The shrinking great Australian dream

RESIDENTIAL blocks of land in outer urban fringe estates are likely to continue to drop in size over the coming years, according to a property industry figure. But he predicts the price of a block of land is likely to stabilise over the next two to three years, rising only to cover any cost-of-living increases.

The average block is now about 450sqm – down from 600sqm in 2001 – and depending on the growth corridor ranges in price from $195,000 to $220,000.

Leading demographer Chris McNeill believes the size of a block of land is likely to continue to decrease despite the State Government’s attempts to ensure an adequate supply of land in outer urban or “greenfield’’ zones.

Mr McNeill, who is a director of Spade Consultants, says strong population growth and increased demand for residential land will fuel the push for smaller blocks.

“In new growth areas the average size of new residential lots is likely to continue to decrease, a trend that has been encouraged by successive state governments,’’ he says. “Smaller lots is one way of keeping things affordable.’’

The demographer says the size of the traditional single-dwelling lot could go as low as 350sqm in the years to come.

“It’s difficult to know where the end game is in terms of decreasing lot sizes, but my hunch is around 350sqm is as small as a lot for a detached dwelling is likely to go,’’ Mr McNeill says. Attached or townhouse-style house and land pairings on
200sqm-250sqm lots are available in some outer suburban estates.

Villawood Properties joint executive director Rory Costelloe says while there may be some “tweaking’’, the current lot sizes for the traditional detached single-dwelling homes will not “decrease dramatically in size’’ over the next few years. “This will not happen in greenfields’ sites although there may be more apartment-style product on small blocks,’’ says Mr Costelloe, whose company has about 10 per cent of the outer residential land market in Melbourne. “The single-dwelling market makes up about 50 per cent of the estate, and these blocks will not get much smaller because otherwise people will be on top of each other. And that’s not want they want. If the frontages for a home are too narrow you can’t fit in a garage.’’

Mr McNeill says the price of a block of land started to spike in the period 2002 to 2004 because of a combination of factors including relatively low interest rates, government-funded first homeowner grants and the restriction on outer urban development through the introduction of the Urban Growth Boundary. He says prices surged in part because the UGB “spooked the development community and had land owners (usually farmers) in the growth areas looking for top dollar’’.
Another increase in the price of the outer urban block occurred between 2007 and 2010 when interest rates were slashed in response to the Global Financial Crisis, and the number of migrants coming to Australia reached “record highs’’.

The demographer says in recent years government moves to ensure an adequate level of outer urban land has led to a relatively healthy supply situation. But he warns that future increases in the price of land cannot be ruled out.

“Ongoing and relatively strong population growth will see a consistent level of demand. It is therefore important for the State Government to ensure housing can be delivered to the market in both the established metropolitan area as well as new growth areas.’’

Villawood chief Rory Costelloe agrees that the introduction of the UGB has led to increases in the price of the outer urban block of land. Mr Costelloe says the introduction of the UGB combined with various government charges including the GAIC (Growth Areas Infrastructure Charge) have added $40,000 to the price of an average block since 2005.

“Plus the cost of all consultants and services has risen along the way, all a function of supply and demand fuelled by population growth,’’ he says. “There is also far more competition in the market due to listed companies

and super funds entering the market. So due to the competition developers’ margins have actually dropped over the last decade.’’

But Mr Costelloe agrees block prices should be relatively steady over the next three years. And he still believes that outer urban blocks are affordable.

“The average block of land (450sqm) price in Melbourne is actually now closer to $195,000,’’ he says. “This is extremely good value for money in my opinion! The average home is under $200,000 to build, and with house and land packages so reasonably priced, a family can realistically buy a home with ample living areas for under $400,000.’’

By Andrew Brasier

Published in The Indian Weekly (First Weekly Indian news Magazine in Melbourne, Australia)