The type of housing cost that just soared 75 per cent in five years

The cost of land for housing development has skyrocketed by 75 per cent over the past five years, pushing homeownership further out of the hands of average potential buyers.

The median development site cost has risen from $4.8 million in 2020, to $8.5 million this year, Ray White analysis of Real Capital Analytics data shows.

It comes as construction costs remain elevated from their pre-COVID-19 levels, putting further pressure on affordability.

Ray White Group chief economist Nerida Conisbee said it would take considerable time before building costs fell enough to make new housing genuinely affordable for average buyers.

“Land costs haven’t come back down and what’s happening is developers want to build, but they can’t do it affordably,” Conisbee said. “We’re not seeing the crashes in the market we previously saw so we’re in a kind of holding pattern.”

In past economic downturns, rising interest rates would put pressure on some owners of development sites, forcing them into distressed sales at reduced prices. But this time was different, and Conisbee said many had built financial buffers while interest rates were at record lows, and developers have been in a better position to hold onto land.

They were also entering into joint ventures when finances were squeezed. Changes to how lenders operated were also helping developers hold on to their assets, banks were holding off on forced sales for struggling developers, and were more likely to offer relief measures.

It comes as the federal government aims to deliver 1.2 million homes in five years to address the housing affordability challenge.

HIA senior economist Tom Devitt said construction was becoming more expensive, due to the cost of trades and high land prices.

Shortages of skills in new builds were due to tradies working on other building projects including public infrastructure, and home renovations.

Those that were working on new housing were costing an extra 5 per cent to 6 per cent every year, HIA figures showed.

“Those rises are still a lot faster than they were pre-pandemic,” Devitt said.

“Land prices are at all-time highs and are re-accelerating,” he added. “That’s after a recovery in demand in Queensland, Western Australia and South Australia in the last few years because of ongoing population growth, higher household incomes and two interest rate cuts in their back pockets.”

There was a shortage of shovel-ready land for sale, pushing prices higher on existing developable land.

Last year, land packages nationally were at an all-time high of $369,530 – 8 per cent higher than at the end of 2023, Cotality, formerly CoreLogic, and HIA data showed.

But at the same time, the number of homes being built were at record lows with just 42,590 lots sold in 2024.

Adding to the housing affordability issue was a shortage of infill development in cities like Sydney and Melbourne, with a lack of apartment and townhouse builds on offer.

Housing and Economic Security Program Director at the Grattan Institute Brendan Coates agreed. He said Melbourne, like other cities, hadn’t built enough housing in inner and middle ring suburbs to make it more affordable.

“It’s one of the least dense cities in the world,” Coates said. “Even if they allow a lot more building within 20 kilometres of the city, it would only be as dense as Sydney is today,” Coates said.

“Governments need to reform planning rules to build houses where people want to live.”

Productivity in housing construction was falling as prices rose, Coates said, with 10 per cent fewer homes being built in 2025, than there were three decades ago.

“We really need to look at the tax settings,” he said. “The focus should be on stamp duty which is the worst tax in Australia.

“You have to replace it with something and [annual] land taxes don’t stop people from buying whereas stamp duties [on transfer of land] do.”

Conisbee said there were other solutions to the lack of housing being built including searching overseas for more skilled migrants to help in construction, though they would also need somewhere to live.

She also highlighted modular building, with factory produced parts for homes like roof trusses to make building quicker and more efficient.

“Consumer choice also has to change – there is still a very strong preference for big houses rather than apartments which are more affordable,” Conisbee said.