The latest Residential Land Report provided by the Housing Industry Association and RP Data is signalling only modest improvements in new home building activity in 2013.

According to RP Data's research director Tim Lawless, land sales are broadly starting to head in the right direction however, affordability constraints, particularly in capital city markets may limit the extent of the recovery.

"The consecutive quarterly increases in land sales are certainly encouraging, albeit the rate of growth has slowed from 11.9 per cent in the December 2012 quarter to 4.3 per cent in the March 2013 quarter.”

“With the increase in sales, there has also been a lift in land values, ongoing increases in the value of land may restict the extent of the recovery given the already restrictive land prices in certain regions, in particular capital city markets," said Mr Lawless.

"The March quarter update signals we are moving in the right direction, but as a key leading indicator land sales suggest the magnitude of a first stage new home building recovery will fall short of what the economy requires," added HIA Chief Economist, Harley Dale.

Mr Dale explained that any clear improving trends are limited to New South Wales and Western Australia, with WA being the only state to have achieved clear and consistent improvements in residental land sales over the past 18 months.

The Residential Land Report revealed that Sydney and Perth are the country's two most expensive land markets, and the two most highly taxed residential new home building markets in the country, a result that Mr Dale believes is due in large part to excessive taxes and charges related to land.

Mr Harley Dale added that “Ensuring readily available and affordable land forms a crucial part of the wider policy challenge of addressing the excessive and inefficient tax and regulatory environment faced by the new home sector."

David Collyer, Campaign Manager for Prosper Australia, said that he believes HIA are correct to be agitating about Australia’s high land prices and low construction levels.

“Land affordability is strangling the entire Australian economy,” said Mr Collyer.

“Residential land prices have been bid up by planning restrictions, excessive debt, rampant speculation, poor infrastructure and our very bad tax laws.”

"This is a major employment sector whose economic importance is being highlighted by Treasury and government as the mining investment boom recedes.”

“Their pointing to land prices as the limiting factor should prompt government action to release more land, spend on transport links and boldly reform the tax system.”

“Simply removing Stamp Duty and funding this by also removing the principal place of residence exemption from State Land Tax would transform the equation for both builders and buyers,” Mr Collyer said.