IT IS WIDELY REPORTED THAT LAND VALUES SHOT UP DRAMATICALLY LAST DECADE, BUT SO DID THE VALUE OF HOMES BUYERS WERE BUILDING; AND JUST LIKE LAND PRICES, NEW HOMES PRICES HAVE NOT INCREASED FOR FIVE YEARS.
The price of land was often cited as the main reason for new home prices shooting up dramatically between 2003 and 2007. Indeed, reflecting the increased scarcity of serviced land in the face of strong demand, the price of the land component rose markedly – the median price of vacant serviced land sold in Perth in 2007 was 116 per cent higher than the 2003 median.
We should not, however, discount the value of the building component, which also shot up dramatically in Perth. Over the same four year period, a new house in the Perth was on average 70.1 per cent more expensive; increasing from $150,700 to $257,300. Whilst the increase was not as large as that for land or established homes (established house prices in Perth doubled over this period), increased building costs combined with, in part, the desire for more expensive homes exacerbated affordability concerns in this heady period.
Figure 1 – average value of new house (exc. Land component), Perth (ABS 8731.0)
As we all know, the market dynamics have changed significantly from 2007. Firstly, the median lot price in 2012 was still $20,000 less than the 2007 high of $262,000. But also, the average new house price has broadly remained the same over the past five years.
So let’s take a look at how Perth compared to other Australian cities in 2012.
Where are the most expensive houses built in Australia?
At the aggregate capital city level, Darwin was the standout in 2012 with an average house value of $339,100, while Adelaide was at the affordable end of the scale with an average house value of $220,900.
Across most categories Perth is at the lower end of the scale with the exception being apartments. However, this may be due to a large majority of Perth apartments targeting premium buyers in comparison to Sydney, Melbourne and Brisbane.
| Capital City | Houses | Terrace/Townhouses | Flats/Units | Apartments |
|---|---|---|---|---|
| Sydney | $318,000 | $224,600 | $217,300 | $261,300 |
| Melbourne | $280,600 | $211,500 | $251,800 | $266,400 |
| Brisbane | $333,700 | $194,200 | $195,500 | $268,600 |
| Perth | $261,500 | $210,700 | $182,000 | $295,800 |
| Adelaide | $220,900 | $186,500 | $173,000 | $334,900 |
| Hobart | $235,400 | $160,900 | $169,400 | N/A |
| Darwin | $339,100 | $331,000 | $239,000 | $461,900 |
| Canberra | $333,000 | $222,700 | $148,300 | $215,000 |
Looking at the latest building approvals data published by the Bureau of Statistics, we can dig a little deeper to find the most expensive region. (ABS publishes down to ‘SA2’ level – a statistical region slightly larger than a typical suburb.)
Blue chip regions built the most expensive houses in 2012, with Victoria’s Toorak topping the list with an average house value of $3.39 million.
Western Australia had three regions in the top ten with City Beach being the region with the most expensive new houses in 2012.
| SA2 | State | No. of Houses | Average Value |
|---|---|---|---|
| Toorak | VIC | 23 | $3,389,000 |
| Deakin | ACT | 8 | $2,064,000 |
| Mosman | NSW | 17 | $2,057,000 |
| Bondi – Tamarama – Bronte | NSW | 8 | $1,660,000 |
| Manly – Fairlight | NSW | 26 | $1,404,000 |
| Hunters Hill – Woolwich | NSW | 6 | $1,344,000 |
| City Beach | WA | 22 | $1,241,000 |
| Mosman Park – Peppermint Grove | WA | 24 | $1,215,000 |
| Nedlands – Dalkeith – Crawley | WA | 36 | $1,163,000 |
| Bondi Beach – North Bondi | NSW | 6 | $1,132,000 |
In regional Western Australia, the most expensive houses were built in Karratha and Port Hedland with average values of $573k and $553k, respectively.
And at the other end of the scale, the most affordable houses in Perth were built in Cooloongup near Rockingham ($129,000).
| Area | No. of Houses | Average Value |
|---|---|---|
| Cooloongup | 5 | $129,000 |
| Greenfields | 16 | $155,800 |
| Leeming | 5 | $162,800 |
| Balga – Mirrabooka | 104 | $171,900 |
| Girrawheen | 10 | $172,300 |
All in all, there is a clear link between the price of land in a suburb and the price of the house built on it. So if land prices pick up over the next few years, history tells us that the price of the house built on it will also rise.