Strategic land supply policy

Fifteen years of land supply

Clause 11.02-1S of the State Planning Policy Framework of the planning scheme identifies the need to “Plan to accommodate projected population growth over at least a 15-year period and provide clear direction on locations where growth should occur.” Greenfield supply is one element of the land required to provide dwellings to service population growth. Supply is also provided through development on major redevelopment sites (which are monitored by the Urban Development Program – Redevelopment) and infill development.

Using the long-term average of lot approvals, there is an estimated 23 years of land supply remaining in the growth areas. Using the short-term average of lot approvals, this is reduced to 18 years.

Plan Melbourne 70:30 aspiration

Policy 2.1.2 of Plan Melbourne sets an aspirational scenario where 70% of net additional dwellings are located within established Melbourne and 30% in the growth areas. The 70:30 aspirational scenario is designed around a sustained change over a long time period. It is anticipated the share of new dwellings being built in the growth areas will decrease over time as greenfield land is consumed and development increases in the established parts of Melbourne.

Historically, the share of net additional dwellings in the established areas of Melbourne has approached 70%. Since 2016, the share of dwelling approvals occurring in the established parts of Melbourne have declined from 64% to 44% in 2021. This decline in the share of net dwelling approvals can be attributed to continued strong greenfield development. Demand for greenfield housing remained strong driven by federal and state stimulus initiatives such as Homebuilder to maintain construction and development activity during the coronavirus (COVID-19) pandemic, that enabled development to be brought forward.

Share of net additional dwellings, established Melbourne and growth areas, 2014 to 2021

Population growth prospects

Population growth is a key factor in the development of new housing. Before the coronavirus (COVID-19) pandemic, Victoria was the fastest growing state in Australia, reflecting its attractiveness as a place to live, work and study.

The population grew at an average of more than 2.0 per cent per annum for most of the previous decade. Victoria’s population decreased during the coronavirus (COVID-19) pandemic period. This was the first decrease in many years.

Victoria’s population peaked at almost 6.694 million people in June 2020. Growth was below 100,000 for the year, compared with an average growth of 140,00 for the five previous years. During the year 2020-21 Victoria’s population decreased by 44,700 people to finish at 6.649 million in June 2021.

There is considerable uncertainty around the post-COVID future. It is unknown when Victoria will re-open for a return to ‘normal’ levels of overseas migration. There is a common assumption driving some published projections. It is assumed migration will return over two-to-three years. Recent projections produced by the Commonwealth and Victorian Governments contain similar assumptions and short-term results.

The 2022-23 State Budget projections show Victoria’s population growing by 0.1 per cent in 2021-22 before growth increases to 1.1 per cent in 2022-23 and 1.6 per cent over the following year as borders reopen.

The Commonwealth Budget projects that Victoria's population is projected to increase by 0.5 per cent in 2021-2022 before growth increases to 1.4 per cent in 2022-2023 and 1.8 per cent over the following year.

Current housing activity

Despite the disruption to population growth, residential development activity in Victoria remains strong.

In the 12 months to January 2022, there were about 70,000 new homes approved for construction across Victoria. About 47,000 of these approvals were for detached houses, one of the highest number of approvals ever recorded over a 12-month period.

There were also nearly 13,000 approvals for medium-density units and townhouses, and about 10,000 approvals for higher-density apartments. Most of these were located in the established parts of Melbourne.

Victoria currently leads Australia in residential building activity. During the same 12-month period New South Wales saw about 62,000 approvals and Queensland about 44,000 approvals. Much of the new housing across Victoria has been built in greenfield residential areas - both in Metropolitan Melbourne and Regional Victoria.

This high demand for greenfield land has placed some pressure on the availability of lots for sale as land developers' inventory of readily developed lots has been exhausted.

From lot sales to lots with a title

Lot sales or “sales off the plan” are a way for buyers to secure a piece of land and for developers to guarantee a sale before outlaying significant expenditure to provide services required to subdivide a block. This is an indicator the development industry often cite as a signal of market activity. This information is sourced from non-government providers such as Research4.

Once the lots have been sold, the developer starts the process of subdividing the land. This entails the legal subdivision process as well the installation of services such as water, electricity, drainage and roads. When the local council has been satisfied all servicing and legal requirements have been met, a title for the land is issued and the land is ready for a house to be built on it. Lots with a title is the final stage of the subdivision process. This is the last stage measured by UDP.

The chart shows how lot sales, and lots released with a title track relatively closely together. An upturn in the sale of lots leads to an upturn in lots with a title as developers deliver the lots that were sold 12 to 18 months previously. Lot sales are a leading indicator of subdivisional activity.

In 2021 there were a record 33,689 lots sold. However, the previous 2 years saw low levels of sales, particularly 2019 when there were 8,213 lots sold. Due to the lower than previous of sales in 2018, 2019 and 2020, the number of lots with a title has trended down in 2021 to 17,198.

It is anticipated the record lot sales in 2021 will take longer than usual to deliver as subdivided lots. As stated in the State of the Land 2022 report "Settlement timelines for product sold in 2021 were well beyond 12 months" (page 49). Given the record number of lots sold in 2021 and the time required to subdivide the land, there is likely to be an increase in the lots released with a title in 2022 and into 2023.

Greenfield lot sales and lots with a title, metropolitan Melbourne growth areas, 2009 to 2021

Page last updated: 26/07/22