A new Domain report reveals house and unit prices per square metre in the capitals have consistently risen since 2019 due to densification and rising land premiums.
“The desire for people to live in the capital cities has meant that more are trying to squeeze into them and are competing for housing,” Domain chief of research and economics Dr Nicola Powell said.
The relationship between land size and price per square metre is inversely proportional – as land sizes shrink, the price per square metre expands.
It’s the opposite with house prices – when home values are up, so is the price per sqm.
But with tight competition for land on the one hand - due to a highly urbanised population - and steadily rising home prices on the other, Australia has got the perfect recipe for expensive land despite being among the least dense countries in the world.
House prices per square metre in major Australian cities
Leading the increase in land prices in the 12 months ending February was Perth, with its price per square metre rising 14% to $1,410.
The figure is based on an average 480 sqm house valued at $676,800.
In recent years, the Western Australian capital has emerged as a honeypot for property investors, with dwelling values consistently trending upwards (up 18.3% annually) off the back of sustained demand.
Perth is followed by Adelaide (up 9.6% or $1,296/sqm), Brisbane (up 7.5% or $1,311/sqm), and Sydney (up 5.1% or $2,590/sqm), which is also the most expensive capital city per square metre.
Despite noted price falls recently, Melbourne’s land values also inched higher by 0.8% compared to the year prior.
Meanwhile, Canberra (down 2.0%), Darwin (down 2.3%), and Hobart (down 2.7%) have had their prices per sqm dropped.
However, looking five years further, all major cities now have more expensive land prices.
Hobart secures the highest five-year price gain, going up 59.1%. This is followed by Brisbane (up 58.1%), Adelaide (up 57.1%), Sydney (up 49.5%), and Canberra (up 48.3%).
Comparatively, Perth has a more moderate price increase on a five-year basis, going up 40.1%.
Aspiring homeowners looking at entering the housing market may want to consider suburbs located within 20 kilometres of the CBD.
For instance, the average land value in Anstead, which is about 20 kilometres from Brisbane, is priced nearly twice below CBD lots at only $151 per sqm.
Land in Gooseberry Hill, WA, comes at an average of $449 per sqm, which is two-thirds (68%) below the price in Perth.
Instead of paying $1,296 per sqm in Adelaide, buyers may opt to move a few kilometres further to Aldgate where land is priced at $552/sqm or a difference of 57%.
Unit prices per square metre in major Australian cities
When it comes to units, Adelaide has the highest annual price gain at 10.6% or $5,515 per sqm.
This is followed by Brisbane (up 9.1%), Perth (up 3.1%), and Darwin (up 2.9%).
Much like houses, Sydney has the most expensive unit price per sqm at $8,510 – up 1.4% annually but down 0.6% over the five years.
Annual floor price growth was flat in Melbourne (up 0.7%) and Canberra (0.0%).
Hobart, whose value of unit floor size dropped 3.8% compared to the year prior, has had the largest five-year gain among capitals at 46.7%.
Taking the second, third and fourth spots are Canberra (up 39.5%), Adelaide (up 37.9%), and Brisbane (up 34.0%).
Embracing density to address affordability crisis
Increasing housing stock is the most effective way to stem the price increases of land, according to Dr Powell.
“The housing demand needs to be countered with the growth of dwellings to slow the overall growth of home prices,” she said.
“While it may seem counterintuitive, it actually creates more opportunities for homeownership.”
The decline in land size is driven by the increased urban density, and without improved land utilisation through a well-defined development plan, seeking homes in major cities may become more difficult in the coming years.
“Land is finite and we need to ensure it is provided at low cost and utilised efficiently,” Dr Powell said.
“Estimates suggest a 10% increase in housing stock lowers prices between 15% and 30%... prioritising increasing density from the government will help homeownership become more accessible for Australians.”
Photo by JESHOOTS.com on Pexels
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