There’s no denying that the level of demand for vacant residential land markets is hinged directly to measures of affordability. Demand waxes and wanes in line with housing construction costs and/or the relative price of established and comparably located housing. Of course, construction costs have been a hot-button topic in recent years. There was the astronomic rise during COVID and beyond which saw many owners of vacant allotments having to pause the idea of building on their block, or perhaps make substantial compromises to their design needs.
Meanwhile, the value of established property in markets around Australia has been rising strongly in most major centres over the past few years – especially in Perth, Adelaide and Brisbane. As such, some buyers might be drawn to considering vacant land and building as an alternative due to lower entry costs.
The upside with a vacant site is that you will eventually get a property that suits your list of needs due to the allotment providing a blank canvas. Need a four-bedroom, two-bathroom single level dwelling to appeal to the local renter base? Require additional car accommodation and separate living spaces to house your family that includes older teenagers? All can be catered for by building new.
Whilst the interest rate environment has had some effect on transaction volumes and overall demand for land, I believe the greatest impact is economic – specifically employment. If people are concerned about job security, they will be reluctant to expose themselves to greater levels of debt. Of course, you can’t generate holding rent from a vacant site, so that amplifies the financial risk when interest rates are high.
There are, of course, opportunities to buy one-off blocks in near-city suburbs. Splitting a site to generate two or three individually titled allotments is common, but for most vacant land purchasers, activity is entrenched in housing estates. Large scale, multi-stage developments have a distinct advantage here. Developers aren’t just marketing the land but are also selling the surrounding services and amenities – both those already established and those planned. These developments are about building a new community through comprehensive green spaces, schooling, retail and so on. Many of these estates deliver a more affordable alternative as well, particularly for first-time buyers. The economies of scale that project builders achieve helps reduce the build cost on a rate per square metre basis.
Supply is also impacted in most centres by town planning too. If zoning and regulations make profitable development challenging, then developers may choose to landbank their holdings rather than pay higher than reasonable headworks charges or other civil fees.
Looking across the submissions this month, you’ll see the market for vacant land is as diverse as our country’s landscapes. Some regions are enjoying strong activity driven by relative affordability and good news about their prospects. Alternatively, there are cities and regions that aren’t experiencing commensurate levels of sales and price growth.
This divergence in performance is further evidence as to why relying on advice from a local, independent expert is essential for making wise decisions in vacant land markets.
Matthew Richardson
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