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<img src="https://counter.theconversation.edu.au/content/80196/count.gif?distributor=republish-lightbox-advanced" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
The number of Australians living in high-rise apartments doubled between 1991 and 2011 and that trend has continued since then.
The quarter-acre dream is fast disappearing and larger blocks and family gardens along with it. As more people move from country areas to the city and as land to build homes near the city centre becomes scarce, we’re getting further and further away from nature. It turns out this isn’t great for our health.
The change in urban environments because of development, associated with a rapid increase in chronic disease, is a global phenomenon in developed countries. In the past children grew up running on bare soil and grass, explored backyard farms and gardens, climbed trees and were exposed to a high level of bacteria. And the diversity of the bacteria can change if an individual is exposed to different environmental conditions.
One of these conditions is living in a high-rise apartment far away from land, soil, trees and plants. Being close to nature is linked to positive mental well-being – and people living in urban areas have been shown to have a disadvantage in processing stress. This can be at least partially attributed to increased exposure to air pollution and heat stress, and decrease in exercise and fitness through lack of access to a garden or nearby park.
The less exposure to nature we have, the less diverse the bacteria in our microbiota. The microbiota is the community of bacteria, fungi and viruses that live in our gut and on our skin. We need a diverse exposure for our body to fight inflammation effectively.
Alteration in the human bacterial communities, including the disappearance of ancient microbiotic species, is thought to cause inflammation in the body. These ancient species were known to encourage development of cells that regulate the immune system (T-cells). When our immune system stays on high alert all the time, instead of resting when no threats are present, this causes inflammation, which can lead to chronic disease.
Where plants come in
The bacteria we have are similar to those of plants in that we both carry trillions of good and bad bacteria. The diversity of the microbiota is measured by how many families of bacteria are present. We know the diverse plant microbiome influences plant growth, and humans benefit by eating plant foods. An important research question remains: do we gain another benefit simply by having contact with plants?
Plants also remove volatile compounds from the air including ozone and carbon dioxide. They turn the carbon dioxide into oxygen, meaning air quality is drastically improved. Higher oxygen levels inside a small apartment mean well-being may be improved for the occupants. Viewing plants reduces stress and is pleasing to the human eye.
Nature therapy (shinrin-yoku), first invented in Japan, has proven beneficial for our health by lowering blood pressure and boosting mental health. This is done by simply going for a mindful walk in the forest.
It has also been established that plants confer positive changes in the brain’s electrical activity, muscle tension and heart activity.
Some plants that are beneficial in the home
Peace Lily: if this plant is placed in the hallway it will reduce many toxins such as benzene, ammonia, acetone and ethyl and will prevent toxins from spreading between rooms in the apartment.
Aloe vera and Mother-in-Law’s Tongue: these plants placed in the bedroom emit oxygen, which improves sleep quality.
Gerbera daisy: if placed in the laundry these plants remove formaldehyde and benzene from the air, which are in common household detergents.
Devil’s Ivy (Golden Pothos): this plant can be placed in low light and cool temperatures such as an air-conditioned office or an outdoor garage. It will remove ozone, which is found in car exhaust fumes.
How about plants outside apartment buildings?
Outdoor plants such as trees and shrubs help to shade our buildings and streets, cooling our concrete jungles. They also help with water runoff, preventing flooding and nutrient dispersal. Suburbs with more canopy cover have a perceived higher quality of living and attract better property prices.
Outdoor plants and soil have an abundance of ecological communities compared to indoor environments, a higher diversity of microbes, and therefore increase the numbers of insects, birds and other fauna. Viewing and being among large parks and green areas has been shown to improvethe mental and physical well-being of people living in urban areas.
With backyards becoming increasingly rare, diversity is decreasing in urban areas. In response, the City of Toronto has written into local law that all new buildings must have green roofs that include vegetation, drainage, waterproofing and slope stability. The reasoning for the law was that green roofs provide:
"energy savings from better solar reflectivity, evapotranspiration and insulation, green roofs last up to twice as long as regular roofs, and green roofs can beautify and add value to Toronto’s buildings by providing scenic views and recreational areas in dense urban areas."
A similarly bold strategy here would benefit not only the health of our apartment dwellers, but also the environment.
<a href="https://theconversation.com/profiles/danica-lea-larcombe-260462" target="_blank">Danica-Lea Larcombe</a> is PhD Candidate in Biodiversity and Human Health, Edith Cowan University and author for <a href="https://theconversation.com/au" target="_blank">The Conversation</a>.
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jchancellor-FAypfDUnLy

Why apartment dwellers need indoor plants

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<img src="https://counter.theconversation.edu.au/content/81360/count.gif?distributor=republish-lightbox-advanced" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
Rod Sims, Chairman of the Australian Competition &amp; Consumers Commission (ACCC) has signalled that it is going to take a tougher stance against internet service providers like Telstra, Optus and Vocus about misleading consumers about NBN broadband speeds.
In particular, Sims has said that Telstra’s continued use of terms like “Very Fast” and “Super Fast” to describe theoretical, but often unobtainable, broadband speeds need to stop. 
The ACCC has indicated that it is likely to bring court cases before the end of the year if these practices don’t stop.
In a speech at the Unwired Revolution Conference, the ACCC talked of the findings of a review into the Australian communications sector. In particular, he drew attention to the fact that the Australian public were opting for slower speeds on the NBN mainly because ISPs were unwilling to sell faster speeds because of the high costs of the connections (CVC) provided by NBN Co. 
The pricing of wholesale connections provided by NBN Co are set in order for them to recoup money that has been invested, in large part by the Australian federal government, and so unless NBN Co directed to do something different by the government, the situation is unlikely to change. 
Part of the problem is the lack of transparency with regard to the extent of the problem of NBN customers not getting what they thought they had paid for. Many properties that are being supplied with a Fibre to the Node (FTTN) connection may never be able to get the fastest connection plan of 100 Mbps because they are too far from the node. As the chart below shows, speeds of 100 Mbps can only be achieved if the house is within 500 meters of the node.
<a href="https://www.propertyobserver.com.au/images/2017/07/21/file-20170720-23980-fdpmr7.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/07/21/file-20170720-23980-fdpmr7.png" alt="">
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FTTN speed slows with distance from the node. NBN MTM
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A map of properties in Australia highlights that 2 houses on opposite sides of a road can have very different maximum speeds because of the nodes they are connected to. Telstra has previously admitted that some customers were sold plans for speeds they would never be able to attain at their premises.
<a href="https://www.propertyobserver.com.au/images/2017/07/21/file-20170720-23983-c8g9d0.png" target="_blank">Click to enlarge</a>
<h4><img src="https://www.urban.com.au/images/2017/07/21/file-20170720-23983-c8g9d0.png" alt=""></h4>
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NBN street map showing distance from node and calculated speed. NBN MTM
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In addition to this, there are the number of connections to that node and in particular the capacity of the ISP to handle peak demand by having spare CVC capacity. There is also other factors that would affect a property’s connection including the state of the copper wiring between the node and the house.
What the ACCC wants ISPs to do is to tell customers not only what the theoretical maximum speed may be for their property using a given technology, but also what the speeds may drop to during peak demand. 
NBN Co has this data and could make it public, but it won’t because it claims that it is the responsibility of the ISPs to tell their own customers. Shadow communications minister Michelle Rowland has filed a freedom of information request for the NBN data of theoretical speeds for each property.
The ACCC is recruiting volunteers to install special hardware and software to monitor speeds and quality of internet connections at their homes. The results of a pilot trial reported in 2015 showed that the problems with peak demand and variability of internet speeds existed on pre-NBN internet services like Telstra’s HFC cable service. As the figure below highlights, even fibre to the premises (FTTP) connections from one provider varied dramatically, dropping significantly every evening.
<a href="https://www.propertyobserver.com.au/images/2017/07/21/file-20170720-23980-dpxp0o.png" target="_blank">Click to enlarge</a>
<h4><img src="https://www.urban.com.au/images/2017/07/21/file-20170720-23980-dpxp0o.png" alt=""></h4>
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Average download speed of FTTP connections. ACCC
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Whilst the data that the ACCC is collecting will be useful and will ultimately assist in highlighting ISPs that are not providing promised services, it would be far better if NBN Co provided this data publicly in the first place. 
If the politics and economics of the NBN means that consumers are going to mostly stick to slower speed plans, many of the proposed economic and social outcomes that were originally envisioned will not be realised. Whilst it may represent a slightly better situation for some people who currently have a poor connection via ADSL, it is hard to justify the AUD 20.3 billion that has been invested by the Australian government in the network so far.
<a href="https://theconversation.com/profiles/david-glance-148" target="_blank">David Glance</a> is director of UWA Centre for Software Practice, University of Western Australia and author for <a href="https://theconversation.com/au" target="_blank">The Conversation</a>.
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The ACCC threatens to take Telstra and other ISPs to court over misleading NBN speeds

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<img src="https://counter.theconversation.edu.au/content/81103/count.gif?distributor=republish-lightbox-advanced" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
A slew of official data on China’s economy were released at the start of this week. GDP growth was steady at 6.9% per annum.
Urban investment in June was an annualised 8.6% - also steady. Factory output was 7.6% and retail sales 11%.
All these figures beat expectations. Good news, if one believes the figures. It is, of course, hard to know, but markets expect these indicators to soften later this year. 
And if they remain stable it will be further evidence for the view of close observers of China, like Julian Evans-Pritchard of Capital Economics, who said:
"We have doubts over the accuracy of the official figures, which point to implausibly stable growth in recent years."
The ANZ-Roy Morgan consumer confidence index for Australia was down 0.4% this week, on the back of a 1.3% drop the previous week. Still, the overall level is relatively upbeat coming in at around the average since 1990.
<a href="https://www.propertyobserver.com.au/images/2017/07/21/Screen%20Shot%202017-07-21%20at%208.35.52%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/07/21/Screen%20Shot%202017-07-21%20at%208.35.52%20AM.png" alt="">
New Zealand CPI data shows inflation there is lower than already low expectations. Second-quater CPI was 0.0% quarter-on-quarter, compared to expectations of positive 0.2%, which put the year-on-year figure at 1.7% compared to expectations of 1.9%.
Like most advanced economies, New Zealand continues to experience puzzling-low inflation.
Australian Bureau of Statistics June employment data showed unemployment in Australia steady at 5.6%. The strong growth in full-time employment shows a robust labour market. This only deepens the puzzle of why inflation is so low at the same time.
Perhaps most interestingly, last month’s RBA minutes generated interest and surprised markets. The key part read as follows:
"Members discussed the Bank’s work estimating the neutral real interest rate for Australia. The various estimates suggested that the rate had been broadly stable until around 2007, but had since fallen by around 150 basis points to around 1%. This equated to a neutral nominal cash rate of around 3.5%, given that medium-term inflation expectations were well anchored around 2.5%, although there is significant uncertainty around this estimate."
3.5% versus the current 1.5%. Wow! The neutral rate is the steady-state RBA cash rate, it’s the the one the bank uses to judge whether their policy is contractionary (above the rate) or expansionary (below the rate). So this news sent the Australian dollar soaring to above US79 cents. 
Investors saw it as signalling a bunch of interest rate hikes down the track. Market expectations of a rate rise by the end of 2017 roughly doubled as well to 44%.
Of course, the real question is whether this is right. The RBA board’s reasoning was, the minutes continued:
"Members noted that some of this decline could be attributed to lower potential output growth, but the increase in risk aversion around the time of the global financial crisis was likely to have been a more important factor, given that the bulk of the decline in the estimated neutral real interest rate had occurred around that time. Estimates of neutral real interest rates for other economies had shown a similar decline. All estimates of the neutral real interest rate for Australia suggested that monetary policy had been clearly expansionary for the preceding five years or so."
In other words, if rates go back to where the RBA thinks the new normal will be, then current interest rates are too low.
There are reasons to be sceptical. First, if the secular stagnation theory is operative going forward then the real rate may in fact be negative (for a critical but beautifully argued perspective on this see here).
And inflation has been doggedly low, so it’s not clear that the 2.5% expectation for inflation is going to turn out to be right, however “well-anchored” it may be. So zero plus something less than 2.5, say 1.5, is well, 1.5. Right where we are now.
I’m not saying the RBA is wrong. I’m not even saying that a 3.5% equilibrium real cash rate isn’t the best point estimate. What I am saying is that there is very real uncertainty around this. And there is some non-trivial chance that 1.5 or 2% turns out to be right.
<a href="https://theconversation.com/profiles/richard-holden-118107" target="_blank">Richard Holden</a> is a Professor of Economics and PLuS Alliance Fellow at UNSW and author for <a href="https://theconversation.com/au" target="_blank">The Conversation</a>.
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The RBA’s still longing for Goldilocks growth

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<img src="https://counter.theconversation.edu.au/content/81084/count.gif?distributor=republish-lightbox-advanced" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
Household energy use is a significant contributor to global carbon emissions. International policy is firmly moving towards technology-rich, low- and near-zero-energy homes. That is, buildings designed to reduce the need for additional heating, cooling and lighting. They use efficient or renewable energy technology to reduce the remaining energy use.
But what about the experiences of people who live in homes of this standard? Are these homes comfortable, easy to operate, and affordable? Do people feel confident using so-called smart energy technology designed for low energy use? What support systems do we need to help people live in low-energy, low-carbon houses? 
We worked with other Australian and UK researchers to understand what it’s like to live in purpose-built low-energy housing. As part of this project, researchers from Sheffield Hallam University and the University of Salford in the UK visited South Australia to collect data from Lochiel Park Green Village, one of the world’s most valuable living laboratories of near-zero energy homes. 
Lochiel Park’s 103 homes were built in the mid-2000s to achieve a minimum of 7.5 energy efficiency stars. They’re purpose-built to be a comfortable temperature year-round, and are packed with a solar photovoltaic system, solar hot water, a live feedback display to show households their energy use, plus a range of water- and energy-efficient appliances and equipment. Combined, these systems reduce both annual and peak energy demand, and supply much of that energy at a net zero-carbon impact.
To reciprocate, we spent several weeks investigating similar examples of niche low-energy housing developments in the Midlands and the North of England. We listened to the stories of people living in low energy homes, who experience the difference on a daily basis, and from season to season. They help us look beyond the dollars saved or percentage of emissions reduced; for them the impact of low-energy homes is personal.
This research provides new insights into the relationship between people, energy technologies and low-carbon buildings. For example, one elderly householder told us that moving into a dry and warm low-energy home allowed their grandchildren to come and stay, completely changing their life, and the life of their family. 
Low-energy homes create a wide range of physical and mental changes. Several households spoke about health improvements from higher indoor air quality. Even the idea of living in a healthier and more environmentally sustainable home can prompt lifestyle changes – one woman in her mid-50s told us she gave up smoking after moving into her low-energy house because she felt her behaviour should match the building’s environmental design. She also shortened the length of her showers, reduced her food wastage, and lowered her transport use by visiting the supermarket less often.
Purpose-built low-energy homes also give economic empowerment to low-income households. One household told us that savings on energy bills let them afford annual family holidays, even overseas. This economic benefit matches our findings in other Australian examples.
As researchers, we might dismiss this as a macro-economic rebound effect, voiding many of the energy and environmental benefits. But to that household the result was a closer and stronger family unit, able to make the types of choices available to others in their community. The benefits in mental and physical wellbeing are real, and more important to that family than net carbon emission reductions.
Although international policy is firmly moving towards technology-rich, low-energy homes, our research shows that not all technology is user-friendly or easy to understand. For example, some households were frustrated by not knowing if their solar hot water system was efficiently using free solar energy, or just relying on gas or electric boosting. Design improvements with better user feedback will be critically important if we are to meet people’s real needs.
This research highlights the importance, in the transition to low-energy and low-carbon homes, of not forgetting the people themselves. Improving real quality of life should be the central focus of carbon-reducing housing policies.
<a href="https://theconversation.com/profiles/stephen-berry-7082" target="_blank">Stephen Berry</a> is research fellow, University of South Australia.
<a href="https://theconversation.com/profiles/david-michael-whaley-390397" target="_blank">David Michael Whaley</a> is research fellow in Sustainable Energy and Electrical Engineering, University of South Australia.
<a href="https://theconversation.com/profiles/trivess-moore-12580" target="_blank">Trivess Moore</a> is research fellow, RMIT University.
All are authors for <a href="https://theconversation.com/au" target="_blank">The Conversation</a>.
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Low-energy homes don’t just save money, they improve lives

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Peter Campbell, the Clarendon Homes founder, and wife Catherine have paid $12 million for a penthouse in The Rocks.
It ranks as the sixth most expensive apartment sold in the last financial year. It has quintessential Sydney postcard views across Campbells Cove to the Opera House and up towards the Harbour Bridge.
The Hickson Road apartment has a stellar provenance having first been owned by the late McDonald's chief Charlie Bell.
Bell spent $8,525,000 in 2003 after its refurbishment of the 1912 Metcalfe Bond building by Nettleton Tribe Architects for Tjeerd la Grouw's Amstal Property Group.
Qantas chief Geoff Dixon was another past owner though he sold it at a loss in 2014 for $7.45 million.
Set in the 1912 Metcalfe Bond building, the two level apartment has three bedroom and spans 328 sqm.
The two most expensive established apartments to sell in last financial year were both secured off market by downsizers.
The former Sydney Lord Mayor Nelson Meers and his wife Carole paid $16 million for a Point Piper whole floor apartment in the Alex Popov designed harbour front Buckhurst Avenue block.
Last traded for $11.6 million when new in 2011, the unit came with four bedrooms, three bathrooms and a temperature-controlled wine cellar.
LJ Hooker agent Bill Malouf handled the sale.
The couple had downsized from Bayview where they sold their five bedroom Tuscan style villa for $4.55 million last year.
Businessman Stephen Johns, most known for being the longtime chairman at Brambles, bought the Darling Point apartment of Silicon Valley software billionaire David Doyle.
Set in the Burley Katon Halliday block, the four bedroom penthouse comprises 456 sqm of internal space, 103 sqm of terraces and a 12 sqm rooftop garden.
It has a private gym, study, maids suite, home theatre and large terrace which takes in views of the Harbour Bridge.
Doyle, a software pioneer and backer of Neil Perry's Rockpool Bar &amp; Grill, paid $7.1 million for the lavish New Beach Road spread in 2000, a record breaking apartment sale in Sydney's eastern suburbs at the time.
Like the Meers, Johns has also downsized.
He and wife Michele Bender are waiting for a buyer for their long-held Bellevue Hill trophy Belhaven which has price hopes of between $25 million and $27 million.
The third most expensive apartment came in August last year when Rocco Lagudi and wife Frances, paid $13.5 million for a Point Piper apartment.
Aussie John Symond sold his Point Piper penthouse for $13.3 million, with a caveat lodged by Angela Teplitsky, wife of property developer Michael Teplitsky.
Ferrari Australasia chief executive Herbert Appleroth sold his harbourfront apartment in Pyrmont for more than $13 million, making it the fifth most expensive sale this financial year.
The five bedroom, four bathroom apartment amalgamation had been inspected by Hollywood star Leonardo DiCaprio in 2011 as a possible rental while he was shooting Baz Luhrmann’s The Great Gatsby. 
The top six sales of established units totalled over $80 million.
The top off the plan sales were considerably pricier, with two apartments in the new Circular Quay development the Opera Residences fetching $26 million and $27 million.
The third most expensive was a $17 million apartment in another off the plan Circular Quay development, Loftus Lane.
This article first appeared in the Daily Telegraph.
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$12 million paid for The Rocks penthouse

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GUEST OBSERVER
Changes in productivity, the stock of debt, lending margins, fiscal policy and the exchange rate impact the neutral cash rate.  
We estimate the neutral policy cash rate has moved to a record low of just 3% (2 1⁄2 - 3 1⁄2% range) which is lower than our  previous point estimate in 2014 of 3 1⁄2%.  
A record low neutral rate means that very little tightening would be required to shift monetary policy from an expansionary setting to a neutral one.
<a href="https://www.propertyobserver.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.33.03%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.33.03%20AM.png" alt="">
Overview
Over the past three months there has been a significant shift in market interest rates (chart 1). The yield curve has steepened and market pricing for another RBA rate cut has receded. Current market pricing indicates a small (15%) chance that policy is eased again. And it implies a 35% chance of a rate hike within the next 12 months.
CBA’s house view is that interest rates are on hold over 2017. And in our view, the risks over the year lie with a cut. But the steeping in the yield curve and shift in market expectations has led us to revisit our estimate of the neutral cash rate. The analysis confirms our earlier work that neutral it is much lower than in previous cycles which means that the cash rate would not need to rise by much for policy to no longer be having a stimulatory impact on the economy.
In this note we update our earlier qualitative and quantitative analysis to derive our estimate of neutral. We estimate it to be 3% (21⁄2 - 31⁄2% range) which means that the current cash rate is about 150bps in expansionary territory.
What is a neutral interest rate and why does it matter?
The level at which the RBA sets the cash rate can either have an expansionary, contractionary or neutral impact on economic activity. The neutral cash rate is the interest rate (or range of rates) consistent with full employment, trend growth1 and neither upward nor downward pressures applied on the price level through monetary policy. Or more generally, when the setting of interest rates is such as to exert neither contractionary nor expansionary forces on the economy, policy can be said to be ‘neutral’.
<a href="https://www.propertyobserver.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.34.02%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.34.02%20AM.png" alt="">
But the neutral rate it is not a constant rate. Rather it is influenced by changes in productivity, the stock of debt, lending margins, fiscal policy and the exchange rate. A chronology of neutral policy settings according to the RBA is shown in Table 1. These drivers have moved in a way over the recent past that indicates the current neutral cash rate is probably at a record low.
The neutral rate is an important benchmark rate for evaluating the stance of monetary policy. It allows us to determine how expansionary or contractionary a particular policy setting is at any point in time. One rule of thumb often used is comparing the level of the cash rate to a historic average cash rate to assess how accommodative or restrictive policy settings are. But that can be misleading because the neutral rate is fluid and varies over time. When we compare current policy setting to the neutral rate they do not look as expansionary as implied by comparing the current cash rate to the historic cash rate average. 
A qualitative discussion: 
Over the past thirty years the RBA’s policy rate has trended lower (chart 2). The neutral rate has also moved lower. In this section we present qualitative arguments as to why the neutral rate looks to have fallen to a record low. The five factors we cover here are (i) productivity growth, (ii) the debt to income ratio, (iii) lending spreads; (iv) fiscal policy; and (v) the exchange rate. 
<a href="https://www.propertyobserver.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.35.10%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.35.10%20AM.png" alt="">
(i) Productivity growth is soft
During the 1990s, economic growth in Australia was powered by a significant lift in productivity. A number of key economic reforms undertaken in the late 1980s and 1990s enhanced the productive capacity of the economy and as a result, both growth and real incomes improved. The good times for Australian incomes continued after the turn of the century. But that was largely because of an income boost from a big lift in the terms of trade which concealed the fact that productivity growth had stepped down. Put another way, rising commodity prices masked the slowdown in productivity growth which kept interest rates higher than they would be otherwise.
But since the terms of trade turned down in 2012 (notwithstanding the recent bounce), soft productivity growth has become illuminated because real per capita incomes have fallen. Multi-factor productivity, which is the broadest measure of productivity growth, has been soft over that period (chart 3). It has lifted a little recently, but that is largely because the mining boom has transitioned from the from the labour intensive investment phase to the production phase. Outside of the resources sector productivity growth is poor.
Weak productivity growth lowers potential growth in output per capita which ultimately lowers the neutral cash rate. A lower neutral cash rate results because a fall in productivity growth lowers the return on capital and labour, meaning that it is less desirable to invest and employ. And if the desire to invest is lowered while the desire to save is unchanged or higher then a lower interest rate is required to balance savings and investment plans.
Here we note that Australia is not alone in having weak productivity growth. Most advanced economies around the world are also suffering from soft productivity growth and potential growth has fallen (chart 4). As a result, the neutral rate of most advanced economics is lower now than in previous decades. 
<a href="https://www.propertyobserver.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.36.04%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.36.04%20AM.png" alt="">
(ii) Debt to income ratios at record highs. 
Australia’s stock of debt has been rising over the past year at a modest pace by historic standards (5.6% through the year to December 2016). But given weak income growth, the stock of debt has been growing faster than nominal GDP 1.0 which means overall leverage in the economy has been rising (chart 5). The increase in leverage has been mainly driven by the household sector. And the debt has been going into bricks and mortar.
2016
The increase in the stock of debt relative to income means that the household debt-to-income ratio is rising (chart 6). It is currently at a record high and puts Australia in the top tier of household indebtedness globally. As the RBA noted in its October Financial Stability Review, “household indebtedness continues to drift up and, with incomes growing more slowly than in the previous decade, households may not be able to rely on income growth to make their debt easier to service.”
<a href="https://www.propertyobserver.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.36.58%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.36.58%20AM.png" alt="">
The increase in the stock of debt relative to income means that debt burdens have risen. This puts downward pressure on the neutral interest rate. The policy rate required to keep interest payments constant as a share of income must fall if debt is growing faster than income. As a result, the neutral rate falls when debt is rising relative to income, all other things equal. 
(iii) Lending spreads 
Lending rates are interest rates that are faced by households and businesses. It is where “the rubber hits the road”. They are the rates that have the biggest influence on the economy and they are impacted by bank funding costs which are a function of both the RBA cash rate and conditions in financial markets. Prior to mid-2007, spreads between bank funding costs and the RBA cash rate were low and stable. With hindsight there was insufficient pricing of risk. As a result of the financial crisis and repricing of risk, spreads between bank funding costs and the RBA cash rate lifted which means that the spread between lending rates and the policy rate also rose.
After an initial levels adjustment higher as a result of the GFC, the spread between lending rates and the RBA policy rate has continued to inch a little higher (chart 7). This reflects changes in funding costs and the additional cost of capital banks are required to hold against home lending.
<a href="https://www.propertyobserver.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.38.00%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.38.00%20AM.png" alt="">
A higher spread between the cash rate and lending rates means that a lower cash rate is required to produce a given level of lending rates than in the past. The neutral cash rate is lower as a result.
(iv) Fiscal Policy
The stance of fiscal policy impacts on the economy. Expansionary fiscal policy acts like an accelerator on the economy and pushes up the rate of interest required to prevent the economy moving beyond full employment, other things being equal. Conversely, contractionary fiscal policy, or fiscal consolidation, acts as a brake on the economy. Under fiscal policy that is contractionary, the interest rate that is required to keep the economy growing at trend is lowered, other things equal.
Fiscal slippage has been a persistent theme in recent years and progress in repairing the budget has been elongated. This has meant that fiscal policy has had a negligible impact on the neutral cash rate. But fiscal consolidation remains a priority of both major political parties (chart 8). The change in the budget balance is an approximate guide to the fiscal impact on the economy. And on that score, the 2016/17 Budget “takes out” 0.4%pa of GDP on average over the next four years. Fiscal consolidation will act as a headwind on the economy if these plans come to fruition and as a result it will put downward pressure on the neutral interest rate.
7.
(v) Exchange rate
Financial conditions are also affected by the currency. Overall monetary conditions are determined by interest rates and the exchange rate. The higher the currency, the more restrictive monetary conditions are and vice versa. We have replicated the RBA’s fair value model whose inputs are based on the traditional drivers of the currency - interest rate differentials, export commodity prices and the current account (chart 9).
<a href="https://www.propertyobserver.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.39.12%20AM.png" target="_blank"> Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.39.12%20AM.png" alt="">
The model suggests that the AUD continues to trade a little above what looks like fair value, though the differential is not material. Notwithstanding, it does suggest that the level of the exchange rate is exerting some soft downward pressure on the neutral interest rate relative to where it would be if the AUD was trading at fair value.
A quantitative analysis
In this section we run three models to derive our estimate of the neutral interest rate: (i) Mankiw; (ii) RBNZ yield curve; and (iii) Critical debt service level (CDSL). 
Mankiw Rule 
The Taylor Rule is the general term for a rule that sets a monetary policy rate (the RBA cash rate in this case) as a linear function of an inflation rate and a measure of economic slack. The Mankiw Rule is a variation of the Taylor Rule that uses the unemployment rate as a measure of economic slack. Using the CPI and the unemployment rate to model the RBA cash rate is logical because the RBA’s mandate is price stability and full employment.
Here we estimate a relationship between the RBA cash rate and the Mankiw Indicator (defined as the annual change in core CPI inflation minus the unemployment rate). It says that the cash rate is a linear function of CPI inflation minus the unemployment rate.
The red line in the chart opposite plots the derived Mankiw Rule cash rate against the RBA’s cash rate over the last ten years (the green line plots the derived Mankiw Rule cash rate over the last five years). The green line is below the red line meaning that neutral is now lower (chart 10).
Based on the observed relationship between core inflation, the unemployment rate and the cash rate over the past five years we could expect to have an interest rate of around 23⁄4 - 31⁄4% if the economy was operating at full employment and inflation was within the RBA’s target band. The current cash rate of 11⁄2% therefore implies that the RBA is pushing monetary policy some 150bps into expansionary territory from neutral on this measure. 
RBNZ yield curve model
The RBNZ developed a method of estimating neutral based on the slope of the yield curve. The idea is that over the business cycle monetary policy settings must be neutral if inflation is stable.
The divergence of the yield curve slope from “normal” is an indication of whether monetary policy is contractionary or not. In this approach “normal” is defined as the difference between the 90-day rate and the 10-year rate over a period. That difference is the term premium or average yield curve slope. The neutral rate can be calculated by subtracting the average yield curve slope over the period from the 10-year rate.
<a href="https://www.propertyobserver.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.40.16%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.40.16%20AM.png" alt="">
Taking this approach and applying it to the Australian yield curve indicates a neutral real rate of 3⁄4%. Or 3 1⁄4% in nominal terms with a range of 2 3⁄4% to 3 3⁄4% (chart 12).
Critical debt service model
The imbalances associated with rapid growth in debt and asset prices are a recurring theme in the policy debate. Organisations such as the Bank for International Settlements have attempted to develop indicators of financial stress. The same approach can be used with debt servicing.
The idea is that there is a certain critical debt service level over and above normal where the resultant “stress” has a significant impact on consumer spending. That critical level can be determined by benchmarking deviations in debt servicing against deviations in consumer spending growth.
The approach is quite neat because once the critical debt service ratio is known, it is possible to work out what cash rate you need to get there. One description of neutral is the rate at which interest rates are neither stimulating nor weighing on economic activity. So the implied cash rate in these calculations should be an approximation for neutral.
The model suggests that the current critical level would be breached with an RBA cash rate of around 2 3⁄4% (chart 13). Adjusting for the change in lending spreads
means the critical rate would be breached at a cash rate of 1 1⁄2%. In other words, any tightening from here would have a significant negative impact on consumer spending. The rate is at a record low because the stock of household debt is at a record high relative to income. Policy easing over recent years has not resulted in the stock of debt falling as a share of income even though rate cuts make debt repayment easier. Instead, rate cuts have contributed to a lift in borrowing because debt looks cheaper. Dwelling prices have risen as a result.
<a href="https://www.propertyobserver.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.41.24%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.41.24%20AM.png" alt="">
Summary and policy implications
A range of estimates and theoretical arguments suggest that the neutral cash rate has moved to a record low. Our qualitative and quantitative analysis points to a neutral range of 2 1⁄2%-3 1⁄2% meaning a point estimate of 3%.
The analysis suggests that the RBA is faced with a relatively easy task if it needs to put the brakes on the economy at some point further down the road. It wouldn’t take a lot of tightening in policy to restore monetary policy to a neutral setting.
The flip side is that it becomes harder for the RBA to stimulate the economy as the neutral rate falls and we approach the lower bound. The limitations of monetary policy to stimulate growth become more apparent when the neutral rate falls towards the lower bound. The need for meaningful fiscal policy reform grows as a result. We don’t see the RBA tightening over 2017. And in our view the risks like with further easing. Calls for fiscal policy reform in addition to higher levels of public investment will continue. 
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Gareth Aird is economist at Commonwealth Bank and can be contacted <a href="https://www.propertyobserver.com.au/https://au.linkedin.com/pub/gareth-aird/14/790/905">here</a>.
 
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 Interest rates on hold over 2017: Gareth Aird

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The latest Census data shows mortgage stress has eased, but of course even a small interest rate rise will send many households, and even the economy, back onto struggle street.
The national research by the Grattan Institute showed highly indebted households were clustered on the fringes of capital cities rather than in the wealthiest suburbs of the inner ring.
Sydney suburbs under mortgage stress included Preston, Hoxton Park, Carnes Hill, West Hoxton, Middleton Grange, Hinchinbrook and Chullora.
The suburbs deemed as not under mortgage stress included North Bondi, Tamarama, Bronte, Double Bay, Bellevue Hill, Sydney, Haymarket, The Rocks, Balmain, Newtown, Camperdown and Darlington.
Mortgage stress was defined as spending 30 per cent or more of household income on home loan repayments.
"In 2011, about 10 per cent of households had mortgage stress. Today it's only 7 per cent," Grattan Institute chief executive John Daley said.
"What the census data shows is that the areas of high stress are a little further out from the metropolitan areas in 2016 than in 2011 because new housing estates are further out," Mr Daley noted.
Although the outer ring house prices are cheaper, incomes are likely lower and loan-to-value ratios are higher because more people have actually only just purchased a property.
Our overall low interest rates have made it easier for most households to meet mortgage repayments.
"If interest rates went up 2 percentage points, which is possible, stress levels would be the highest on record apart from the squeeze in 1989, which scarred a generation of home-owners," John Daley said. 
The Reserve Bank of Australia's recent data on household debt show it stood at 190 per cent of annualised disposable incomes confirming Australia has one of the world's highest private debt burdens.
Treasurer Scott Morrison has acknowledged this private debt load.
It was a reason the government supported moves by the Australian Prudential Regulation Authority and Reserve Bank's to further crackdown on interest-only lending especially for home buyers. 
The regulatory response has helped slow price growth in Sydney which was rising at an annual pace of almost 20 per cent in late 2016. It is now down to 12 percent annual growth according to CoreLogic.
The systemic risk of people not being able to repay their home loans appears small. 
In fact the proportion of people who have very high exposure to a fall in house prices – with loan to valuation ratios above 90 percent – has been in decline. 
The basic picture is one of prudent households, rather than a community of people gambling on house price rises, Rodney Maddock, Adjunct Professor of Economics, Monash University said recently.
None of this is to deny that house prices can fall, and that interest rates will rise, but somehow most of us will find a way to endure any challenging landscape.
This article first appeared in the Daily Telegraph.
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Mortgage stress eases in the city but future rate rises will impact the fringe households

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<div class="column">Reserve Bank Board minutes: The minutes from the July 4 Board meeting shows the Reserve Bank weighing up a raft of factors including the strength in the labour market, likelihood of higher wages, the level of household debt, and even the estimate of neutral interest rates for the economy.</div>
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<div class="column">Consumer confidence eases: The weekly ANZ/Roy Morgan consumer confidence rating eased from 113 to 112.5 in the week to July 16. Confidence is down 2.1 per cent over the year.</div>
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New vehicle sales: The Bureau of Statistics (ABS) reported that new vehicle sales rose by 1.2 per cent in June – the fourth consecutive gain. Annual sales of SUVs and “other vehicles”, like utes, are at record highs.
The Reserve Bank Board minutes provides guidance on interest rate settings. Consumer confidence data is important for retailers. The residential property price data is important for housing-dependent businesses. The car sales data provide perspectives on consumer spending as well as the auto sector of the sharemarket.
What does it all mean?
The Reserve Bank Board remains cautiously optimistic. In fact it could be argued that the latest minutes were certainly more optimistic than in prior months. Although it is unlikely to result in any change to interest rate setting any time soon. Board members considered all manner of factors at the July meeting with particular focus on the housing and job markets. </div>
<div class="column">Interestingly policymakers judged that the “that the strength of recent labour market data had removed some of the downside risk” to wage growth forecasts. While Reserve Bank liaisons “suggested conditions in the retail sector had improved”. And when it came to the APRA enforced prudential supervision measures it was too early to see the full impact.  </div>
<div class="column">The commentary on the Australian dollar was rather bland but since the meeting, the Australian dollar has lifted by almost 5 per cent and is now holding closer to US79 cents. It is more likely that policymakers will discuss concerns about the currency in coming months. The Reserve Bank has provided a bit more colour on the neutral cash rate for the economy – estimating it to be around 3.5 per cent. And if this is the case clearly monetary policy remains very expansionary.
<a href="https://www.propertyobserver.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%208.12.48%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%208.12.48%20AM.png" alt="">
What do the figures show?
Reserve Bank Board minutes:
Last paragraph: “Members regarded the improvement in the world economy over the preceding months as a welcome development. Nevertheless, they assessed that current economic conditions in Australia, and the outlook for growth and inflation, meant that developments in the labour and housing markets continued to warrant careful monitoring. Taking into account all the available information, the Board judged that holding the accommodative stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.” 
“Members discussed the Bank’s work estimating the neutral real interest rate for Australia. The various estimates suggested that the rate had been broadly stable until around 2007, but had since fallen by around 150 basis points to around 1 per cent. This equated to a neutral nominal cash rate of around 31⁄2 per cent, given that medium-term inflation expectations were well anchored around 21⁄2 per cent, although there is significant uncertainty around this estimate.” </div>
<div class="column">“There had been further signs that investment was increasing and labour markets had tightened further in many advanced economies. This was expected to lead to a pick-up in growth in wages and prices over time.”</div>
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 “The recent improvement in labour market data had been a positive development. Members noted that the strength of recent labour market data had removed some of the downside risk in the Bank’s forecast of wage growth.”</div>
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 “Members recognised that it was too early for the prudential supervision measures announced by the Australian Prudential Regulation Authority, which were designed to help address the risks associated with high and rising levels of indebtedness, to have had their full effect.” “Members noted that the recent pick-up in growth in employment should also support a pick-up in household income growth, and therefore consumption growth, in the period ahead.”
Consumer sentiment
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The weekly ANZ/Roy Morgan consumer confidence rating eased from 113 to 112.5 in the week to July 16.
Confidence is down 2.1 per cent over the year and below the average of 113.2 since 2014.
Three of the five components of the index fell in the latest week:
<ul>
<li> The estimate of family finances compared with a year ago was down from +5 to +3;  The estimate of family finances over the next year was up from +21 to +26;</li>
<li> Economic conditions over the next 12 months was unchanged at -6;</li>
<li> Economic conditions over the next 5 years was down from +4 to +2;</li>
<li> The measure of whether it was a good time to buy a major household item was down from +41 to +38.</li>
</ul>
New vehicle sales
According to the Australian Bureau of Statistics (ABS), new vehicle sales rose by 1.2 per cent in June – the fourth consecutive gain. Passenger car sales fell by 1.4 per cent but sales of sports utility vehicles rose by 4.4 per cent. And sales of “other” vehicles (includes utilities, panel vans, cab chassis, goods carrying vans, rigid trucks, prime movers, non-freight carrying trucks, and buses) rose by 0.3 per cent.</div>
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 New vehicle sales are up by 3.6 per cent over the year. Passenger car sales are down by 7.4 per cent, while SUVs sales are up 12.3 per cent and “other vehicles” are up by 10.7 per cent.</div>
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<div class="column">In rolling annual terms, 1,179,545 new vehicles were sold over the year to June. Sales of SUVs (452,122) hit fresh record highs in annual terms, while annual sales of “other” vehicles also stood at record highs of 258,048. Sales of passenger vehicles fell to a 22-year low to 469,375 in the year to June. Across states and territories in June: NSW (down 0.1 per cent); Victoria (up 2.6 per cent); Queensland (up 3.1 per cent); South Australia (down 1 per cent); Western Australia (down 0.4 per cent); Tasmania (down 0.4 per cent); Northern Territory (up 7 per cent); ACT (up 6 per cent).
What is the importance of the economic data?
The Reserve Bank releases minutes of its monthly Board meeting a fortnight after the event. The minutes give a guide to Reserve Bank thinking on interest rate settings.
The Australian Bureau of Statistics (ABS) provides quarterly data on residential prices. The figures provide further perspectives on the state of the housing purchase sector.
The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.
What are the implications for interest rates and investors?
CommSec expects the Reserve Bank to remain on the interest rate sidelines for an extended period. </div>
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Savanth Sebastian is an economist for <a href="https://www.commsec.com.au/" target="_blank">CommSec</a>
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Reserve Bank Board remains cautiously optimistic: Savanth Sebastian

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GUEST OBSERVER
Owners or tenants of Victorian warehouse space should review their lease details after a recent decision by the Supreme Court of Victoria was subsequently upheld by the Court of Appeal.
If a tenant supplies goods or services which are then used in something else that is sold to the public, the lease may be governed by the Retail Leases Act 2003.
A recent case saw a warehouse tenant that provided cold storage and logistics services to other businesses in a dispute with the landlord over the nature of the lease and whether it was classed as ‘retail’.
In this case, CB Cold Storage Pty Ltd v IMCC Group Pty Ltd, a warehouse tenant provided cold storage and logistics services to other businesses from the leased premises. 
The permitted use of the premises under the lease was ‘Cold and cool storage warehouse and transport facility’.  
The Victorian Civil and Administrative Tribunal held that the lease was not retail as the tenant’s business did not provide goods or services to the ‘ultimate consumer,’ a person who uses goods or services to satisfy personal needs.
The tenant disagreed with this interpretation and appealed to the Supreme Court of Victoria.
The court found, on 7 February 2017, that the ‘ultimate consumer’ test was valid, but the ultimate consumer could be a person or company that uses those goods or services to produce something else for a business purpose.
For example, if a warehouse is used to supply car parts for an automobile manufacturer, then that warehouse tenant is supplying something to be used in the production of a car, and therefore the lease likely to be covered by the Retail Leases Act.
However, the tenancy would not be covered by the Act if the warehouse was used to supply car parts to a shop who then on sold them to the public, as the shop they were supplying was not using them, merely reselling.
There are some exceptions to this, such as if a tenant is a listed company or its subsidiary. 
If the lease does not permit the use of the premises for retail purposes, a breach of lease may be present, but that does not affect the retail nature of the lease.
The landlord appealed the February decision to the Court of Appeal, which dismissed it on 5 July 2017, noting the following features combined led to the finding that the ultimate consumer test had been satisfied and that the lease was a retail lease:
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<li>Services were used by the Tenant's customers who paid a fee</li>
<li>Any person could purchase the services if the fee was paid</li>
<li>The Tenant's business was open during normal business hours</li>
<li>The Tenant's customers did not pass on the services to anyone else</li>
</ul>
What does this mean?
<ul>
<li>Tenants may not be charged land tax. They may also be able to recover tax from the landlord retrospectively.</li>
<li>Generally, the term of the lease must be for at least five years.</li>
<li>A rent review clause may not include a “ratchet” which stops the rent falling due to market conditions. Any extra rent paid due to a ratchet clause may be recoverable from the landlord.</li>
<li>The landlord is obligated to provide a detailed “Disclosure Statement” to the tenant. Non-provision or inaccurate information may result in the tenant having the right to withhold rent or to terminate the lease. </li>
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Tim Kelly is a partner at Rigby Cooke Lawyers and has more than 35 years of legal experience. He can be contacted <a href="https://www.rigbycooke.com.au" target="_blank">here</a>.
 
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Could your warehouse lease now be a retail lease?

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Canada has started; the US has been on the path for some time; the ECB's tone has shifted and so has that of Norway and Sweden. Australia? Soon, but not yet.
In our view, the key two factors that forced the RBA to cut to a very low, 1.50 percent, cash rate setting are now both receding.
First, was the massive resources cycle, with very low rates needed to rebalance growth to the non-mining sectors as mining investment and commodity prices fell.
Second, extraordinarily low global interest rates meant that a low cash rate was needed to keep the AUD down, again, to rebalance growth. Now, with the mining downturn around its trough and global rates rising, Australia may not need a record low cash rate for much longer. But, unlike with the other central banks, don't expect forward guidance from the RBA. You've got to watch the data. We expect a hike in Q1 2018.
The global economy is currently experiencing its most synchronised upswing in a number of years. The US, which has been leading the recovery, is continuing to show positive growth momentum. European activity indicators have had a run of upside surprises. Global trade has been lifting, supporting growth in Asia. Notwithstanding still benign inflation pressures in most countries, a number of central banks have turned less dovish recently, as a result of lifting economic activity and tightening labour markets.
Some are lifting rates, others suggesting cuts are now unlikely and still others, hinting that they may slow asset purchase programmes.
For Australia, this episode has been a bit unusual. Australia's central bank is often one of the first to start lifting rates in global upswings. But there are a few differences this time around.
First, commodity prices have not been lifting. This may reflect that the recent lift in global activity indicators has been most significant in the developed economies, with most of the upside surprises in Europe, so there has been less upward momentum in metals prices than if China's investment was leading the way. Developed world growth tends to be less commodity-intensive than China's growth.
The lift in global trade has also allowed China scope to tighten local financial conditions, to help deal with some of its own imbalances, again, softening growth in housing and infrastructure investment.
Second, local wages growth and underlying inflation are low, although we expect that both are at or past their troughs. We see the slowdown in wages growth as partly the result of the long, drawn out, downturn in the mining industry, as high paid mining jobs were lost and replaced by lower paid services jobs.
Wages growth has been showing some signs of stabilising and we expect growth to edged higher in H2 2017. As a result, underlying inflation is below the RBA's 2-3% target band, although it looks to be past its trough. The RBA will need to be convinced that wages growth is past its trough to start hiking.
<a href="https://www.propertyobserver.com.au/images/2017/07/18/Screen%20Shot%202017-07-18%20at%208.06.25%20AM.png" target="_blank">Click to enlarge</a>
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Third, there have been some measurement challenges recently, which have made it harder to get a clear view of the economic momentum. Q1 GDP growth, which ran at a below trend rate of 1.7% y-o-y, was held back by wet weather on the East Coast and the impact of Cyclone Debbie. Measures that are better at abstracting from the weather-related effects, such as surveyed business 
conditions, are at around decade-highs, implying much stronger growth (Chart 1). Measurement issues in the labour force survey have also meant that momentum may have been understated. However, the official labour force numbers for the past three months have started to come back into line with other timely labour market surveys (Chart 2).
Our overall view is grounded in the idea that the biggest factor driving the RBA to cut all the way to 1.50% had been the massive cycle in the resources sector, and that this is now over. The boom and downturn was at least three times larger than anything Australia had previously seen. In addition, global interest rates have also been at historical lows, which has impacted local policy through the currency.
With the mining downturn now stabilising and global rates lifting, we doubt the RBA will need its very accommodative setting for much longer. Besides, the low cash rate is also causing unwanted exuberance in the Sydney and Melbourne housing markets (auction clearance rates are still around 70% in both markets).
Nonetheless, the market seems reluctant to price in RBA hikes over the next 12 months. The market is currently pricing that the RBA is unlikely to lift its cash rate until mid-to-late2018, with OIS 50:50 priced for a 25bp hike by May 2018. This may partly reflect some of the issues with commodity prices and local measurement issues that we have raised above. It could also reflect that markets have become used to central banks, including the ones we discussed above, providing forward guidance before they take action. Keep in mind, the RBA does not do this. 
<a href="https://www.about.hsbc.com.au/hsbc-in-australia/management-team" target="_blank">PAUL BLOXHAM</a> IS CHIEF ECONOMIST (AUSTRALIA AND NEW ZEALAND) FOR HSBC. 
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Interest rate hikes are expected... but not quite yet: Paul Bloxham

One of North Sydney's best-known commercial buildings could become hundreds of new homes, with insurance giant Zurich Australia lodging a State Significant Development Application (SSDA) to transform 5 Blue Street into a mixed-use residential development above North Sydney Station.

Rather than demolishing the existing building and starting again, Zurich is proposing an adaptive reuse project that would convert the landmark office building into a 15-level residential development delivering 62 apartments, 86 affordable co-living dwellings, activated retail and significant upgrades to the Blue Street Plaza.

The proposal reflects a growing trend of commercial property owners repositioning ageing office assets into residential housing as Sydney grapples with housing supply shortages and changing workplace demand.

<img alt="Zurich" data-entity-type="file" data-entity-uuid="0bba7d12-06dc-4375-aad7-238c94b21ac5" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-22%20at%2010.42.05%E2%80%AFAM.png?VersionId=NJl5oLAEBDGuPmY3RnyliKODjMc8lvRh" />

Located directly above North Sydney Metro and train station, the 3,051 sqm site occupies one of the most strategically positioned parcels of land on Sydney's Lower North Shore.

Designed by fjcstudio, the proposal seeks to retain and adapt much of the existing structure while creating a contemporary residential address that better connects with the public domain surrounding North Sydney Station.

The application proposes two basement levels, ground floor retail, affordable co-living accommodation across the podium levels, and apartments above, while preserving and enhancing the publicly accessible Blue Street Plaza.

Rather than pursuing maximum apartment numbers, Zurich has opted for a housing mix heavily weighted towards larger owner-occupier residences.

The proposal includes 62 build-to-sell apartments comprising 12 one-bedroom, 19 two-bedroom, 29 three-bedroom apartments and two premium penthouses. It also incorporates 86 affordable co-living dwellings, which would be managed in perpetuity by a Community Housing Provider.

That balance between traditional apartments and affordable housing reflects the NSW Government's push to increase housing diversity around major transport infrastructure.

The proposal has been lodged concurrently with a rezoning application, with Zurich arguing the site is ideally positioned to support additional housing given its immediate proximity to public transport, employment and services.

"The proposal aims to respond to the housing challenges facing Sydney through the delivery of diverse housing types in a highly accessible location," the design report by fjcstudio states. It also seeks to improve pedestrian amenity through upgrades to Blue Street Plaza while creating a high-performing residential building that responds to the surrounding context.

<img alt="Zurich" data-entity-type="file" data-entity-uuid="36082e15-c636-4481-bb68-5a5f6443fe39" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-22%20at%2010.41.36%E2%80%AFAM.png?VersionId=5P6VD.fvmqjQfIG3TWWMRXxQWiQBjeFB" />

Rather than replacing the commercial building, fjcstudio has developed a design that works with the existing structural framework above the rail corridor, an approach that significantly reduces demolition while allowing the site to be repositioned as a mixed-use residential precinct.

The existing structural constraints have informed much of the building's design, including its relationship with Blue Street and surrounding public spaces.

The building has been designed as a slender tower rising above a clearly defined podium, with vertically expressed façades intended to reduce the perceived bulk while reinforcing North Sydney's emerging skyline.

According to fjcstudio, the architectural language responds directly to the surrounding commercial towers while maintaining a finer grain expression more closely aligned with the neighbouring Lavender Bay streetscape.

The tower incorporates articulated façade elements, landscaped podium edges and recessed upper levels to soften its appearance and improve pedestrian amenity below.

A significant component of the proposal is the revitalisation of Blue Street Plaza.

The existing public space has long served as one of the primary pedestrian connections between North Sydney Station, Greenwood Plaza and Blue Street, yet its role is expected to become even more important following the opening of Sydney Metro.

Zurich's proposal seeks to strengthen that role by improving landscaping, introducing new retail frontages, enhancing pedestrian permeability and creating more active edges throughout the day and evening.

Ground floor retail would wrap the plaza, while separate residential and co-living entries have been designed to improve wayfinding without reducing street activation.

Landscape design has been integrated throughout the podium and public realm, softening what is currently one of the most heavily urbanised parts of North Sydney.

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fjcstudio has carefully oriented apartments towards Sydney Harbour and the CBD while using privacy blades and articulated façades to minimise overlooking between neighbouring buildings.

Large framed openings along the western elevation maximise harbour outlooks, while the eastern apartments have been angled towards the south-east to improve privacy from neighbouring development.

The project forms part of the continuing transformation of North Sydney from a predominantly commercial CBD into a genuine mixed-use city centre.

Since the completion of Victoria Cross Metro Station, developers have increasingly shifted their attention towards residential projects capable of leveraging the area's unparalleled transport connectivity.

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FiveX recently lodged plans for a 61-storey, 490-apartment tower that would become one of the tallest residential buildings in North Sydney if approved.

Aqualand continues to expand its Lower North Shore presence following the completion of AURA on Walker Street and its recent St Leonards and Roseville proposals.

Developers are also progressing projects throughout Walker Street, Miller Street and the Victoria Cross precinct as demand for well-located owner-occupier apartments continues to strengthen.

Joel Robinson

First look: Zurich targets North Sydney office conversion with 148-unit proposal above Metro station

Busy developer Aqualand Prestige has formally taken the next step in its expansion across Sydney's Lower North Shore, lodging a State Significant Development Application (SSDA) for its long-held Archer Street site in Chatswood.

The application covers <a href="https://www.apartments.com.au/new-apartments/51-55-archer-street-chatswood-nsw-2067">51-55 Archer Street</a>, a 1,767 sqm amalgamated site on the eastern edge of the Chatswood CBD, where the developer is seeking approval for a 45-level mixed-use tower delivering 114 apartments, including a significant affordable housing component, alongside retail, commercial space and six basement levels of parking.

The SSDA marks the latest milestone for a project Aqualand has been quietly progressing over the past two years. The developer first secured the site for its Aqualand Prestige platform before undertaking an alternative design excellence process with PTW Architects, ultimately avoiding a formal design competition through the Housing Delivery Authority pathway.

The proposal has evolved considerably from Aqualand's original concept. The revised scheme has been designed around larger owner-occupier product, with an unusually high proportion of three and four-bedroom apartments, targeting the more affluent buyer profile, and downsizer, emerging across the North Shore.

<img alt="Archer St" data-entity-type="file" data-entity-uuid="0171204c-5811-41b5-9b09-2335d1b7c3d0" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-22%20at%208.52.48%E2%80%AFAM.png?VersionId=6YTuxfq.puZo7k2wbfgemcO5K3QfXYGQ" />

The 114-apartment mix comprises six studios, 27 one-bedroom apartments, 18 two-bedroom apartments, 50 three-bedroom residences and 13 four-bedroom homes. A quarter of the building will be dedicated to affordable housing, well above the mandated 15 per cent&nbsp;

PTW has structured the building vertically, with affordable housing across levels one to six, premium apartments through levels seven to 31, duplex skyhomes on klevels 32 to 43, a penthouse on level 44, and a rooftop plant level above. Six basement levels will provide resident parking and servicing.

The tower is proposed to reach approximately 154 metres, placing it among a growing collection of residential high-rises transforming Chatswood's skyline.

Rather than competing purely on height, PTW says the design has been driven by creating a slimmer tower capable of delivering significantly larger apartments.

"The primary objective of this project was to create a distinctive building that stands out from the recently approved or built structures in the Chatswood area," the design report states, noting the structural efficiency allows greater investment into apartment quality and resident amenity.

Residents would have access to more than 450 sqm of communal open space including landscaped gardens, swimming pool, rooftop entertaining areas, fitness spaces, community gardens, children's play areas and barbecue facilities.

A major focus of the design has been the public domain.

The ground plane has been opened up through landscaped terraces inspired by Willoughby's sandstone ridges, with native planting, public seating, artwork, retail activation and a series of gathering spaces intended to soften what has traditionally been a hard commercial streetscape.

The landscape strategy references Blue Gum forests once common throughout the area, while incorporating Indigenous storytelling, public art and lighting installations to strengthen the connection to Country.

Chatswood has been one of Sydney's busiest apartment markets over the past 12 months, with a steady pipeline of both new project launches and fresh development applications.

Hyecorp recently launched Celine, a 122-apartment development just along Archer Street, while Changfa and Huirong Group are progressing The Anderson, an 84-apartment project on Anderson Street.

Develotek recently secured approval for a 101-apartment tower on Pacific Highway, while Tian An LFD received the green light for Hammond Greens, its apartment development on the edge of the Chatswood Bowling Club.

Commercial property developer FiveX is also making its move into the residential market. Last month it lodged plans for a 61-storey tower with 490 apartments, which, if approved, would become one of the tallest residential buildings in Chatswood.

Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-fivex-targets-chatswood-skyline-with-61-storey-tower-after-north-sydney-plans">First look: FiveX targets Chatswood skyline with 61-storey tower after North Sydney plans</a>

Aqualand is also expanding its development pipeline following the launch of its luxury residential brand, Aqualand Prestige. The developer has delivered a string of high-end apartment projects across Sydney's affluent suburbs over the past decade, most recently AURA by Aqualand on Walker Street in North Sydney.

[smartcode_project:default project_id=30959 project_image_fid=292863]

It has since quietly assembled its next wave of projects.

Earlier this year Aqualand launched Boronia in Roseville, a boutique 111-apartment development on Larkin Street. The project is one of the first significant apartment developments to launch in the suburb ahead of what is expected to become one of Sydney's most active new housing precincts under the NSW Government's Low and Mid-Rise Housing reforms, which allow greater density around train stations.

[smartcode_project:default project_id=152095 project_image_fid=373685]

The developer has also lodged plans for a two-tower, 413-apartment development on Herbert Street in nearby St Leonards, further strengthening its presence across the Lower North Shore.

Beyond that, Aqualand remains behind the final stage of Barangaroo, where plans will deliver a five-hectare mixed-use precinct comprising new homes, retail, hospitality and community facilities, alongside a new Metro entrance and more than two hectares of public open space, completing the Barangaroo precinct.

Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/central-barangaroo-development-takes-big-step-with-concept-proposal-approval">Central Barangaroo development takes big step with concept proposal approval</a>

Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-aqualand-joins-st-leonards-apartment-party">First look: Aqualand joins St Leonards apartment party</a> 
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First look: Aqualand pushes ahead with Chatswood apartment tower as SSDA lodged for Archer Street

Mass timber is becoming an increasingly popular construction material in apartment developments, but Adelaide developer <a href="https://www.apartments.com.au/developers/otello">Otello</a> is taking the approach a step further.

At its new <a href="https://www.apartments.com.au/new-apartments/flowe-bowden-18-gibson-street-bowden-sa-5007">Flowe Bowden</a> development, the exposed cross-laminated timber (CLT) structure isn't just about reducing the building's environmental footprint. It also forms the foundation of a broader wellness strategy, influencing everything from indoor air quality and natural materials to the way residents move through and experience the building.

The 115-apartment mixed-use development, designed by Melbourne-based architecture practice Fieldwork, will occupy a prominent island site opposite Bowden Village Reserve, combining one, two and three-bedroom apartments with retail and a dedicated wellness destination.

[smartcode_project:default project_id=152022 project_image_fid=375528]

Wellness isn't confined to a gym or shared resident facility at Flowe. Instead, Fieldwork embedded the concept into the building itself.

The development has been split into two residential wings connected by a naturally ventilated central breezeway, replacing traditional enclosed corridors with open-air walkways that improve natural light, encourage cross ventilation and create more opportunities for neighbourly interaction.

"Rather than treating wellness as something that only happens on the ground floor, our response integrates it throughout the building, which led us to ask what it really means to design a healthy building," Fieldwork Director Quino Holland said.

[smartcode_project:default project_id=152022 project_image_fid=375531]

The building's architecture also reflects Bowden's industrial heritage. The lower podium references the area's historic brick and sandstone buildings, while the upper levels transition to exposed CLT, allowing the timber structure to become a defining feature throughout the apartments and shared spaces.

The use of mass timber sits alongside a range of sustainability initiatives, including a fully electric, gas-free design, rooftop solar and a targeted 5 Star Green Star rating.

[smartcode_project:default project_id=152022 project_image_fid=375524]

Inside the residences, the focus remains on natural, durable materials. Blackbutt engineered timber flooring, exposed CLT ceilings, porcelain surfaces and warm timber joinery create a calming interior palette, while low-VOC finishes and responsibly sourced materials have been selected to improve indoor air quality.

Kitchens have been designed as the centrepiece of each apartment, featuring porcelain island benchtops, timber-look cabinetry and brushed steel tapware, with layouts that maximise natural light and ventilation.

[smartcode_project:default project_id=152022 project_image_fid=375530]

The more traditional interpretation of wellness comes in the form of Level Eleven, a two-storey wellness club spanning the ground floor, mezzanine and first floor.

The facility will include a gym, yoga and reformer Pilates studios, Finnish and infrared saunas, magnesium hot and cold plunge pools, and dedicated recovery spaces. Unlike many residential wellness facilities, Level Eleven will also operate commercially, allowing the broader Bowden community to access the venue while giving residents exclusive membership benefits.

The ground floor has also been designed around everyday living. A café overlooking Bowden Village Reserve will activate the street frontage, while a bike workshop with tool storage, co-working space and dog wash has been incorporated to support daily routines and encourage interaction between residents.

"Flowe brings together my two biggest passions, creating places and creating healthier lives," Otello founder Daniel Harris said.

"We wanted to create something Adelaide hasn't seen before, a genuinely healthy building, where the way you live is lifted without even trying."

Flowe is positioned directly opposite Bowden Village Reserve and within walking distance of Bowden Railway Station and the Adelaide Entertainment Centre, placing future residents just minutes from the Adelaide CBD while remaining connected to one of the city's most established urban renewal precincts.

[smartcode_project_cta:default project_id=152022]

Otello launches wellness-focused Flowe Bowden with Adelaide-first mass timber apartment design

Not all apartment amenities are immediately visible.

Swimming pools, gyms, rooftop terraces and residents' lounges have long featured on buyers' wishlists, but as the way Australians live has changed, so too have the features that make apartment living more convenient.

Increasingly, buyers are placing value on the practical aspects of day-to-day life. Fast internet, EV charging, secure bike storage, flexible workspaces and parcel management are becoming just as relevant as lifestyle amenities, reflecting changing habits and expectations.

Online shopping has been one of the biggest drivers of that shift.

Australians spent a record $82.6 billion shopping online in 2025, with almost one in every four retail dollars now spent digitally, making parcel deliveries a routine part of everyday life rather than an occasional convenience.

For apartment residents, however, receiving those deliveries isn't always straightforward.

Without someone home to accept a parcel, deliveries can be redirected to a nearby Post Office, left in building foyers or common areas, or require building management to temporarily store packages. As apartment living continues to grow across Australia's cities, parcel management has become an increasingly important consideration for both residents and developers.

Australia Post's Parcel Locker network is one response to that shift.

<iframe allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share" allowfullscreen="" frameborder="0" height="315" referrerpolicy="strict-origin-when-cross-origin" src="https://www.youtube.com/embed/KPZ9j5FRdsQ?si=Qztc1dNP3ZvEIUhb" title="YouTube video player" width="560"></iframe>

Rather than relying on home delivery, eligible parcels can be directed to a nominated Parcel Locker, where they're securely stored until collected. Once a parcel arrives, residents receive a notification through the AusPost app or SMS and can retrieve it using a one-time code or QR code at a time that suits them.

The network has expanded to more than 1,500 locations nationwide, with Parcel Lockers positioned at Post Offices, shopping centres, supermarkets, transport hubs and, increasingly, within or alongside residential developments.

That growing presence reflects a broader change in how apartment buildings are being planned.

Developers are increasingly considering the operational side of apartment living alongside traditional lifestyle amenities. Just as secure mailrooms, bicycle storage and EV charging have become more common inclusions, parcel management is emerging as another feature that supports everyday convenience.

It also helps preserve the arrival experience within a building. Carefully designed lobbies and communal spaces can quickly become cluttered when deliveries accumulate, while secure parcel solutions reduce the likelihood of missed deliveries or parcels being left unattended.

For buyers comparing apartments, these everyday details are becoming part of the decision-making process.

Location, floorplans and finishes remain fundamental, but the features that simplify daily life are carrying greater weight than they once did. As online shopping continues to shape consumer behaviour, secure parcel delivery is increasingly becoming another amenity worth looking for.

Parcel delivery is joining the apartment amenity checklist

Inca Property Group has lodged a State Significant Development Application (SSDA) for Dawn, a 53-apartment oceanfront development overlooking Mona Vale Beach.

The proposal, at 35-39 Darley Street East, would replace an existing 18-apartment strata building with a new owner-occupier-focused development comprising 53 two and three-bedroom apartments, including nine affordable built-to-rent residences delivered under the State's infill affordable housing scheme.

Positioned on a 2,679 sqm elevated site around 280 metres from Mona Vale Beach, the development has been designed to maximise panoramic ocean views while responding to the site's sloping topography.

<a href="https://www.apartments.com.au/developers/inca-property-group">Inca Property Group</a> Managing Director Josh Thompson said the State Significant pathway provided greater certainty for projects of this scale.

"This State Significant pathway gives the team real certainty to progress <a href="https://www.apartments.com.au/new-apartments/dawn-35-39-darley-street-east-mona-vale-nsw-2103">Dawn</a> through to completion," Thompson said.

"It allows us to acquire a one-off site, design it carefully and deliver the right offering for the suburb, assessed by the NSW Government's planning department."

The project is one of the first developments in the area to be assessed under the NSW Government's Low and Mid-Rise Housing policy, with the site sitting on the edge of the policy's designated inner area.

The proposal includes three basement levels providing 124 car spaces, alongside a range of resident amenities including a swimming pool, gym, sauna, wellness facilities and private plunge pools for selected ground-floor and penthouse apartments.

<img alt="Dawn" data-entity-type="file" data-entity-uuid="fc1a1daf-0ce4-4f12-9076-b1fa553c7a91" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-21%20at%208.42.11%E2%80%AFAM.png?VersionId=4GZ9h.gpNkTljbxyAET8Jfhv51XUamDm" />

Thompson said Dawn had been designed specifically for owner-occupiers and downsizers, a buyer profile that has driven demand across Inca's recent Upper North Shore developments.

"The majority of buyers in our recent North Shore projects have been downsizers, and we are learning exactly what this market is looking for. Beyond the location itself, we have included resort-style amenities to deliver a genuine lifestyle offering," Thompson said.

Located within walking distance of Mona Vale Beach, the town centre, Mona Vale Golf Club and the Royal Motor Yacht Club, Dawn represents Inca's first Northern Beaches project following the sell-out of Tara on Park in Waitara and Ellis Residences, currently under construction in St Ives.

Construction will be undertaken by Inca's in-house construction arm, GOP Constructions.

Dawn is the latest major apartment proposal for Mona Vale, with the suburb emerging as one of the key beneficiaries of the NSW Government's new Low and Mid-Rise Housing policy.

New developer One Living, led by industry veteran Joseph Scuderi, recently secured a site on Mona Vale Road, on the border of Mona Vale and Pymble, where it is planning around 140 apartments.

IPM is also planning its third project in Mona Vale, significantly increasing the scale of its previous developments with an 82-apartment proposal at <a href="https://www.apartments.com.au/new-apartments/159-167-darley-street-west-mona-vale-nsw-2103">159-167 Darley Street West</a>, opposite Bayview Golf Course and less than 800 metres from Mona Vale town centre.

Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/one-living-enters-sydneys-new-apartment-market-with-northern-beaches-site-acquisition">One Living enters Sydney's new apartment market with Northern Beaches site acquisition</a>

Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-ipm-plans-third-mona-vale-project">First look: IPM plans third Mona Vale project</a>

Jonathan Chancellor

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