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Home prices have risen by more than 16 per cent in Sydney, and almost 11 per cent across all the capital cities combined.Source: News Limited

TALK about overvalued house prices, and the finger is invariably pointed at cashed-up investors. But they aren’t only to blame for real estate costing a bomb in your capital city.

It’s true that negative gearing and capital gains concessions make housing an increasingly attractive proposition for investors but limited land is what’s really driving up house prices.

This land shortfall is created by state governments which limit its release for development.

And the reason for that is simple. High house prices lead to more stamp duty and that is a major source of state revenue.

New research shows capital city land prices surged six per cent in the last 12 months.

The median selling price for capital city land now stands at $247,000, and the cost of land, per square metre, has grown eightfold since 1990, according to RP Data.

A lack of vacant residential land and shrinking lot sizes in capital cities have driven prices higher, RP Data national research director Tim Lawless said.

Land prices have become a key contributor to rising home prices — particularly in Sydney, Brisbane and Melbourne, he said.

Shrinking lot sizes in have driven prices higher. Source: News Corp Australia

The data suggests the cost of materials and labour have changed very little, so it is the rising cost of vacant land that has pushed up housing costs.

“The combination of smaller land lot sizes and rising prices is likely to continue,” he said.

Home prices have risen by more than 16 per cent in Sydney, and almost 11 per cent across all the capital cities combined.

Former treasurer Peter Costello this week said state government taxes on the release and transfer of land were restricting supply, and contributing to price rises.

The Reserve Bank has also expressed concern about surging house prices, with board members at their most recent meeting noting that the risks associated warranted “ongoing close observation”.

The bank said further speculative demand could amplify the property price cycle and increase the potential for a fall in property prices, which could dent household wealth and spending.

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