Higher land costs have become the biggest obstacle faced by small property developers in Australia, surpassing traditional concerns around securing project funding. A recent industry survey shows that nearly two-thirds of developers working on projects under $15 million now see land prices as one of their top challenges, which is almost twice the number recorded in a similar survey two years ago. These cost issues are placing urban infill housing schemes in jeopardy, particularly in high-demand areas such as Sydney and Melbourne, where governments are counting on small and medium-sized developers to help meet new housing targets.
Currently, many small developers, particularly those focused on duplexes, townhouses and land subdivisions, are facing increasing pressure. Data shows that 62.5% of approximately 216 surveyed construction professionals name land prices as one of their three biggest hurdles, up sharply from 33.7% in the previous survey. Financing remains a major difficulty too and was cited by 50% of those surveyed, highlighting how multiple challenges are slowing or reducing the scale of key housing projects. These delays put pressure on government housing plans, such as the New South Wales strategy that requires the delivery of over 100,000 homes within five years.
Compounding the problem, lenders including both traditional banks and newer non-bank institutions are favouring large-scale developments where loans exceed $15 million. Smaller projects often demand a similar level of loan management but offer lower returns, making them less attractive to lenders. Developers working on these more modest projects often lack extensive track records, with about 70% of surveyed participants stating that they have completed fewer than five developments, which adds to their difficulty in securing finance.
There is growing interest in alternative construction methods such as modular and prefabricated building, which promise faster completion times and lower holding costs. A house built in one month rather than over a year could enable more homes to be delivered by the same builder within the same time period. Financial institutions have started to offer loans for prefab homes to individual buyers, yet they remain cautious about providing similar loans to developers, who take on greater construction risk upfront.
Some progress is being made, with banks such as Commonwealth Bank now offering financing options for buyers of prefabricated homes. However, this has not yet been extended to developers seeking commercial loans for modular housing. Federal and state governments have identified regulatory reform as a priority and are working to remove outdated barriers that prevent wider adoption of innovation in this area. Until real changes take place, the gap between ambitious housing targets and the realities faced by small developers is unlikely to close.
