It’s no secret that inner-city homes are some of the most expensive around, but it’s not just the designer taps and famous architects that are pushing prices up.

It is in fact the cost of land in capital cities that’s driving the biggest price increases, and there’s no sign of this slowing, according to the latest CoreLogic trend data.

Around half the cost of an average capital city home can now be attributed to land costs, and the median home price is now 8.1% higher than it was 12 months ago.

Those choosing to live the city life are certainly paying the price for it, with the median price of an urban block now a whopping 65% higher than in regional areas. We haven’t seen such a large disparity in this pricing for 13 years.

“On a rate per square metre basis, capital city vacant land is now 231% more expensive than land outside of the capital cities which is the largest differential on record,” CoreLogic found.

People living in capital cities will be feeling the squeeze physically as well as financially, with the median land size now down to just 450sqm – a low point for vacant land – whereas the combined regional areas get access to a spacious 812sqm on average.

CoreLogic economist Cameron Kusher drew attention to the “divergence” between capital cities and regional markets being reflected in housing costs.

“On a rate per square metre, housing costs have increased across each capital city over the past year. Again Sydney and Melbourne recorded the greatest increases over the period,” he said.

“A significant driver for the cost increases has been the price to purchase land. Therefore, it’s no wonder median house prices in Sydney are hovering around $900,000 when new vacant land (most of which is on the outskirts of the city) has a median price in excess of $422,000.”

In order to reduce land costs, said Mr Kusher, we would need to increase the amount of land available for development, cut the fees and charges for land, and encourage competition among developers.

“Potentially, this would slow the escalation in housing costs, particularly in Sydney and Melbourne,” he said.

So now you know, next time you’re lamenting the cost of homes in capital cities, you can blame the very land they stand on.

Land Costs across the Australian Capitals:
Sydney: $422,000, 486sq m (up 12.5% in 12 months)
Melbourne: $255,000, 479sq m (up 13.9%)
Brisbane: $229,000, 471sq m (up 2.6%)
Adelaide: $205,000, 377sq m (up 1.5%)
Perth: $284,500, 410sq m (up 7.4%)
Hobart: $160,000, 806sq m (up 20.3%)

(Source: CoreLogic)