Sydney’s already pricey house-and-land packages are set to get even more expensive over the next few years unless more land is rezoned for housing, and speedily delivered over the coming years, the Urban Development Institute of Australia has warned.
The UDIA NSW’s Greenfield Land Supply Pipeline Report identified a shortfall of 20,100 housing lots by fiscal 2030 across the Sydney mega-region (an area from Illawarra-Shoalhaven to the Hunter) even if developers were able to deliver around 130,000 housing lots “programmed for delivery” over the next eight years.
While this was an improvement on the 25,600 shortfall forecast by the UDIA NSW in its inaugural report last year, CEO Steve Mann warned that the industry was also battling other significant headwinds including the rising cost of building materials, rising interest rates, record-high inflation, and critical labour shortages that would increase the cost of delivering new housing.
Sydney is facing a severe undersupply of new housing over the next eight years and beyond. Getty
Sydney lot prices rose 14 per cent last year to a median of $543,000, according to the UDIA’s State of the Land Report released in March.
By comparison Melbourne ($327,000), South East Queensland ($272,000) and Perth ($215,000) remain much more affordable markets for house-and-land buyers, a demographic which has increased since the start of the pandemic.
“The failure to create a sustainable pipeline of development-ready land will add to these headwinds, undermine housing investment, and increase supply shortfalls,” Mr Mann said.
While demand for new housing has fallen this year due to rising interest rates and worsening affordability, it is expected to pick up over the coming years as migration returns – house-and-land packages are popular with new migrants.
The UDIA NSW’s greenfield housing lot shortfall forecast is based on the 2021-22 NSW Intergenerational Report, which estimates that 42,000 new homes were needed per annum in the state to provide sufficient dwellings to accommodate 900,000 more people by 2041.
While an insufficient level of rezoned land is one factor in the undersupply, another is the current delays in getting lots already in the system “development ready” (able to be delivered by developers) due to constraints in the building of enabling infrastructure such as sewerage, roads and power supply.
The UDIA NSW report found only 11 per cent of lots due to be delivered between now and fiscal 2030 in the Sydney mega-region were considered development ready.
This included just one-third of lots being development-ready next financial year, with this proportion dropping in each successive year. It currently takes between 5 and 10 years for land to become development ready after being rezoned.
The biggest bottlenecks holding back delivery of lots to the market were constraints affecting the construction of sewerage, water and power, the UDIA NSW report found.
Speaking to The Australian Financial Review, Mr Mann denied that land banking (where land is acquired and locked away for future development) was also affecting the supply of lots to the market.
Mr Mann said the majority of developers were not land bankers, and would supply more lots to the market if they could.
“Those parties undertaking land banking are not developers,” he said
“Prices are not really dropping for land. Professional developers need to put stuff into the market to get something out.”
Among its solutions to the ongoing supply issues in the greenfield land market, the UDIA NSW said, was ongoing investment in enabling infrastructure and using Urban Development Program regional committees to prioritise these investments.
The UDIA NSW also called for further reforms of the NSW planning system including rezonings and biodiversity certification and for the state government to publish a plan for rezonings.
“Any government that is serious about addressing the housing shortage and making homes more affordable needs to do a lot more to fix the future pipeline of new homes,” Mr Mann said.
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