The forecast is for clear skies in many parts of the Australian residential land market – but if you’re in Melbourne or Adelaide, don’t pack a picnic just yet.

Demand for residential land is on the rise for most parts of the country, according to a major new report series released this morning.

Industry analyst and economic forecaster BIS Shrapnel in its Outlook for Residential Land, 2012 to 2017, says ‘green shoots’ have emerged in the demand for residential land in the Sydney, south-east Queensland and Perth markets, with more positive signs to continue through 2012/13.

However, while low interest rates and dwelling deficiency will support the land market in these areas, lot production in Melbourne and Adelaide is expected to remain weak. Find out how your region stacks up:

Outlook by region

Sydney

After collapsing in the middle of the decade when land prices doubled over a three year period, falls in land prices through to 2008/09 and a pickup in outer Sydney house prices in 2009/10 have improved the equation for the purchase of new houses relative to the established stock.

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Senior manager and report series author, Angie Zigomanis, says lot production has improved from a low of 1,400 lots in 2008/09 to 4,200 lots in 2011/12.

“Nevertheless, new dwelling construction remains well below that required by population growth, evidenced by tight vacancy rates and solid rental growth.”

As a result, he says, low interest rates and the improved affordability for new houses are expected to continue to encourage further growth in the demand for land in the city. Lot production is forecast to reach its zenith at 7,000 lots by 2014/15, however – still 2,000 short of peak early 2000’s lot production figures.

Perth

Perth has experienced a substantial and extended downturn the residential land market, thanks to an unaffordable housing price boom in 2005/06 – a rise which also drove speculative land purchases that took the land market into oversupply.

Median land prices are still estimated to be nearly 10% below their peak five years ago, says Zigomanis.

“The smaller lot sizes have allowed developers to maintain affordability by keeping headline land prices lower. The combination of lower land prices, income growth and lower interest rates has meant that the purchase of new houses has improved to its most affordable level since the early part of the mid-decade boom.”

Population growth in Perth has been accelerating, resulting in a rapidly rising deficiency of dwellings, says Zigomanis.

Lot production in Perth (including Mandurah) is forecast to rise and peak at 13,600 lots in 2014/15 – roughly the same level as the 2005/06 peak – as population growth in the region finds its way into the new dwelling market. 

Brisbane

New house activity and lot production in Brisbane is well below its most recent peak levels over 2007/08. The peak in prices and new dwelling activity resulted in a market that had become unaffordable and oversupplied, particularly after population growth weakened in line with the downturn in the Queensland economy, says Zigomanis.

“Apart from a brief rally in 2009/10 driven by sharp cuts to interest rates and increased first home buyer incentives, new housing starts and lot construction have continued to fall into 2011/12. In fact, lot production in outer Brisbane in 2011/12 fell to its lowest level since 200/01.”

However, the report series says positive signs are beginning to emerge for the city’s land market. First home buyer loans in Queensland were up 28% in 2011/12, which Zigomanis says should provide increased demand for entry level properties to allow upgraders to purchase larger new houses. Net overseas and interstate migration into the state has also improved in 2011/12 after bottoming out in 2010/11.

Modest growth in lot production is anticipated in 2012/13, before accelerating in 2012/14. Confidence is expected to improve, but forecast rises in interest rates over 2014/15 will begin to curtail the upturn before it can gain too much momentum. Lot production in Brisbane is predicted to rise to a peak of 6,100 lots in 2013/14, well below 2007/08 figures.

Gold Coast

After demand for land collapsed on the Gold Coast after 2006/07, just over 1,000 lots were produced in 2010/11 – the lowest level of lot production in the region for at least 20 years – and demand remains at long-term lows, says BIS Shrapnel.

Zigomanis says interstate migration plays a key part in the demand for new dwellings on the Gold Coast and net interstate migration into Queensland fell to its lowest level in 20 years in 2010/11. This was compounded by an excess dwelling supply, as well as a rise in prices that reduced the region’s affordability advantage over the eastern state capitals.

“We expect any upturn in the Gold Coast market to be relatively slow. The market is still working through the issues of oversupply, while local economic conditions remain weak. Two of the main economic drivers of the Gold Coast are tourism and construction and it will be some time before these two sectors can contribute substantially to employment growth.

Lot production is forecast to peak at 2,800 lots in 2014/15. While this is more than double current levels, Zigomanis says it’s still well below the peak of 2006/07.

Sunshine Coast

Sunshine Coast lot production is estimated to have fallen to below 1,000 lots in 2011/12. Migration is key component of demand for new houses in the region, however, substantial price growth in the first half of the decade has meant that the trade down value of the region has been somewhat reduced.

The upturn in lot production in the Sunshine Coast market is expected to be slow, rising modestly in 2012/13, before stronger growth in the subsequent two years.

Growth will be supported, says Zigomanis, by a pickup in migration as improvement in the Queensland economy is expected to underpin greater residential upturn in Brisbane.

Lot production is forecast to peak at 2,100 lots in 2014/15, similar to the levels in 2007/08. 

Melbourne

Residential land production in Melbourne peaked at a record of nearly 19,000 lots in 2009/10, says Zigomanis, underpinned by rapid population growth, an underlying dwelling deficiency, increased first home buyer incentives and low interest rates.

“However, strong growth in land prices during the upturn caused new house/land packages to become less affordable relative to the existing housing stock. At the macro level, the high level of new dwelling construction in Melbourne has also eroded the dwelling deficiency.”

As a result, says Zigomanis, lot production has been easing since 2009/10, falling to an estimated 14,900 lots in 2011/12. With Melbourne’s underlying dwelling deficiency moving into excess, he says there is little upward pressure on new dwelling demand. Victoria is also predicted to attract a lower share of overseas migration than other states, as well as see the emergence of a net outflow of its population into other states.

Lot production is forecast to continue to weaken over the next few years, bottoming out at 10,500 lots by 2015/16. Land prices, says Zigomanis, will also remain under pressure, given their deterioration relative to house prices, with incentives expected to continue to be the feature of land sale prices.

Adelaide

Lot production in outer Adelaide averaged around 3,500 lots per annum over 2008/09 and 2009/10 after averaging less than 3,000 lots per annum for much of the decade. This period of strong activity has resulted, according to the report, in a mild excess of dwellings.

Together with the weaker economic environment over the last two years, has seen lot production fall to an estimated 2,200 lots in 2011/12.

The reductions in interest rates in 2011/12 are predicted to maintain lot production at this lower level through to 2014/15 and the subdued environment over the next few years is expected to result in flat land prices.

Zigomanis says the lower level of lot construction forecasted translates to new supply running just below the estimated level of underlying demand and that, by the time interest rates enter another easing cycle towards the end of the five year forecast period, an emerging underlying dwelling deficiency will create the conditions for a solid subsequent upturn.