Land prices in Australia is one important driver of home prices.

There is a growing need for governments and industry players to release more land supply to improve Australia's housing affordability, market watchers say.

The cost of land is one of the primary components in determining the price of a new home, said Housing Industry Association (HIA) economist Angela Lillicrap.

Also read: Here's why housing affordability woes still exist

"While land prices have come down during 2019, over the last decade, the price of new residential land per square metre in Sydney has doubled and more than doubled in Melbourne," she said.

Over the past 10 years, the shortage of land has been one of the drivers of home prices.

"The process of making land ‘shovel-ready' can often last a decade; therefore, responding to shortages cannot be met with increased supply in the short term. An adequate supply of land is required to avoid deterioration in affordability," Lillicrap said.

It is, then, crucial for governments to work with the industry to ensure that there is an appropriate supply of land. Lillicrap said improving the monitoring and reporting of the land supply pipeline will enable government and the industry to make well-informed decisions.

Land prices down

Land values had slumped across the most expensive markets over the past year, according to the June 2019 edition of HIA-CoreLogic Residential Land Report.

In Sydney, the rate per square metre of vacant land was down by 12.6% while in Melbourne, the decline was at 7.6%.

Prices were also down in Adelaide and Brisbane, recording slumps of 12% and 4.6%, respectively.

Also read: Housing minister unveils plans to boost affordable housing

"Lower land prices should provide further support for housing affordability in these markets, however in Hobart and Perth land prices were higher," said CoreLogic head of research Tim Lawless.

Hobart recorded a substantial gain in land prices at 20.3%, reflecting a tight supply and ballooning demand. However, Hobart still has the lowest median land price amongst the capital cities at $180,000 and the largest median land area at 624 square metres.