Housing affordability concerns for Perth

01/12/2008 - 12:05

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The home building sector will not gain the full benefit of falling interest rates and a tripling of grants for first home buyers unless more land is released, a new report says.

The home building sector will not gain the full benefit of falling interest rates and a tripling of grants for first home buyers unless more land is released, a new report says.

Land values have soared in recent years in the face of restrictive land release polices and burgeoning planning delays, jumping 106 per cent in the past six years, according to the inaugural Housing Industry Association and RP Data Residential Land report.

HIA chief economist Harley Dale says lower mortgage rates and the bigger grants should provide a boost to new home building and the wider economy in 2009.

"There is, however, a real risk that the perennial problems of inadequate land release and excessive planning delays prevent the industry from boosting supply to the extent required over the next 18 months," Mr Dale said.

"That would come at a cost to the entire Australian economy."

The report found that land prices have softened around $5,000 or 2.1 per cent over the first half of 2008, broadly in line with home values that fell 1.2 per cent over the same period.

Land prices are still the highest in Sydney and Perth where the average block is selling for $255,000 and $245,000 respectively, despite recording the greatest fall, down 15.0 per cent and 5.0 per cent in the year to June.

Still, affordability concerns are more pronounced in these two cities.

"The high land prices reflect a significant challenge to bring a respectable level of affordability back into these markets," RP Data research director Tim Lawless said.

The report also shows that the volume of land sales - a leading indictor of future new construction - fell 43 per cent in the year to June compared with a year earlier.

Lot sizes have also shrunk, notably in Perth and Adelaide that have been reduced 25 to 30 per cent since the early 1990s.

The average lot size in Adelaide is now the smallest of any Australian capital cities at 420 square metres.

The Reserve Bank of Australia is expected to make another large cut to the official cash rate when its board meets on Tuesday, with economists tipping a cut of up to 125 basis points.

Official rates have so far dropped 200 basis points in the past three months, a large part of which has been passed on to mortgage rates.

At the same time, the federal government has doubled the first home owner grant for purchases of existing properties to $14,000, and tripled it to $21,000 for new homes, as part of its $10.4 billion economic stimulus package.

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