Reasons for Soaring Land Prices in Australia

Running head: BUSINESS ECONOMICS
Business Economics
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1BUSINESS ECONOMICS
Table of Contents
Question a........................................................................................................................................2
Reasons for soaring land prices in Australia...............................................................................2
Major drivers of soaring house price...........................................................................................4
Question b........................................................................................................................................6
Question c........................................................................................................................................8
Elasticity of land supply..............................................................................................................8
References......................................................................................................................................12

2BUSINESS ECONOMICS
Question a
Reasons for soaring land prices in Australia
The price of vacant residential land especially those in the metropolitan cities has
increased sharply over the last decade. Despite increase in land prices, there is a decrease in
median lot size across all the capital cities. Report published by Housing Industry Association of
Australia suggests soaring land price leads to higher cost of housing challenging housing
affordability in Australia (Scutt 2018).
The primary factor responsible for increasing land is rising demand coming from farmers
and investors. The median price of lands in Australia had increased to AUD 2278 at the end of
2017 recorded an annual growth of 2.5 percent in the last 10 years. Price of land in the capital
cities increased by 2.2 percent in the first quarter of 2018. Contributing to the gain in annual
price, there was a significant decline in number of lots sold overtime. Annually, the sales of lots
fell by 18.8 percent (iproperty.com.au 2019). The strong demand of houses contributed to an
increase in land price. Apart from increasing house price, factors leading to soaring land price
include strong growth of population and recorded low rate of interest. Sydney and Melbourne are
the two capital cities experiencing largest gain in average land price (Blunden 2016, pp.340-
357). Melbourne recorded the largest increase median land price with price soaring at a rate
around 35.9%. Prices in Sydney grew by 2.1 percent followed by a 5.5 percent increase in Perth.
The only capital cities where land prices went backward is Brisbane while price has remained
almost flat in Adelaide (Scutt 2018). Despite the mixed performance of land price, prices on an
average increased in almost all the capital cities.

3BUSINESS ECONOMICS
Figure 1: Median house prices in capital cities of Australia
(Source: Scutt 2019)
Not only median price, price of land per square meter have increased at a faster pace in
the capital cities. In Melbourne price has increased at the fastest pace. The population growth in
Melbourne is faster than other capital cities leading to largest increase in land prices.
Figure 2: Per square meter price of land in capital cities
(Source: Scutt 2019)