The Housing Industry Association and RP Data have released the new HIA-RP Data Residential Land Report, which indicates land price pressures and an approaching peak in detached house starts. The Housing Industry Association (HIA) represents Australia’s residential building industry, while RP Data is Australia’s leading property information analytics provider.

HIA Chief Economist, Harley Dale explains that there is a close relationship between residential land sales and detached house starts with findings indicating that the upcycle in detached housing will peak during 2014. The multi-unit segment will play an important swing variable role in determining the eventual magnitude and duration of the current new home construction cycle.

According to Harley Dale, on the price side of the land equation, acceleration in the growth rate for capital cities in the March 2014 quarter is of concern as the climb in residential land prices since mid-last year is steeper than it should be. He attributes this to a clear policy failure to ensure a supply of suitable land commensurate with the demand for new housing.

The report also indicates a decline of 4.7 per cent in residential land sales between the March 2013 and March 2014 quarters. Over the six months to March 2014, residential land sales were still up by 5.9 per cent when compared to the six-month period to March 2013. The weighted median price of residential lots in the March 2014 quarter increased by 2.0 per cent to $205,248, marking only the second time the value has exceeded the $200,000 threshold. Capital city lot prices increased by 3.3 per cent in the quarter to be up by 7.5 per cent over the March 2013 quarter, while lot prices in Regional Australia eased by 0.7 per cent in the same period to be up by 2.4 per cent in annual terms.

RP Data’s research director, Tim Lawless commented that the early peak in land sales is likely to lower expectations that investment in new housing construction will help to support Australia’s economic transition away from resources related infrastructure projects. Despite the increase in approvals and new housing starts, fewer land sales since September last year suggest that the housing construction cycle, at least for detached housing, is close to peaking.

Mr Lawless added that the ongoing rise in land prices at a time of falling sales is worrisome, particularly in Sydney where the number of sales over the March quarter was almost on par with the previous year but the median price of land has moved 5.6% higher over the year.