Rising land prices stall new housing construction ?

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Australians may need to rethink how they live as pressure mounts on the housing market, experts warn.

A new report by the Housing Industry Association and Cotality shows land prices have risen about three times faster than building and labour costs since 2000. Land is now the biggest driver of home price growth.

The report says land costs reflect more than the ground itself. Before homes are built, land must be rezoned and connected to roads, water, sewerage, power and community facilities. These costs are often passed directly to buyers through fees and levies.

HIA chief economist Tim Reardon says government planning, delays and taxes are being built into land prices, leaving new buyers to pay more upfront. Greenfield lot prices have risen more than sixfold since 2000, the report found.

Some urban planners disagree with parts of the analysis. Libby Porter from RMIT University says land is naturally limited by geography and environmental risks, warning against weakening planning rules that protect against floods and bushfires.

Construction costs did surge after COVID, rising nearly 40 per cent between 2019 and 2024, according to the Reserve Bank of Australia. But industry figures say those costs are now stabilising, while land prices continue to climb faster than inflation.

Housing researcher Michael Fotheringham from the Australian Housing and Urban Research Institute says new building methods, such as offsite construction and advanced materials, could help. However, worker shortages remain a major challenge.

Governments are starting to respond. The federal government has committed $1 billion to help states fund essential infrastructure to unlock housing supply. New South Wales and Victoria have also moved to allow more medium- and high-density housing.

Experts say lasting solutions may require a cultural shift. Most Australian homes are still detached houses, often occupied by just two people.

“To fix housing affordability,” Dr Fotheringham says, “we need to build smarter, denser cities rather than endlessly pushing suburbs further out.”

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