A fall in residential land sales augurs poorly for home building, the HIA has said.

The HIA-RP Data Residential Land Report has found the volume of land sales fell by 6% over the March quarter, and were down 43% on the same period last year. Land cost, meanwhile, increased 0.8% in the March quarter. HIA chief economist Harvey Dale said land cost was proving a barrier to development, and said residential home construction would be negatively impacted by the trend.

"The continuous and substantial decline in land sales volumes since late 2009 is a further indication that new home starts could reach one of their lowest levels seen since the mid-1990s," Dale said.

RP Data research director Tim Lawless agreed, and said the low volume of land transactions foreshadowed a poor volume of residential housing starts. Lawless lambasted the "excessive cash grab" of state and local government development costs, and said these costs had eroded affordability.