Melbourne Growth Area Land Market: June 2017 Quarter
Only three months ago, the average lot price in Melbourne’s growth area land market was $250,000 and the volume of sales were again at record levels of nearly 6400 lots, or over 2100 lots per month.
Due to sustained high demand and dwindling supply levels (less than 1 month of stock available for sale) the forecast was for further upward pressure on price escalation and a potential slowing of sales volumes.
The June 2017 data from UDIA Victoria and key industry research partners has revealed that the strong activity has continued once again, with median price jumping to over $270,000, or over 8% in just three (3) months, and despite the supply shortage concerns, sales volumes reached record levels yet again in the June 2017 quarter of nearly 6800 lots, or over 2250 lots per month.
The rate of price growth is steeper than established areas, higher than land prices of the previous quarter of 6.3%, and demand remains high, potentially indicating supply levels are even further constrained than they were 3 months ago.
Below is a graph from RPM’s research division which provides a snapshot of the land sales volume changes over the last 15 months.
Median lot sizes in Melbourne’s growth area property market are also shrinking, now 410m2, or 2.4% less than the same time last year. Chances are this trend is set to continue, and in our view for a couple key reasons.
Firstly, the more recent PSP’s are now requiring higher minimum dwelling densities to be achieved, with a shift from 15 dwellings to 16.5 dwellings plus per developable hectare in more recent times. Secondly, as price points continue to escalate at rates much higher than historical long-term levels (in our view because of the fundamental issue with lack of supply), and lower than average wage growth, its the only way developers can continue to provide a more affordable product to the market.
VPA’s Commitment to New Land Supply
The Victorian Planning Authority has committed to re-zoning approximately 100,000 lots via 17 Precinct Structure Plans by the end of 2018, but these have been on foot for some time already, so not really new news for us. If anything, there were another 5 precincts on last year’s schedule that were targeted to be completed by the end of 2018 that no longer appear to be on the list.
Either way it probably won’t make any significant difference, and as highlighted in a previous blog, won’t fix our immediate supply issue. Looking forward, to ensure there is more balanced competition amongst sellers and buyers, and therefore more balanced growth, we need at least few years’ worth of zoned land. With any luck we will have that by the end of 2018, but if we do the numbers at current sales volumes of up to 30,000 lots per year, we would need at least that amount re-zoned every year post 2018. Fingers crossed.