aggressively lift prices.
In some cases, developers have sold lots at auction – putting more pressure on prices – such has been the demand in some suburbs.
Mr Perkins, said he had never seen price growth like this before.
Much of the demand, he said, was due to the latest wave of immigrants coming to the city who want to own their own homes but can’t afford a house in the established and expensive inner and middle-ring suburbs.
According to Red23, which analyses lot sales across all active projects, over the past 12 months median lot prices rose 24.6 per cent (or $59,000) – more than double the 10 per cent increase in existing Melbourne house prices over the same period. Five years ago the median lot price was $200,000.
In some areas, like Mitchell in the north, lot prices have increased 80 per cent in the past year, according to Red23. In Whittlesea in the north-east they are up 49 per cent, Melton in the west up 41 per cent and Casey and Cardinia in the south-east up almost 40 per cent.
Rory Costelloe, director of Villawood Properties, one of Melbourne’s biggest private land developers, said many developers were chasing short-term profits at the expense of the long-term sustainability of the market. ‘‘We are trying to hold our prices, but other developers just keeping on putting theirs up. If they keep on rising we will end up just as unaffordable as Sydney,’’ he said.
Another big issue, Mr Costelloe said, was the blow-out in times from selling lots to titling and settling them, which can take 18 months or more. ‘‘We are trying to keep control of our stock so we don’t sell lots that are more than 12 months out from settling.’’
Travis Deans, CEO of developer Dacland, said the recent escalation in pricing could not continue. ‘‘I don’t think there will be any price falls, but it should stabilise. People have to be able to afford what is coming out of the ground,’’ he said.
Mr Deans said a shortage of tradesmen as infrastructure projects kick off in Melbourne was a factor in settlement times blowing out. ‘‘A project of ours in the southeast, settlement times are 10 months, but go out to the west and it’s 18 to 20 months between sales and settlements,’’ he said.
The Victorian government is seeking to address the supply side of the housing equation with planning minister Richard Wynne directing the Victorian Planning Authority in August to prepare precinct structure plans for 17 new communities in Melbourne’s growth areas which should create enough zoned land for an additional 100,000 lots.
According to Red23, this should deliver about 160,000 new lots by the end of 2018, which will help keep price growth in check.
‘‘We know that there’s no quick fix to address housing affordability, so we’re attacking the issue from all angles,’’ Mr Wynne said.
‘‘We’re unlocking land in key growth areas and giving councils the resources to get permits approved faster, we’re cutting stamp duty for first-home buyers and we’re doubling the First Home Owner Grant in regional Victoria.’’
Danni Addison, Victorian CEO of the Urban Development Institute of Australia, said prices in the greenfield land market were becoming increasingly out of reach for everyday Victorians.
‘‘There’s a critical issue with the production timeframes associated with the delivery of new housing, which desperately need to be streamlined,’’ she said. ‘‘If we’re serious about addressing housing affordability, we need to focus on shortening timelines from sale to title, and maintaining a long-term supply of housing with the infrastructure to support our new and growing communities,’’ she said.
If they keep rising we will end up just as unaffordable as Sydney.
Rory Costelloe, director, Villawood Properties
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