$170 billion rise in land values may be the end of the line

House prices to plunge. Illustration by Dionne Gain. house prices on the slide. illustration by Dionne Gain

The value of NSW houses continued to grow by 14 per cent, or more than $170 billion, last financial year, to nearly $1.4 trillion, a level which experts say probably represents the high-water mark of residential land values.

Figures released by the NSW Valuer General on Friday estimated the value of all land in NSW, including rural and commercial property, hit $1.72 trillion last financial year. That represents growth of more than 70 per cent from $990 billion five years ago.

“It’s been a good year for landowners,” said Peter Phibbs a professor of urban planning from Sydney University. “[But] July 1, 2017 was pretty close to the peak.”

The state government’s infrastructure and rezoning drive helped drive growth in Sydney’s development hot spots.

Houses within the Ku-ring-gai council area on the upper north shore registered the single fastest growing prices in the city last financial year.

Residential land values in that suburb increased by 22 per cent driven mainly by rezoning around transport hubs and greater demand for mixed-use development projects around business centres in Chatswood and Macquarie Park.

Residential land values in Sydney’s west, also grew at close to 20 per cent last financial year, in suburbs such as Liverpool and Campbelltown, with the average of the region at 15 per cent.

Rising global commodity prices pushed up the state’s land value with farms in western NSW rising in value by as much as 50 per cent, NSW Valuer-General Simon Gilkes said, making them the single biggest contributor to overall growth.

Dr Peter Abelson, an expert in housing economics, said the average rise in house prices was in line with growth rates over the past three years and had been driven by dramatic falls in interest rates.

“I would not expect [NSW] property values to continue to increase unless commodity prices continue to rise,” he said. “Land prices generally rise much faster than total property prices.”

The figures released annually by the NSW Valuer-General do not include the value of houses or buildings on land, but can contribute to the annual calculation of land taxes and council rates.

Sydney’s central and eastern regions grew at more than 13 per cent, with suburbs such as Hunters Hill (15.5 per cent), the northern beaches (16.8 per cent), Ryde (16.4 per cent) and Parramatta (15.6 per cent), and the inner west (15.7 per cent) all registered above-average growth.

Average land prices in two council areas are now worth nearly double the city’s average $1.1 million house price: Mosman, which grew by 17 per cent to reach $2.15 million last year and Woollahra which rose 12 per cent to $2 million.

Camden, a council area about 50 kilometres south-west of Sydney’s CBD and zoned as a major source of future population growth by the state government, saw particularly strong increases in its industrial and commercial land. Total land values in the suburb grew by 21 per cent across all categories.

“We’ve seen a consistent increase in Camden’s land value the last four years,” said Mr Gilkes.

That growth is attributed to the rezoning of areas for future housing development, such as Sydney’s newest suburb, Leppington, and the development of the south-west rail link connection to the CBD.

The area’s population is growing at a rate of more than 8 per cent according to the latest census data.

“The fact that Camden and Ku-ring-gai are leading the charge shows the sharp impact of zoning changes on land values,” Professor Phibbs said. “In Ku-ring-gai’s case it is the result of changing zoning from single storey dwellings to apartments [which] can lead to increases in land values of 300 to 400 per cent.”

But Professor Phibbs said the state government faced a thorny policy question in how to capture value from fast-growing land values to fund infrastructure.

The question of zoning’s role in driving future growth through the deployment of so-called “priority precincts” is the source of major ructions within the Berejiklian government ahead of next year’s election.

Minister David Elliott said he was “horrified” by plans to add more than 7000 homes to his Baulkham Hills electorate.

Precincts are proposed in places such as Bardwell Park, Glenfield, Ingleside, Riverwood, St Leonards, and Burwood, Strathfield and Homebush.

Only three regions Murray, the Northern tablelands and south-eastern NSW registered substantially below average growth.