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First home buyers looking to buy land in Perth’s outer suburbs are finding fewer lots available and are watching land sizes shrink before their eyes, a new industry report has found.

The number of land lots for sale plummeted last year by 21 per cent to just over 10,500 – about 3000 fewer than the previous year, according to the Urban Development Institute of Australia’s State of the Land report released on Tuesday.

The size of lots also shrank dramatically in 2015, but the price per square metre rose by 4.9 per cent – leaving first home buyers on the fringe paying more for less. 

Developers are now releasing the smallest lots in Perth’s history to target the first home buyer market, reducing land size by 7.7 per cent to 395 square metres. The fall in lot sizes has been consistent and dramatic over the last seven years, the report said.

But with average rents falling and rental vacancies high, there was little motivation for first home buyers to enter the market, the report continued.

UDIA also noted the state government’s efforts to stimulate new construction by removing the First Home Owners Grant for established houses late last year had failed.

Developers were holding back as demand for land fell from record levels, said Steven Rowley, associate professor and director of Australian Housing and Urban Research Institute’s Curtin Research Centre.

When there is evidence of a contraction in demand, developers reduce the amount they release, Mr Rowley said. 

“With weak demand there is a chance lots will remain unsold which is costly for developers and erodes any potential profits,” he said.

Smaller lots were not a result of running out of land, he said, but simply an effort by developers to squeeze more out of what they have.

“Buyers are very price sensitive so if you can shave a few thousand dollars off the price of a lot the number of buyers able to afford that lot increases and therefore so do your chances of selling,” he said.

The median lot price fell 3.1 per cent in 2015 to $252,875, but not quickly enough to ward off the rise in price per square metre.

Source: Domain - Kirsten Robb - 8 Mar 2016