LAND prices have fallen more than 12 per cent from their boom-time peak, prompting a leading development organisation to claim that affordability is returning to the Western Australian market as it cools down.
LAND prices have fallen more than 12 per cent from their boom-time peak, prompting a leading development organisation to claim that affordability is returning to the Western Australian market as it cools down.
The Urban Development Institute of Australia said last week that land in WA was more affordable than at any time since 2007, based on a decrease in the median land price and an increase in average earnings.
With housing affordability remaining one of the most difficult issues across the political spectrum, governments of all persuasions will be relieved to see signs that the market has cooled, especially for those starting off in the sector.
But the positive news from the UDIA was tempered by other views suggesting the WA median land price is a blunt instrument that fails to capture nuances in the market.
Some market watchers urge caution, with warnings that other factors have affected the state’s median land price, including the gradual decrease in lot sizes sold and the substantial drop in the value of land in the South West.
“This is all good news for WA land buyers; while housing may not be as affordable as we’d all like, it’s at least reassuring that by these measures affordability has got better, not worse in recent years,” UDIA WA chief executive Debra Goostrey.
REIWA and Landgate figures back up the UDIA case, showing that in the year to December 2007, the median WA block price hit $245,000, but has now fallen to $215,000 in the year to December 2010 – a drop of more than 12 per cent.
The UDIA makes its case for improved land affordability against a backdrop of rising weekly earnings and falling interest rates.
While land prices have fallen, the UDIA said official statistics showed that average WA weekly earnings for all employees, seasonally adjusted, have increased 14.6 per cent to $1063.82 in 2010, from $928.32 in 2007.
REIWA policy and research director Stewart Darby said the land market in WA has been on the downturn since 2008, with annual sales data figures across the calendar year removing the volatility seen in quarterly figures, where unsettled properties were not taken into account.
“There was a lot of speculative activity in the boom of 2007 and some of the people who bought land during that time have found it too expensive to hold on to and have been forced to sell at a reduced price,” he said.
However, Mr Darby said the decreasing price of land outside of Perth had significantly contributed to the downward movement in the state’s median price of $215,000.
“In places like Dunsborough and Margaret River, block prices have crashed dramatically, contributing to that figure. If you look at the price of land in Perth alone, it has been more robust,” he said.
By way of contrast to the WA median land price, REIWA data shows that Perth land prices have increased over the past couple of years from a median of $225,000 in the year to December 2009 to $240,000 in the year to December 2010.
Satterly Property Group’s Nigel Satterly said that, during the past couple of years there had been an emergence of smaller and more affordable lots in WA.
Figures released by the WA Planning Commission back this up, showing that median lot sizes have decreased from 560 square metres in 2004-05 to a median size of 456sqm in 2009-10 – a reduction of nearly 19 per cent.
“We have seen 150sqm, 225sqm and 300sqm lots selling very well and one of the most popular selling sizes is 450sqm, and builders have developed excellent housing products to go on those,” Mr Satterly said.
REIWA president Alan Bourke said the abolishment of the First Home Owners Grant on December 31 2009 had also affected the market by removing incentives at the entry stage.
“When the first homeowner boost came in, land was taken up very quickly in 2008; then it settled back down and we haven’t got back to the prices in 2007,” Mr Bourke said.
“The majority of people buying land are second homebuyers and the first homebuyers are now getting into the market by buying an established house.”
REIWA figures also show that the volumes of land sales in both Perth and WA are trending downwards, with about 9,200 Perth blocks sold in 2010 compared to around 13,500 in 2009.
Mr Darby said that the established housing market accounted for about 80 per cent of land sales, but because of the sluggish nature of that market people were not selling their current property to build their ‘dream home.’
“The established housing market is going pretty slow, so there are people that want to build a new home but can’t sell their existing one, so that is part of the reason why there has been a fall in land sales,” he said.
REIWA data shows an oversupply of houses on the market with 18,200 current listings, compared to 12,600 at the same time last year.
There has also been a decrease in the volume of sales from 32,000 properties sold over 2009 to 25,000 properties sold over 2010.
Nevertheless, the median price of houses in Perth is the highest it has been in five years, increasing to $499,000 in the year to December 2010.
Mr Bourke said that, despite the increase in housing prices, it was still a ‘buyers’ market’ because of the amount of property currently available.
“We are oversupplied with houses in the marketplace and buyers know they have the upper hand, so even when a property is well priced they can be tough in their negotiations,” he said.
