Reserve Bank governor Michele Bullock admitted this month that while inflation had fallen materially, prices aren’t coming back down and that, “We’ve all kind of got to get used to that.” While the RBA governor was referring to price pressures right across the economy, construction costs are the component that remains stubbornly elevated in our sector, and they show no sign of returning to pre-pandemic levels.
Higher construction costs should logically translate to softer vacant land markets, as buyers face the prospect of expensive building projects. However, the current situation is proving that the value equation is more complex.
Rather than stifling activity, many locations – including those in metropolitan markets and growth corridor fringes – are experiencing robust demand for land that some developers are struggling to meet. This counterintuitive performance illustrates that there are compelling factors overriding the disadvantage of higher construction costs.
For many buyers, purchasing land and constructing a home through a project builder offering standardised packages remains the most affordable pathway to home ownership or investment property acquisition. The numbers often work in favour of this approach over purchasing established housing, particularly in outer suburban locations where land prices remain relatively affordable.
Government assistance schemes are providing additional support for construction pathways too. The First Home Buyer Guarantee Scheme continues to assist eligible purchasers, while various state-based grants specifically favour new construction. From 1 October, the expanded Home Guarantee Scheme will remove income and regional caps. While it isn’t biased toward new over established homes, it improves the purchasing power of buyers under $1 million, which opens up construction opportunities to a larger cohort.
The broader economic environment is also supportive. Interest rate cuts have improved borrowing capacity, while the chronic shortage of affordable housing stock – particularly rental properties with tight vacancy rates and rising rents – is pushing many owner-occupiers toward new construction solutions.
These factors, combined with more personal considerations such as the ability to customise a new home to the occupant’s needs and avoiding maintenance issues associated with older properties, are helping to overcome the high construction costs.
This month, our residential teams are exploring vacant land markets across their service areas, revealing the complex interplay of factors. Their analysis demonstrates how location-specific dynamics, government policy settings, and individual buyer motivations create vastly different outcomes across markets.
In this month’s commercial section, we examine entry-level office properties in major population centres. Our teams highlight some enticing prospects in this sector for investors seeking opportunities, and owner-occupiers looking to acquire an asset or exit the leasing market.
Finally, our rural team delivers comprehensive coverage of the Australian grazing sector, highlighting the diversity of performance across this vital primary production industry.
Today’s real estate market is a complex investment vehicle, with the traditional cost-versus-value calculations requiring much more sophisticated analysis. It underscores why professional, independent property advice has never been more critical for successful investment decisions.
Gary Brinkworth
CEO