Why are land prices in Australia so high?

The Australian property cycle has historically been driven by land prices. Land has been in short supply due to:

• State Government policies which restrict land development within a footprint, termed 'urban consolidation'

• Long approval time by Councils (particularly in Queensland, 12 months or more for large properties)

• High Council charges for headworks and infrastructure

Serviced land shortages and increasing development costs have driven up prices by more than 100% since 2001.

(See page 25 of our May 2008 Midwood Report for my full story).

Queensland Property Market Softens

Queensland's property market has softened since January 2008. This has resulted from:

- A long run of prosperity between 2001-07, which saw almost all property in Queensland increase in value by more than 100%
- The virtual satisfaction of pent-up demand for property
- Mortgage interest rates rose from 5.5% per annum to 9.5% per annum since the year 2000.

I state in my latest Midwood Queensland Investment Report (May quarter 2008) that there is no need to raise interest rates any further. Doing so would only stop the market completely and cause damage to borrowers, lenders, asset values and all of the ancillary industries which depend upon the housing industry.