"Median lot sizes have shrunk by between 14 and 32 per cent across the capital cities over the last decade," says the report's author, Angie Zigomanis.

"Developers have tried to keep headline lot prices lower in order to keep the cost of a new house competitive with the existing stock in the outer fringe suburbs, thereby encouraging demand for land," Ms Zigomanis, said.

The report said that Sydney and Perth are leading the way as demand for residential land picks up.

In Sydney and Perth, years of low new dwelling construction had resulted in a deficiency of housing.

Also, houses have become more affordable due to weakness in house and land prices and lower interest rates.

"The upturn in lot production in both Sydney and Perth is now well and truly underway," BIS Shrapnel said.

A pick-up in Brisbane should emerge over 2013/14, but demand for land in 2014 is expected to remain subdued in Melbourne and Adelaide.

BIS Shrapnel said Melbourne and Adelaide experienced the strongest residential rebound after the global financial crisis, resulting in little pressure now on the demand for new houses and land.

"The weaker markets in lot production in Melbourne and Adelaide reflect activity falling from unsustainable record levels," Mr (Mr) Zigomanis said.

Mr Zigomanis said the Sydney market is being driven by consumers seeking to upgrade their homes while first-home buyers are making a resurgence in Perth.

The Gold Coast and Sunshine Coast markets are expected to follow the lead of Brisbane, with a big part of demand being generated by population movement from Brisbane and the southern states.

BIS Shrapnel said the sustained period of low interest rates expected over 2013/14 and into 2014/15 would help boost residential demand.

Improved consumer spending and a pick-up in business investment outside of the resources sector would also boost new dwelling construction.