Australia's Housing Crisis: Unveiling the Land Bubble
A nation's housing woes, a tale of land and its soaring prices.
Last week, a report from the Australian Bureau of Statistics (ABS) revealed a startling trend: the total value of residential land in Australia has ballooned to unprecedented levels, reaching a staggering $8.3 trillion in the 2024-25 financial year. This is a 7.0% increase, and it's not just a blip; it's a long-term trend.
The data shows that residential land values have skyrocketed, from being valued at 1.1 times GDP in 1989 to a whopping 3.0 times GDP in 2024-25. And it's not just the overall value; the land share of Australia's housing stock has also increased significantly, from 54% in 1990-91 to 75% in 2024-25.
As a result, the total value of Australia's housing stock, including both land and buildings, has reached a staggering 4.0 times GDP. But here's where it gets controversial...
New research from Cotality and the Housing Industry Association (HIA) paints a dire picture. Lot prices across the nation are rising by over $200 a day, exacerbating Australia's housing affordability crisis. In the 2024-25 financial year alone, median lot values nationally increased by 6.8%.
Over the last decade, lot prices have surged across all capital cities. For example, Greater Sydney saw an increase of $314,350 (84%), while Greater Melbourne experienced a rise of $163,700 (75%). And it's not just the overall value; the price per square metre has also risen significantly as lot sizes have shrunk.
HIA's chief economist, Tim Reardon, commented, "Strong population dynamics have indeed driven an increase in home building activity, but it has also led to some of the fastest increases in lot prices in the nation."
The soaring cost of land is a major hurdle for Australia's rapidly growing population. In economic terms, this hyperinflation of land costs has shifted the aggregate supply curve to the left, reducing the capacity to build dwellings at all price levels.
And this is the part most people miss: the federal government's response. Instead of addressing the issue by reducing demand, particularly through immigration policies, the government chose to increase immigration to record highs, largely driven by international students. Abul Rizvi forecasts that net overseas migration will average an extraordinary 300,000 under current policies.
The end result? A worsening of Australia's structural housing shortage.
So, what's your take on this? Is the government's approach to immigration exacerbating the housing crisis? Should they reconsider their strategies? We'd love to hear your thoughts in the comments!
