Land prices across Australia jumped by a healthy 7.4% over the March quarter, adding to the recent string of positive data supporting a recovery in the property sector.

"Very low mortgage rates, the First Home Owner's Grant boost, and attractive deals from volume builders have generated increased new home demand," said Harley Dale, HIA Chief Economist. "The associated benefit to economic activity and employment will become apparent from mid-2009."

According to the Housing Industry Association (HIA) and RP Data, the cost of land is increasing nationally following four consecutive quarters of decline. Price growth of 7.4% nationally in the March quarter equated to a median lot price of $172,490. This corresponds to an increase in overall dwelling values of 2.1%, with some further growth expected.

"A wide array of indicators released over the last month has shown that the prospects for further modest improvements in residential property prices are likely," says Tim Lawless, RP Data National Research Director. "Consumer and business confidence have both improved dramatically, unemployment is rising at a slower pace than expected and housing commitments show both owner occupier and investor numbers are trending upward."

Other data released by RP Data-Rismark International in their National Home Value Indices showed a 4% increase in residential housing prices for the year to May 2009, providing further support for a recovery in property prices.

According to the RP Data-Rismark survey, residential housing prices have just about fully recovered the losses of 2008 with the national median house price resurging to $468,819, just $520 or 0.1% below their February 2008 high.

Median lot / land prices in Australia's capital cities - March 2009 quarter

City Median Lot Price
Sydney $259,000
Perth  $225,000
Brisbane $210,000
Median  $197,045
Melbourne $170,000
Adelaide $164,950
Hobart  $134,500

Source: HIA / RP Data March Quarter Figures released July 2009

All capital cities other than Hobart enjoyed increases in median lot prices during the March 2009 quarter. Sydney remains the most expensive market with a median lot price of $259,000, compared with the cheapest in regional Tasmania at $79,750.

Whilst the March quarter showed a slight increase for Sydney, over the last 19 quarters there has been a steady decline in the average Sydney lot price. Melbourne has also witnessed some recent quarterly declines whilst all other capitals enjoyed what appears to be a steady upward trend in values.

But according to the HIA, there remain the same structural barriers that led to the unnecessarily high lot prices witnessed during the previous up-cycle. "A lack of timely and adequate land supply, high development charges and taxes, and onerous planning regulation still present a serious challenge to new home affordability," says Dr Dale.

Price pressure in the form of increasing lot prices, together with the December deadline for the First home Buyer's Grants, could add further material pressure on sustainable home affordability.