Six months ago, I mentioned that the fundamentals had shifted dramatically in favour of new dwellings and this would translate into further increases in land sales and eventually construction.

Land sales in Perth subsequently increased 20.9 per cent in the December quarter and a further 11.1 per cent in the March quarter to six-year highs. Land sales in Peel and the South West have also strengthened, increasing 40.0 and 34.7 per cent in the March quarter, respectively.

This translated into increased construction volumes on the ground, with dwelling starts in WA on target to jump 30 per cent to 23,000 dwellings in 2012/13.

So far industry has generally been able to accommodate the majority of increased demand because of high levels of stock already on the market – although there are areas where supply of titled land is low.

There were also many prescient market observers in the industry that brought forward land releases to meet this strengthening demand. Developers in Perth and Peel brought an estimated 214 lots onto the market each week during the March quarter; nearly double levels 12 months ago.

But demand for land has continued to outpace supply nonetheless, with stock levels falling in Perth (down 35 per cent over the year to March 31), Peel (down 17.2 per cent) and the South West (down 46.1 per cent).

So if demand is outstripping supply and stock levels are declining, what about land prices?

Although prices typically rise in any market – be it land or commodities – when demand outstrips supply, on face value new developed land prices have been stable for several years.

The average price of blocks sold by developers in Perth, Peel and the South West has jumped around several percentage points at most over the last 18 months.

There are several reasons for relatively stable prices.

Firstly, we are not experiencing land shortages to the degree that was seen in 2005/06. There are still approximately three-quarters as many lots on the market in Perth and Peel as the low recorded in 2006.

Secondly, growth in sales of premium (or more expensive) land has been offset by strong sales in the sub-$200,000 category.

While the average price of land sold by developers in the March quarter was $225,000 in Perth and Peel, just under half of all lots sold for less than $200,000 compared to a third of all lots in 2006/07.

Thirdly, driven by housing affordability, changing buyer preferences, policy prescriptions and a desire to increase development yield, among others, lot sizes in Perth have been decreasing.

Lots under 500m2 – which represented just 8 per cent of newly subdivided lots two decades ago – are the norm, representing just under 70 per cent of all subdivisions in Perth in 2011/12. And more than one in five new lots in Perth are under 320m2.

Therefore, on a per square metre basis it is a different story – prices are increasing. The average price per m2 has increased from $499 to $533, or 6.9 per cent, since mid-2011. Preliminary settled land sales figures from Landgate also support this.

There is every reason to believe prices per square metre will increase throughout 2013, especially as the size of lots coming onto the market in the next 12 months will be declining once again and sales volumes continue to strengthen.

We will likely see the average price of a block of land also increase. But this will be largely confined to areas of short supply, especially rare coastal lot releases. There will also be upward pressure on prices of titled lots.

The Institute’s recent Industry Predictions Survey, which surveyed 130 urban development professionals in Western Australia, found that three-quarters of urban development professionals expect new dwelling prices to increase over the next six months in Perth.

We’ve already seen a handful of campouts in 2013; expect to see several more.