Government causing ‘artificial’ land demand behind Aus housing crisis – realestate.com.au

An extraordinary new report has accused Australian governments of being a key part of the country’s housing crisis, questioning their policies’ involvement in rising land prices.

The country’s typical dump hit a record high of $391,420 in September, six times what it was at the turn of the millennium, and much higher in most capitals.

The Housing Industry Association, which supported the report, has argued that growth has been exacerbated by a mix of rising taxes and developers being forced to bear the costs of building infrastructure in ways that were not the case in the early 1990s.

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The industry group’s Residential Land Report published today argues that the country’s housing crisis is a “government policy-induced market failure”, with persistently rising land prices caused by a limited supply of new land, making it more expensive to build homes.

“Land scarcity in Australian cities is largely artificial and driven by planning systems, infrastructure financing models and regulatory processes that ration supply and push costs onto the supply of new housing, rather than consolidated (state government) revenues,” it notes.

The Australian regions with the highest typical land prices.

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Median land prices from 2015 to 2025 per capital.

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Over the past decade, plot prices have roughly doubled in Melbourne, Brisbane, Adelaide and Hobart, and by about 67 per cent in Sydney.

This is despite the fact that the size of a typical plot of land has shrunk anywhere from 450 m² to 388 m² in Sydney, to a more modest 419 m² to 391 m² in Melbourne.

The only capital city to see an increase in land area was Brisbane, from 450 square meters to around 506 square meters in the past decade.

The result is that the cost of a single square meter of land has skyrocketed, with Sydney buyers now paying an extra $1000 for every meter of their block, while Melburnians, Adelaideans and Brisbanenites fork out an extra $500 on average.

Typical block sizes for each of Australia’s capital cities.

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In most major capitals, the price of land per square meter has risen enormously.

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HIA chief economist Tim Reardon said the cost of land primarily reflects the cost of making it available to build on, including connections for sewerage, plumbing and electricity, but also the surrounding infrastructure incorporated into new housing estates.

Although developers pay the costs up front, they are usually passed on to the person purchasing the land to build a house on.

Mr Reardon said governments could reduce land costs for homebuyers if they changed policies requiring developers to pay infrastructure costs upfront if they undertake the infrastructure installation themselves.

HIA chief economist Tim Reardon gave encouraging economic forecasts during his keynote speech at the HIA Townsville Industry Outlook Breakfast 2025. Photo: Leighton Smith.

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Housing construction is being slowed and made more expensive by a series of government policies.

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“The best way for governments to generate more revenue is to build more houses,” he said.

“They’re imposing $200,000 in direct taxes per home. And so paying for the infrastructure up front will generate positive revenue.

“By increasing the use of land and shifting it to the initial cost, they have slowed the supply of land and raised prices.”

The economist said that while the process of shifting costs to developers had started in the 1990s, it had gradually worsened from 2000 onwards.

While Reardon said there are signs that governments are seeing the consequences and understanding that their role in price growth is increasing, even if the government were to reverse the process, it would take a decade to clear land already hit by the cost drivers.

Prominent property developer Villawood Properties boss Rory Costelloe said there was no doubt government actions had inflated land prices.

Mr Costelloe said some of the biggest spikes in the past 25 years were driven by the Howard government’s housing subsidies in 2001, a land shortage in 2017, plus the Morrison government’s Homebuilder program in 2020 and 2021.

Villawood Properties boss Rory Costelloe has seen a series of government policies push up land prices since the turn of the century.

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The Albanian government has also been accused of driving up house prices after expanding the country’s First Home Guarantee scheme to effectively remove caps on the number of people who can use it.

“The greed of the industry also plays a role, driving up prices,” he said.

“But they wouldn’t be able to do that if there was more supply.”

He added that, in addition to direct policy steps in the housing sector, major government construction projects had caused significant cost spikes due to increased competition for trades and materials.

Any policies that caused delays in land development also often led to higher prices for homebuyers, as the longer a developer held onto land, the higher their land tax bills and other operating costs.

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