In real estate there is no truer commodity than vacant land. Houses and units inherently show a qualitative bias; the value of a house or unit is influenced by various factors such as the size of the home, the state of repair, the architecture, the attributes of the home such as number of bedrooms and bathrooms and whether the home has value added components such as a swimming pool or shed.
The value of vacant land, on the other hand, is primarily influenced by geographic context and land area. Sure there are other factors which can affect land value such as the council zoning and the shape of the land parcel, however compared with a dwelling it is much easier to quantify and compare land values across regions.
A simple way to do this is to use median land prices, however a median land price only shows the typical price for which a block of land sells; this measure takes no account of how big or small the block of land is. A much better way to measure the value of land is based on a rate per square metre.
To illustrate this point, using the median land price measure shows Sydney to be the most expensive land market in the nation. Based on sales over the past twelve months, the typical block of land in Sydney sold for $283,500.
Using a rate per square meter measure it is a different story. On this basis, Perth is the most expensive vacant land market with the typical vacant block selling at the rate of $555 per square metre. Sydney is the second most expensive market at $547 per square metre and somewhat surprisingly, Adelaide is the third most expensive at $486 per square meter (despite having the second most affordable median sale price).
The difference really comes down to the size of the blocks being sold. The median land area for vacant land sales in Adelaide is the smallest of any capital city at just 375sqm. So… despite being the most affordable mainland capital city based on median prices, on a rate per square metre basis, Adelaide land is actually relatively expensive.
Conversely, the most densely populated capital city, Sydney, still has the third largest median land area across the major capitals at 544sqm.
From a development perspective, why not reduce the typical land area to maximise the development yield and improve housing affordability. The reason probably comes back to the constraints of council zoning and town planning regulations.
The small lot sizes in Adelaide may come as a surprise, however the production and development of small lots is likely to become more evident across the other capital cities over time and is partly due to a state government program whereby developers have to include a proportion of affordable housing within most new developments.
Smaller lots and smarter housing design is a fairly straight forward mechanism to combat housing affordability and to improve density around primary working nodes and transport corridors. The trend towards smaller lots is evident across all of the capital cities but not to the same extent as what small lot housing has been embraced in Adelaide.
The important part of shrinking lot sizes to make housing more affordable is to ensure that there are enough parks and recreational facilities close by to cater to the needs of those home owners.
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