Housing density is vital for the housing affordability crisis, Domain says

House with land
Image: Getty, house with land

A new Domain report shows that house and unit prices per square metre in capital cities have been trending upward over the past five years.

This has been driven by higher property prices and smaller floor/land sizes. Domain says it signals a shift in housing dynamics, particularly regarding land use.

What is the price per square metre?

This is the equation: Price per sqm=  Land or floor size / Total Sold Price 

The price per square metre is the sold price divided by the land or floor size, with the value calculated from the relevant region. It's an important tool to help understand the changes in density and its relationship to price over time.

Domain says this relationship between land size and price per sqm is inversely proportional, which means: 

  • As land size decreases, the price per sqm will increase. 
  • As house prices increase, the price per sqm will increase. 

So the trend of shrinking land sizes has been attributed to densification and rising land premiums. This basically means smaller homes - which should cost less to buy and require a smaller home loan - take up smaller amounts of space. 

As such, Domain’s report argues that higher density translates to increased affordability.

“Australia has some of the world’s least densely populated cities and is home to some of the most expensive property markets,” said Domain’s chief of research and economics, Dr Nicola Powell.

“Despite this, the desire of people to live in the capital cities has meant that more are trying to squeeze into them and are competing for housing. This housing demand needs to be countered with the growth of dwellings to slow the overall growth in home prices.” 

But is Australia up for more urban density?

Recent public debates and reports in the media show there are certainly many people opposed to changing urban density levels in the suburbs.

And yet, without the shift towards greater density and smaller land sizes over the past two decades, house prices would be vastly higher than they are today, according to Powell. 

For example, they’d be higher by 44% in Perth, 16% in Adelaide, and 14% in Melbourne, based on Domain’s data crunch. 

“Land is finite and we need to ensure it is provided at low cost and utilised efficiently,” says Powell. “This will require a well-defined development plan from our government to ensure land-use policies meet housing needs. Estimates suggest a 10% increase in housing stock lowers prices between 15% and 30%. 

“Knowing the price per sqm helps buyers find where the land is cheaper and identify bridesmaid suburbs, but prioritising increasing density from the government will help homeownership become more accessible for Australians."

Lower land costs help in the search for a lower cost home

To help buyers along their property search journey, Domain has identified the suburbs within 20km of the CBD (nationwide) that have the lowest cost per square metre for houses. 

They are as follows, including median land size, and cost per sqm:

  • South Granville, Sydney - 591, $1,888
  • Coolaroo, Melbourne - 600, $850
  • Anstead, Brisbane - 10,049, $151
  • Aldgate, Adelaide - 2,320, $552
  • Gooseberry Hill, Perth - 2,002 - $449
  • Fraser, Canberra - 1,140 - $851
  • Moulden, Darwin  - 819, $450
  • Bridgewater, Hobart - 713, $602

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