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GUEST OBSERVER
Two new tools for measuring and visualising problems in our rental housing system are in the media this week.
They have similar names – the Rental Affordability Index (RAI) and the Rental Vulnerability Index (RVI) – but use different methods to offer distinct but complementary perspectives. Together they reveal that almost nowhere in our capital cities can low-income households – and those on average incomes in Sydney – afford the median rent. Mapping rental vulnerability reveals households in regional areas are struggling too.
The RAI is a project of National Shelter, the peak housing NGO, and SGS Economics and Planning. It gives us a bird’s-eye view of rental housing costs over most of Australia. It does this by showing how affordable the median rent (the midpoint of all rents) is – or isn’t – relative to incomes in each postcode.
An alternative approach considers where and in what proportion renters are actually in stress. We might also consider a range of other factors that indicate where and in what proportion renters are vulnerable to problems in accessing and keeping decent, secure housing. This is the approach we’ve taken with the RVI.
<h2>What does the RAI tell us?</h2>
Affordability is a relative concept – it is about costs relative to incomes. The RAI considers median rents higher than 30% of a household’s income to be unaffordable. The index shows other grades either side of this benchmark (very affordable, very unaffordable) too. 
<a href="https://www.propertyobserver.com.au/images/2017/05/18/file-20170515-3668-qveg8h.jpg" target="_blank">Click to enlarge</a>
<h4><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/05/18/file-20170515-3668-qveg8h.jpg" alt=""></h4>
<div class="enlarge_hint">The Rental Affordability Index web tool zoomed in on Queensland. SGS Economics and Planning</div>
This is consistent with a widely used benchmark in housing policy, often known as the “30/40 rule”: housing costs should not exceed 30% of income for households in the lowest 40% of incomes.
The rationale is that when low-income households have to spend more than that on housing, they start to go without other things – meals, health care, outings – that they reasonably ought to have. For this reason, low-income households in unaffordable housing are said to be in “housing stress” or “rental stress”. 
The RAI looks at median rents, not the rents individual households are paying. This means it doesn’t tell us where or how many households are actually in rental stress. But it does indicate where renters face different degrees of pressure, in terms of either rents or constraints on the size, quality or location of dwellings. 
So, looking at the affordability of median rents for a number of typical low-income households – single and couple pensioners, single people on benefits, single-parent part-time workers – the RAI shows that almost nowhere in Australia’s capital cities is the median rent affordable for them. 
The RAI also applies the 30% benchmark higher up the income scale. Even for average-income renters, all Sydney postcodes – except for Mt Druitt and in the Blue Mountains – have median rents that are unaffordable or worse. 
Of the capitals, Sydney’s affordability problems are deepest and spread furthest, but much of Melbourne and Brisbane is unaffordable to average renters too. Outside the capitals, most of the regions are affordable. 
The quick takeaway from this perspective would be support for policies to increase the supply of affordable rental housing, particularly in our capital cities. These measures would include:
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<li>
building more social housing
</li>
<li>
changing planning rules to allow more residential development
</li>
<li>
using inclusionary zoning to ensure a proportion of new development is kept as affordable rental
</li>
<li>
making greater use of land tax, including on owner-occupied housing, to ensure land owners don’t speculatively sit on development opportunities.
</li>
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<h2>What does the RVI tell us?</h2>
For a different perspective, the City Futures Research Centre producedthe Rental Vulnerability Index (RVI) for Tenants Queensland. This shows (only for Queensland, at this stage) a range of “housing system” and “personal” factors that we know, based on a wider body of research on housing and legal needs, indicate vulnerability to housing problems. 
The housing system indicators include: rental stress, availability of rental housing that is affordable on local incomes, social housing and marginal tenures such as boarding houses, as well as personal indicators including unemployment, low education, disability, single-parent households and both young and elderly renters. 
As well as mapping each of these indicators, the RVI uses principal component analysis. This enables us to look across the indicators to see where they cluster together as a generalised “rental vulnerability”.
<a href="https://www.propertyobserver.com.au/images/2017/05/18/file-20170515-3649-1s65oqm.jpg" target="_blank">Click to enlarge</a>
<h4><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/05/18/file-20170515-3649-1s65oqm.jpg" alt=""></h4>
<h4>The Rental Vulnerability Index web tool. City Futures Research Centre</h4>
Mapping this out we see that rental vulnerability in Queensland is highest in the regions. In particular, it is high around Bundaberg, Fraser Coast and Gympie, with a band of vulnerability skirting the regions west and south of Brisbane. Cairns also has several highly vulnerable postcodes. 
These places have high rates of unemployment, disability, low education and older people in rental housing. They also have high incidence of rental stress – even though median rents are low compared to Brisbane. 
By contrast, Brisbane generally scores quite low on rental vulnerability. This isn’t because there aren’t any vulnerable households there – there are. But their presence is masked by renter households who are doing well in terms of income, employment, education and other indicators. 
There is a substantial body of research on the “suburbanisation of disadvantage”. This is the phenomenon of high housing costs pushing out, and shutting out, low-income and otherwise disadvantaged households from city centres. The RVI indicates that this process, at least in Queensland, is extending into a “regionalisation of disadvantage”.
<h2>So what can we do about this?</h2>
The takeaway from this? Housing problems are multidimensional and extend beyond the capital cities. 
Regional areas have a pressing need for services – such as tenants advice services – that give vulnerable households material assistance in dealing with housing problems. 
But more than that, we need to build up the economic and social capital of these places – so that they offer greater opportunities for the vulnerable households who are concentrated there – just as we need policies to increase affordable housing opportunities in our cities.
Chris Martin is research fellow, City Housing, UNSW and can be contacted <a href="https://theconversation.com/profiles/chris-martin-203935" target="_blank">here</a>.
Laurence Troy is research fellow - City Futures Research Centre, UNSW and can be contacted <a href="https://theconversation.com/profiles/laurence-troy-2403" target="_blank">here</a>.
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jchancellor-FAypfDUnLy

Two pictures of rental housing stress and vulnerability zero in on areas of need

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GUEST OBSERVER
Australia’s capital cities are getting more and more units, that are largely concentrated and come with a hefty price tag, a new report shows. And while these areas also have lots of jobs, the high price for houses means many on low incomes won’t be able to access that employment.
Between 2006 and 2014, more than 50 percent of new units were built in the 20 percent of local government areas with the highest number of jobs. 
When compared internationally, it would seem that Australian housing supply has not been as weak as is widely believed. However, the report points to some stark differences in housing supply patterns, emerging across Australia’s capital cities. 
In Sydney, Perth and Brisbane, new housing supply has lagged slightly behind population growth. In the other capital cities, housing supply actually outpaced population growth between 2006 and 2014. 
<h2>Housing supply and house prices</h2>
The issue of housing affordability has traditionally been pitched in terms of supply failing to keep pace with growing demand, and house prices rising in response to the imbalance.
<a href="https://www.propertyobserver.com.au/images/2017/05/18/Screen%20Shot%202017-05-18%20at%208.59.22%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/05/18/Screen%20Shot%202017-05-18%20at%208.59.22%20AM.png" alt="">
Yet, house price inflation has surged even in metropolitan areas where housing supply exceeds population growth. The evidence suggests a complex relationship between supply, population growth and price that is shaped by both supply and demand-side factors. 
As prices and rents rise, housing costs continue to eat up larger shares of household incomes, particularly in moderate and low-income groups. 
The study shows 80 percent of new unit approvals were located in the top 20 percent of local government areas with the highest unit prices. This is while 80 percent of new house approvals were in the top 40 percent of local government areas with the highest house prices. 
There is very little new supply in areas where house prices are lower, where households on low to moderate incomes can afford to live. 
<h2>Affordable housing, cities and productivity</h2>
The lack of affordable housing in the vicinity of employment centres can pose threats to the productivity of our cities. If suburban residents are forced into longer commutes to access employment in the CBD, it can reduce productivity.
A potential consequence is that low-paid workers are deterred from seeking jobs in CBDs. This would then cause certain skills to become unavailable, and businesses to be less efficient, because they cannot quickly fill vacancies with suitable applicants. 
Our data shows new units have grown by 30 percent in areas which have the most jobs, between 2005-06 and 2013-14. In contrast to this new units have only grown by 2.5 percent in areas with less jobs. 
It would appear that unit approvals are concentrated in areas with abundant job opportunities. So productivity could improve, as congestion eases, and commute times lowered, if (and it’s a big if) these dwellings were affordable to those wishing to take advantage of these job opportunities.
New housing supply has grown at a pace that matches population growth rates, at the national level. However, there is plenty of variation across the capital cities. 
The strongest growth in the number of units has been in the territories (though this is from a low base), followed by Melbourne and Brisbane. However, the strongest growth in the number of houses has been in Perth, at around 22 percent. 
Sydney has experienced much lower growth in its number of houses, at less than 10 percent. This reflects the very different patterns of development in the two cities. 
In Perth, Brisbane and Sydney, increases in the supply of housing didn’t keep pace with population growth during, between 2006 and 2014. However, the drivers of this shortfall are varied. 
Perth’s population grew very strongly over the period that we studied. The roughly one-quarter increase in population would stretch the capacity of most housing construction sectors. 
Click to enlarge
<img src="https://www.urban.com.au/images/2017/05/18/Screen%20Shot%202017-05-18%20at%209.00.19%20AM.png" alt="">
However, even though Sydney’s population growth (at 14 percent) is below the average across all capital cities, its housing supply failed to match this growth. These outcomes highlight the different demand and supply side factors operating across states. 
We currently have a national housing policy narrative that is dominated by a consensus view that higher levels of housing supply are the solution to housing affordability problems. While increased supply will always help take steam out of pressured markets, our study suggests a more nuanced approach is needed to the supply side, while not ignoring the demand side pressures. 
It’s important that we identify those barriers to expanding affordable housing supply that have been impeded in the majority of our cities, especially for low income households.
<a href="https://theconversation.com/profiles/rachel-ong-113482" target="_blank">Rachel Ong</a> is deputy director, Bankwest Curtin Economics Centre, Curtin University.
<a href="https://theconversation.com/profiles/christopher-phelps-378137" target="_blank">Christopher Phelps</a> is research assistant, Curtin University.
<a href="https://theconversation.com/profiles/gavin-wood-113723" target="_blank">Gavin Wood</a> is professor of housing, RMIT University.
<a href="https://theconversation.com/profiles/steven-rowley-201914" target="_blank">Steven Rowley</a> is director, Australian Housing and Urban Research Institute, Curtin Research Centre, Curtin University.
All are authors for The Conversation.
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Get used to your commute: data confirms houses near jobs are too expensive

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GUEST OBSERVER
As well as restricting supply to an already full rental market, the 50 percent foreign ownership restriction removes some of the competitive advantages overseas developers had over local developers.
Prior to this change coming into effect, overseas developers had a competitive advantage as they had no overseas sales limits whatsoever. Overseas developers using overseas banks could, if they so desired, have 100 percent foreign sales, with 100 pe cent en masse sales occurring overseas.
What Scott Morrison has done is even the playing field between local and overseas developers, with overseas developers now forced to generally work within the same FIRB sales metrics as local developers.
To commence a development, local banks require local developers to presell approximately 70 percent of the apartments in a development and impose a 25 percent Foreign Investment Review Board (FIRB) restriction on these presales. This means local developers require 52 percent local sales prior to construction commencing.
Once the developer has achieved financial close with a local bank, they are free to sell the rest overseas. Meaning, under a 25 per cent FIRB presales limit, local developers using local banks can develop buildings with circa 48 per cent foreign ownership.
Banks are always looking at the FIRB presales limit and whilst many current developments are at 25 percent, there is a more recent bank trend to constrict this further – more in the realm of 15 percent. If this is the case, then locally banked projects can end up with 40 percent foreign ownership.
It is also fair to say that overseas purchasers have settled better than local sales. Many pundits were nervous about large buildings settling this year, yet what we are seeing is that very few overseas purchasers are falling through when it comes to quality developments (just 1-2 percent in fact), even against Australian Prudential Regulation Authority’s (APRA) headwinds of overseas purchaser mortgage finance.
With the 50 percent FIRB restriction placed across the whole market, coupled with APRA’s new powers across non-bank lenders, it means that the metrics by which local and overseas developers, local and overseas banks, and local and overseas non-bank lenders are becoming converged.
As a flow on effect of the overseas sales metrics now being similar, this policy change will result in overseas developers using local banks and non-bank lenders more readily to avoid foreign exchange risk, again levelling the playing field.
Perhaps this new measure may even narrow the gap between what an overseas and local developer can pay for a site, which sets the market and ultimately gets passed onto the (local) consumer.
As an unintended consequence however, this change will further constrict supply to rental markets, thus driving rental and housing prices further out of reach of local first home owners and owner occupiers. It is only state planning ministers that can affect real change by encouraging the supply side of the housing economic supply/demand pendulum.
Andrew Hogan is a managing director of Point Polaris. He can be contacted <a href="https://www.pointpolaris.com.au/" target="_blank">here</a>.
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How will the 50 percent foreign ownership limit affect developers? Andrew Hogan

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SPONSORED POST
Submissions have opened for the Annual REA Excellence Awards (AREAs) - the unique awards program that honours the most innovative, community-minded and highest-achieving individuals and businesses across the property and media industries.
Submission will remain open until 30 June 2017.
Awards include Innovation, Community, Service and Marketing Excellence categories and encompass the entire property industry (residential, commercial, project developers) as well as those working in media.
This year a brand new award has been introduced – the Gold AREA – Agency of the Year. The Agency of the Year award will recognise agencies who work hard to set themselves apart from competitors and excel in all three award categories.
The second AREAs will be held in November this year and are submission-based and reviewed by an independent judging panel. There will also be a consumer voting component for selected awards.
Andrew Rechtman, REA Group Executive General Manager, Residential, commented said REA Group wants to celebrate the industry’s success and achievements, and that means highlighting customer success and achievements.
“Every day we work with people across the property and media industries who are doing amazing things," he said.
"This includes contributing to their local communities, delivering exceptional service to their market and clients, or how they are using technology in new and innovative ways.
“We’re also excited to take it up a notch this year, introducing the new Gold AREA – Agency of the Year Award that will recognise the agency who has set themselves apart from the rest of the field,” said Mr Rechtman. 
For more information on the AREAs, <a href="https://www.theareas.com.au/" target="_blank">click here</a>.
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The REA Group AREAs are back

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GUEST OBSERVER
What do an engineer, a building surveyor and a mental health nurse have in common? The answer is a retrofitted rooftop garden. This was a project developed to evaluate the impact of horticultural therapy on the health and wellbeing of people recovering from mental illness. 
When engineer Rob Casilick contacted building surveyor and academic Sara Wilkinson with the news that he had funding to evaluate the GROW horticultural therapy program on the rooftop garden at St Canice’s, an inner-city church in Sydney’s Kings Cross, she knew this was a great opportunity. She also knew she couldn’t evaluate the health effects, so turned to UTS academic and mental health nurse Fiona Orr. 
They understood just how broad the potential benefits could be. Approximately one in every five Australians experiences a mental illness. Mental health may be affected by individual or societal factors, including economic disadvantage, poor housing, lack of social support and the level of access to, and use of, health services. 
Yet, in our increasingly urbanised, high-density, high-pressure and, some say, increasingly isolated world, there is growing evidence of a salve and a way of mitigating stress, pressure and mental illness. And it’s right above our heads. Based on the findings of the GROW study, other rooftop gardens are now being created.
Rooftops are usually unused and unloved spaces. Around 34% of all horizontal spaces in our cities are rooftops. Green roofs, retrofit or new build, can help control stormwater run-off, improve air quality, reduce the urban heat island effect, increase biodiversity, improve thermal performance, increase property value and, importantly here, provide amenity space. 
How does green space affect well-being?
Where and how we live affects our mental health and wellbeing. The benefits of green spaces include:
participation in activities that promote social interaction and increase physical exercise;
reductions in stress and improvements in mood and attention; and
positive effects on anxiety and mood disorders.
In 1984, Edward Wilson introduced the biophilia hypothesis. This is based on the idea that humans have an innate tendency to seek connection to nature for its calming effects. Literally, biophilia means “love of life or living systems”.
The question is: does it exist? And could it be incorporated in the lives of people recovering from mental illness?
Where we seeded
St Vincent’s Hospital, Sydney, agreed to trial two horticultural therapy programs for people recovering from mental illness. The rooftop space at St Canice’s was about 55m² with garden beds containing vegetables, small shrubs, flowering plants and herbs, as well as a small vertical garden for flowers and strawberries. The kitchen of the church used some of the vegetables and herbs grown here to prepare meals for local homeless people. 
The GROW horticultural therapy program comprised weekly, two-hour sessions for participants over eight consecutive weeks. A horticultural therapist, supported by a professional gardener, led these sessions. 
During two sessions, guest presenters with specialist skills in music and cookery led activities that complemented that week’s gardening program. 
What grew out of this?
Most of the participants did not have their own garden, so the program provided them with access to a relaxing and beautiful space that enhanced their health and wellbeing. Some of the many benefits they identified included regular connection with others and developing friendships, experiencing enjoyment, and restorative health.
It’s like a little haven, or a little sanctuary to come to every week. You would never imagine something like this up on a roof. It’s a beautiful garden … and there’s lots of different plants and they produce oxygen for us. It’s just a beautiful place.
Getting to know everyone a bit more each week, it’s been brilliant, developing relationships and friendships.
I’m coming here to enjoy myself … and I walk out with a smile every time I leave this place.
It’s central to my recovery and ongoing mental wellness and it should be seen as a fundamental part of the healing process for people with mental illness.
Sowing seeds for the future
The benefits to participants were positive and very apparent. Both researchers experienced positive benefits of participation in the weekly program, too. 
Possibly the best outcome is that, based on the evaluation of the two programs, the education liaison officer at St Vincent’s Hospital was able to make a case for retrofitting three unused rooftop spaces at the hospital. 
The case was supported and the hospital is having designs drawn up for two of the roofs. Before and after the retrofit, Fiona and Sara will be undertaking evaluations of staff, visitors and consumers’ experiences of the spaces, as well as the horticultural therapy programs. 
A final thought is that this approach is very transferable into other sectors where people experience periodic stress and/or isolation. That would include the corporate sector and high-density residential areas. So think about it, and see if you can go up on the roof too.
Sara Wilkinson is associate professor, School of the Built Environment, University of Technology Sydney and can be contacted <a href="https://theconversation.com/profiles/sara-wilkinson-14186" target="_blank">here</a>.
Fiona Orr is director of International Activities, Faculty of Health, University of Technology Sydney and can be contacted <a href="https://theconversation.com/profiles/fiona-orr-367385" target="_blank">here</a>.
Both are authors for The Conversation.
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Biophilic urbanism: how rooftop gardening soothes souls

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GUEST OBSERVER
If you have been following my tweets and Facebook comments, you would have noticed that I have been very vocal about the new budgetary measures and, in particular, the new rules on plant and equipment depreciation. Up until yesterday, it was obvious that large sections of the media were not aware of the full ramifications of what had been announced in last week's Budget. Indeed, headlines last week claiming that “Negative gearing was left untouched” could not have been further from the truth. Ultimately, these headlines left me in a state of bemusement with sections of our media which is cause for a blog of its own.    That all changed yesterday, where through the hard work of Australian Financial Review reporter, Su-Lin Tan, the full ramifications of what had been announced came to the fore via this front page story: Negative Gearing - Scalpel will cool apartment demand - experts
The new depreciation measures are significant as they massively reduce the ability of property investors to make deductions on their investment property, thereby reducing their ability to negatively gear.  These were the very words used by the Treasurer:
“And from 1 July 2017, the Government will improve the integrity of negative gearing by disallowing deductions for travel expenses and, for properties bought after today, the Government will also limit plant and equipment depreciation deductions to only those expenses directly incurred by investors.
To give you an idea of the impact on investors, the mocked up depreciation schedules below clearly show what was normally claimed, with the columns circled in red showing what can no longer be claimed if these new measures are passed. Both schedules assume a circa $500,000 price tag on the properties. 
This first property assumes a newly built situation where a Division 43 allowance (depreciation on buildings) can still be claimed.
<a href="https://www.propertyobserver.com.au/images/2017/05/17/v1.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/05/17/v1.jpg" width="700" height="559">
The second example is of an older style property where a new renovation has been completed.  Both these depreciation schedules have been provided with thanks to Mike Mortlock from MCG Quantity Surveyors.
<a href="https://www.propertyobserver.com.au/images/2017/05/17/v2.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/05/17/v2.jpg" width="688" height="580">
In both instances, plant and equipment depreciation are a significant component of the total deductible depreciation on a residential property. Literally, many thousands of dollars can no longer be claimed. Just keep in mind as well that these new changes only apply on residential property. Commercial property depreciation is still fully deductible.
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The effective result is that tens of thousands of properties that were cash flow positive properties after the depreciation benefit will no longer be cash flow positive, keeping in mind these affect property purchases after May 9, so there is grandfathering. In its simplest terms, also consider the following scenarios: Property A
I own a new unit that was just built. I can claim the significant plant and equipment depreciation that comes with newly built dwellings. However, if I sell to you that unit tomorrow, you can not claim the plant and equipment depreciation. 
At this stage, it is not clear regarding the plant and equipment depreciation  that If I own an off-the plan development that is not complete and I then flip it on to you (before completion) whether you can claim the depreciation or not. The Federal Government needs to clarify this situation. Property B
I just bought a newly constructed unit after May 9, 2017. Normally, I would be able to claim the plant and equipment depreciation, however, at this point it is unclear under the new Budget measures whether I can going forward. A strict reading of the new measures suggests I cannot as it was the developer who originally purchased the plant and equipment.
This has been the view of some quantity surveyors while others believe the Government doesn’t intend to be so punitive. Once again, we are waiting for clarification. Property C
I own an older style property on which I recently completed a renovation whereby I purchased $200,000 worth of plant and equipment. I then sell this property to you, today. You cannot depreciate any of the plant and equipment that I have spent money on during the renovation.  
No further clarification is required here. This is exactly how the Government wishes the new measures to apply. In my view, this new measure, combined with recent APRA initiatives, plus the potential for the banks to pass on the new bank levy, will very likely result in a drop in property investor demand. When that drop happens is uncertain. But it could start at any time given once these changes are passed by the Senate, there will be a retrospective impact back to the May 9, 2017. So those people who purchased an investment property last weekend will likely be impacted by these new measures.
As quantity surveyor Washington Brown stated in their blog earlier this week, these new measures might actually have some unintended negative consequences for affordability in that:
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Property investors may now feel the need to hang onto their existing properties to continue claiming depreciation because if they sell that property they won’t be able to get as many deductions on their next one.
</li>
<li>
Developers rely on high depreciation figures in the early years to show investors how affordable an investment property can be. If these depreciation allowances are taken away, they will struggle to get pre-sales which are required by banks to fund the deal.
</li>
</ol>
I am also concerned for investors in a new property as it is likely that any secondary buyer will demand a discount on a resale to take into account that lack of deductible depreciation, which is significantly large on new dwellings. It’s a similar issue we had with Labor’s policy on negative gearing during last year’s election. As it is, off-the-plan investors regularly experience price declines in new properties when selling in the first few years of the property's life. These new measures may aggravate this reality which could then have a negative impact upon the supply of new housing stock in the long term.  
What the Liberals have announced is a light version of this policy in a way this will be a good test to see what would happen to dwelling prices and home affordability and rents under a no-negative gearing scenario. Are these measures good for First Home Buyers?  In addressing the affordability question one must ask do these measures, plus others announced such as the additional superannuation contribution scheme, the additional CGT discount on ‘affordable’ properties, the tax break for senior empty-nesters to sell their homes, the additional land supply, create the incentive for first home buyers to come back into the market? Well maybe, maybe not. Regardless, developers will need more first home buyers to take up the slack that investors leave behind. Potentially, first home buyers could do just that, which is what we all want. But they kind of need to. And if they don’t, the rent rises that may well follow could just force them to. This brings us to the final unintended affect – the rental market. Note the recent trend in falling building approvals.
<a href="https://www.propertyobserver.com.au/images/2017/05/17/v3.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/05/17/v3.jpg" width="243" height="300">
We are nearing the peak in housing completions in this cycle which we believe will be early 2018. Yet vacancy rates in Sydney and Melbourne are still tight.
<a href="https://www.propertyobserver.com.au/images/2017/05/17/v4.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/05/17/v4.jpg" width="700" height="384">
<a href="https://www.propertyobserver.com.au/images/2017/05/17/v4.jpg" target="_blank"></a><a href="https://www.propertyobserver.com.au/images/2017/05/17/v5.jpg" target="_blank">Click to enlarge</a>
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This is happening because our population growth rates have exploded in recent years. Melbourne is now expanding by 120,000 people each and every year. Sydney's population is rising by 90,000 people. The growth rates are above and beyond what was expected and is causing systemic strains on our two largest cities.  For more on this I strongly recommend you read the recent blog on population from Macro Business  
Remember, this time last year there was a real fear of a unit oversupply. Forget that now for Melbourne and Sydney. There is no oversupply. And, depending upon how first home buyers respond to the Budget, there could be significant under-supply later in 2018-2019 which may cause rents to skyrocket. 
After all, rents in Melbourne are already well above expectations this year.
<a href="https://www.propertyobserver.com.au/images/2017/05/17/v6.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/05/17/v6.jpg" width="700" height="389">
<div>Our 2017 Housing Boom and Bust Forecasts</div>
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 It was reported yesterday that SQM Research may be revising down its 2017 forecasts as a result of the changes. After careful consideration, our base case forecasts stay un-revised for now.   
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However, we believe that the probabilities have substantially increased that a peak in the price growth rates of the Sydney and Melbourne housing markets will happen this current June quarter and that the September and December quarters will record slower growth rates. The possibility of a modest price fall in either the September or December quarter has also increased. Subsequently, we now believe the lower end of our base case forecast range is likely to be reality. And, depending upon how and when the banks respond, we may revise our price forecasts down. For now, they remain on track with no current slowdown occurring in the housing market.
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<div>Louis Christopher is a managing director of SQM Research. He can be contacted <a href="https://www.sqmresearch.com.au/" target="_blank">here</a>.</div>
 
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Budget depreciation change to slow the market: Louis Christopher

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GUEST OBSERVER
Australia’s household debt has been rising and is high by international standards.
The household debt-to-income ratio has risen from 167 percent in 2011 to 190 percent in Q4 2016. Assessing how much to worry about this is not straightforward.
On the one hand, high levels of debt make the economy more vulnerable to a negative economic shock. On the other hand, appropriately allocated debt is an engine of economic growth, as it better allocates resources between savers and investors.
Our long held view is that high household debt is not, in itself, a problem, as long as it is held by households that can continue to service it. The problem faced by many economies during the global financial crisis, such as the US and Spain, was that household debt was misallocated to households that could not service it. In Australia, the latest available statistics suggest that the distribution is fairly favourable.
As at 2014, most of the debt was held by high income earners and there were few low income households with large debt servicing burdens. In addition, Australia does not have sub-prime borrowers and all of the mortgages are full recourse.
<a href="https://www.propertyobserver.com.au/images/2017/05/16/Screen%20Shot%202017-05-17%20at%208.14.17%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/05/16/Screen%20Shot%202017-05-17%20at%208.14.17%20AM.png" alt="">
However, household debt has risen since 2014 and there has been an investor-led house price boom in Sydney and Melbourne. As a result, it is hard to be certain about how much risk has built up recently. The longer it goes on, the more difficult it is to judge. It is for this reason that prudential settings have been tightened and that RBA Governor, Mr. Phil Lowe, has repeated that it would not be in the ‘public interest’ to cut interest rates further if it provided another boost to housing prices and debt.
In its recent financial stability review, the RBA deemed that, given lending standards have been tightening, the key risk from rising household debt is to the macroeconomic cycle rather than financial stability.
The central bank’s own granular assessment is that any build-up of risks that could see rising defaults in a downturn is not large enough to be a financial-system-wide risk. Rather, they suggest the key risk is that the higher household leverage could amplify the economic cycle. We expect that concerns about high and rising household debt will be a key factor that keeps the RBA from cutting its cash rate further. We expect prudential settings to remain tight. 
Household debt is high, but mostly for fundamental reasons
Australia has high household debt and it has been climbing further in recent years. Indeed, across the range of economies regularly tracked by the Bank of International Settlements, Australia has the second highest level of household debt, relative to nominal GDP (Chart 1). In contrast, corporate debt is about average and public debt is low by international standards.
At the outset, a key question is: why is household debt high? In Australia, high household debt reflects that: firstly, the bulk of the housing stock, including the rental properties, is owned directly by the household sector using leverage, which is not the case across many nations; and, secondly, that housing prices are fairly high when compared with household incomes.
On the first point, this is because the owner-occupation rate is high, at around 68%, and because the bulk of the rental properties are also owned by the household sector directly. In Australia, investment properties, which are then rented, are a tax-favoured investment. So, unlike most other economies, including the US, for example, the stock of rental properties involves debt on the household balance sheet, rather than the corporate balance sheet. As a result, around one-quarter of Australia’s household debt is held by investors, which is a key reason that household debt levels are higher in Australia than elsewhere (Chart 2).
On the second point, Australia’s housing prices are fairly high relative to household incomes, although they are not exceptionally so (Chart 3). Australia’s housing-price to income ratio is around 5 times, which is a similar level to the UK, Ireland, Denmark, Spain, and the Netherlands. 
<a href="https://www.propertyobserver.com.au/images/2017/05/16/Screen%20Shot%202017-05-17%20at%208.17.13%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/05/16/Screen%20Shot%202017-05-17%20at%208.17.13%20AM.png" alt="">
For Australia, housing prices are high for a range of reasons, including relative economic success in the form of continued growth, low interest rates, strong population growth, and high foreign demand, in the face of limited supply.
<a href="https://www.propertyobserver.com.au/images/2017/05/16/Screen%20Shot%202017-05-17%20at%208.18.25%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/05/16/Screen%20Shot%202017-05-17%20at%208.18.25%20AM.png" alt="">
Some of these factor are cyclical, such as low interest rates, while others are structural. A key structural factor is limited housing supply. The supply of well-located housing has been limited by planning regulations and poor urban infrastructure. As a result, Australia has very low rates of urban density despite being a largely empty continent (Chart 4). Although there has been a ramp up in residential construction in recent years, in the largest city, Sydney, there is still not enough being built to meet demand (see Downunder Digest: Apartment building boom is nearing its end, 10 January 2017).
It’s the distribution of debt that matters the most
If the overall high level of household debt is driven by fundamentals, then what’s the worry? Part of the concern is that debt has been climbing recently, and that the rise has been driven by investors, rather than owner-occupiers (Chart 5). Again, even this is not worrisome, as long as the new borrowers are expected to be able to continue to service the debt. Thus it is the distribution of debt that matters the most, a point we have made before (see Downunder Digest: Australia’s rising household debt: should we worry?, 22 April 2016). The challenge is that there is considerable uncertainty about the distribution of debt and that this uncertainty rises when growth in debt is driven by new borrowers.
In Australia’s case, the key cross-sectional survey from 2014 shows quite favourable trends. 
<a href="https://www.propertyobserver.com.au/images/2017/05/16/Screen%20Shot%202017-05-17%20at%208.19.28%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/05/16/Screen%20Shot%202017-05-17%20at%208.19.28%20AM.png" alt="">
The survey shows that the bulk of the household debt is held by high-income earners, with 74% of the debt held by the top 40% of income earners. The survey also shows that most of Australia’s highly-indebted households (those with debt-to-income ratios in the top 10th percentile of debt holders) are also high-income earners (Chart 6).
Australia’s financial regulatory environment is also strong. All mortgages are full recourse and there is no sub-prime lending. Australians also have an incentive to pay down their mortgages ahead of schedule, as they cannot deduct the expenses associated with their owner-occupied housing, such as mortgage interest, against their other taxable income. As a result, the average mortgage holder is around 21⁄2 years ahead on their mortgage payments (when offset accounts and redraw facilities are included). This means that the average borrower has a significant buffer on which to draw in the event of job loss or some other negative income shock.
So what is the concern? First, the information on the distribution of debt is from 2014 and we know that household debt has risen since then. We do not know much about the distribution of the new debt, although we do know that the bulk of it has been for property investors. On the positive side, historically, investors have been less likely to default on mortgages than first home buyers as investors tend to have equity in an owner-occupied property, and tend to be older and higher-income households with a loan repayment history. On the negative side, we do not know much about the new investors in recent years, although we know that the prudential regulator has been tightening its settings since late 2014 to prevent an excessive build-up of risk.
Second, although the average mortgage holder has a significant buffer, it is not the average borrower that typically defaults. At the riskier end of the spectrum of borrowers there is evidence of mortgage holders with only slim buffers against a negative income shock. For example, in a recent speech (4 May 2017), the RBA Governor, Mr. Phil Lowe, referred to data on securitised loans which showed that about one-third of borrowers only have a one-month buffer.
However, in that same speech Governor Lowe relayed that the RBA’s own assessment, with full access to all of the granular lending numbers, was that the risk of rising household debt levels was not to financial stability but to the macroeconomic cycle. Given that lending standards have been tightened and that risky loans are still only a small share of financial system liabilities, a large enough rise in loan defaults to shake the overall financial system is unlikely.
What happens when housing price growth slows?
<a href="https://www.propertyobserver.com.au/images/2017/05/16/Screen%20Shot%202017-05-17%20at%208.20.23%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/05/16/Screen%20Shot%202017-05-17%20at%208.20.23%20AM.png" alt="">
The RBA’s concern is that, when housing price and household credit growth slow down, this could exacerbate the economic cycle. Sydney and Melbourne have had significant housing prices booms in recent years, although it has been quite concentrated to these cities (Chart 8). 
<a href="https://www.propertyobserver.com.au/images/2017/05/16/Screen%20Shot%202017-05-17%20at%208.21.27%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/05/16/Screen%20Shot%202017-05-17%20at%208.21.27%20AM.png" alt="">
Sydney and Melbourne housing prices have risen 77 percent and 58 percent over the past five years, while housing prices are only 14 percent higher in the rest of the nation.
The RBA’s argument is that the eventual slowdown, or fall, in housing prices and easing in the pace of household credit growth could weaken overall economic growth, particularly growth in household consumption.
While a slowdown in housing activity would, no doubt, have some effect, it may not be as large as in the past. Indeed, there is clear evidence that the recent ramp up in housing prices and household debt has had little impact on households’ willingness to borrow to consume goods and services. Unlike the early 2000s housing boom, households have not been withdrawing equity from their properties, but rather have been injecting it in recent years (Chart 9). If there has not been a significant positive wealth effect from rising housing prices and household debt, any slowdown in these factors may also have a more muted effect than in the past.
A key counter-argument is that the household saving rate has been falling in recent years, which provides some evidence of a positive wealth effect (Chart 10). That is, households may have been more willing to lower their saving out of income because their wealth has been rising.
However, the state-level numbers suggest that this story is a bit more nuanced. The biggest fall in the saving rate has occurred in Western Australia, following a sharp rise earlier. This reflects the impact of the mining boom, which boosted incomes significantly in that state prior to 2011/12 and where incomes have fallen since. Western Australian households saved when income growth was strong and have been saving less recently, in line with what a permanent income model might suggest.
However, the saving rate has not moved much in New South Wales and Victoria, where the housing markets have been booming recently. This suggests that the wealth effect has, in fact, been quite small in these states, consistent with the housing equity withdrawal numbers.
In our view, when the housing markets in Sydney and Melbourne cool, which we expect to be the case this year and next, we do not expect a large negative wealth effect.
For the RBA, the idea of the overall economic cycle being exacerbated by the housing cycle is clearly a concern. In our view this concern would suggest an earlier tightening, rather than a later one, though. If the concern is not allowing the housing boom to continue too long, because the end of the boom could cause problems, the risk-averse approach is likely to be higher rates, not lower ones. 
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<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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How worrisome is Australia’s high household debt? Paul Bloxham

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GUEST OBSERVER
Prime Minister Malcolm Turnbull’s 2015 National Innovation and Science Agenda was a call to arms for Australia’s research and industry sectors to collaborate and drive our economy.
One and a half years on, you’d be excused for thinking a few pages of notes were missing from Budget 2017. Specifically no comment was made about the vision of where our great “ideas boom” was taking us - setting the scene to unite industry and researchers alike.
For manufacturing there was a glimmer of hope in the announcement of A$100 million to boost innovation, skills and employment in advanced manufacturing.
It addresses people, know-how, process and partnerships. If connected into a strategic plan there could be benefits for businesses as the manufacturing sector redeploys into new activity.
However, it does appear narrowly focused on the here and now for closed and closing automotive manufacturers.
In the absence of linkage with the National Innovation and Science Agenda, the pending 2030 Roadmap from Innovation and Science Australia, and comment on the research and development tax incentive review, the A$100 million may be an expensive band-aid.
Capital upgrades
The funding announcement refers to A$47.5 million for a new Advanced Manufacturing Growth Fund to support South Australian and Victorian manufacturers for capital upgrades to “make their businesses more competitive through innovative processes and equipment”.
My experience of project work with manufacturing companies is that capital cost of equipment (capital expenditure, or “CapEx”) has never been a roadblock to growth and success.
When the business case stacks up, CapEx is easily justified. The business case is built upon having the right people and know-how in the business.
In isolation the drive to purchase new equipment presents no value to business, and may even lead to stranded assets. But coupled with people and know-how, opportunities may come.
It’s important to recognise that right now, existing manufacturers are looking at how to utilise and/or redeploy their existing assets. In particular the automotive parts manufacturers are seeking new opportunities that match with existing equipment.
An example is a company that I am working with, Precision Components in South Australia. They are redeploying their large metal presses previously used in car component manufacturing to create components for capturing solar energy at HeliostatSA. It’s a project that has contributed to export capability for HeliostatSA.
Redeployment is the focus for many businesses today, not new equipment.
Small scale research projects
The funding announcement refers to A$4 million to support small scale and pilot research projects in advanced manufacturing, administered through the Advanced Manufacturing Growth Centre.
This seems like a good move.
Boosting innovation requires broadening the base of businesses looking to grow, and collaboration with university research programs is one way to achieve this. Small grants build confidence in collaborative partnerships, and help to clarify what the innovation is and its future return on investment.
For example, the government’s Innovation Connections scheme has had success in seeding innovation and collaboration.
A recent recipient of an Innovation Connections grant, company Sentek Pty Ltd, is utilising this scheme to fund new product development, and to underpin justification for future and larger investment. I am collaborating with Sentek on this project.
Cooperative Research Centre (CRC) Projects
The funding announcement refers to A$20 million under the Cooperative Research Centre – Projects initiative for larger scale advanced manufacturing research projects.
This funding should be warmly received.
The CRC program links researchers and industry, with the aim of delivering economic value to the industry partner and the sector more broadly. This scheme funds the real costs of research, develops skills in people, and incentivises transitioning knowledge out of the university.
The newly formed CRC Projects scheme is in its infancy, with industry firmly in the driving seat for administering the projects.
From the first two rounds of funding under the CRC Projects, a total of 28 projects have been funded. Each project has seen a co-investment from industry, universities, other research institutes, and the federal government.
Crunching the numbers for the funded projects shows, on average, the government invested A$2.04 million per project. This indicates that the new A$20 million of funding could support around an additional ten projects. This will stimulate activity and add value to our advanced manufacturing sector.
Innovation Labs
The funding announcement refers to A$10 million to establish Innovation Labs in South Australia and Victoria to serve industry.
It’s difficult to know what this means in reality.
Perhaps the purpose is to provide facilities for early stage innovation to be tested at minimal expense, and reduce the risk of the business making significant investment in infrastructure.
Perhaps it will allow researchers or companies to shore up concepts before seeking investment and raising capital. Maybe existing facilities will seek financial support to expand their remit across a diverse advanced manufacturing sector.
A topical example relates to additive manufacturing – generally known as 3D printing. Businesses producing 3D-printed products need a testing ground to conduct certification and accreditation of products prior to sale. The Innovation Labs could fill this void, and complete the link between laboratory research and commercial product.
Engineering excellence
The funding announcement refers to A$5 million investment in engineering student research at universities, technology institutions and in industry to maintain the flow of highly trained engineers to the automotive design and engineering sector.
At the heart of innovation are people.
Engineers represent one discipline that contributes to the pipeline of innovation. An investment to see the continual training of excellent engineers may address the loss of traditional career pathways.
Perhaps the funds will aid in restructuring of engineering education towards emerging opportunities in the health and medical, agriculture, renewable energy and other sectors.
As more details come to light in the coming weeks and months, the Turnbull government’s vision for Australia’s manufacturing future may become clearer.
But the sense from the manufacturers themselves is that they will just get on and do it anyway.
Drew Evans is associate professor of Energy &amp; Advanced Manufacturing, Australian Research Council Future Fellow, University of South Australia and author for The Conversation. He can be contacted <a href="https://theconversation.com/profiles/drew-evans-22485" target="_blank">here</a>.
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A glimmer of support for innovation and advanced manufacturing

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GUEST OBSERVER
The property market is currently in a state of limbo, particularly those involved in the selling of new property.
Why?
Because the budget statement in relation to helping “reduce pressure on housing affordability” has potentially changed the game and announced dramatic changes to the way depreciation is claimed on property.
Let’s start with the good news:
1. Any existing investment properties purchased (contract exchange date) prior to 7.30pm Tuesday, May 9th 2017 are not affected.
2. Commercial, industrial and other non-residential properties are not affected.
3. Capital works deductions have not been affected. This means you will still be able to claim depreciation on the structure of the building provided it was built after the 16th of September 1987. You will still need a Quantity Surveyor’s depreciation schedule to do so.
Now that we know what isn’t affected, let’s look at what has changed…
According to the budget statement
“From 1 July 2017, the Government will limit plant and equipment depreciation deductions to outlays actually incurred by investors in residential real estate properties. Plant and equipment items are usually mechanical fixtures or those which can be ‘easily’ removed from a property such as dishwashers and ceiling fans.
Here’s the uncertainty….who actually acquired the plant of equipment?
Was it the builder/developer or was it the initial purchaser of the brand new residential property?
This is key.
Why is the government making these changes?
“This is an integrity measure to address concerns that some plant and equipment items are being depreciated by successive investors in excess of their actual value.
Acquisitions of existing plant and equipment items will be reflected in the cost base for capital gains tax purposes for subsequent investors.”
The industry needs urgent clarification on this matter as many agents are currently advising potential buyers on the cashflow advantages of new property. This figures may prove to be inflated and put the developer or marketer at risk further down the line.
You see investors rely on these figures in assessing the merits of the investment.
Here is why I think this is dumb policy.
The proposed changes are being made to “reduce pressure on housing affordability.” In my opinion, it will have the opposite effect for 3 reasons:
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<li>Property investors may now feel that they need to hang on to their existing properties in order to continue claiming depreciation. With these new changes, if they sell this property, they won’t be able to get anywhere near as many deductions on the next one.</li>
<li>Developers rely on high depreciation figures in the early years to show investors how affordable an investment property can be. If the allowances are taken away, they will struggle to get the pre-sales which are required by banks to fund the deal.</li>
<li>These budget measures are forecast to save $260 million over a 3 year period. I suspect far more will be lost if developers can no longer get new projects off the ground.</li>
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Whilst I believe housing affordability is a major issue, this truly appears to be an example of policy on the run…
Here’s the solution:
Plant and Equipment in residential property needs to run it’s natural course.
The ability to re-value and re-assess the item after it’s initial effective life has run it’s course should be squashed.
Put simply, if you a buy a property that is say, 11 years old, and it has a dishwasher installed that had an initial effective life of say 10 years you can't claim it, revalue or re-assess it.
That would alleviate the government's concern that:
“....that some plant and equipment items are being depreciated by successive investors in excess of their actual value. “
This would make a lot more sense in my opinion.
I am looking forward to providing a further update once the legislation is finalised and more details regarding the specifics of these changes come to light.
Tyron Hyde is a director of Washington Brown and can be contacted <a href="https://www.washingtonbrown.com.au/staff/tyron-hyde/" target="_blank">here</a>.
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Budget approach to housing affordability changes the game: Tyron Hyde

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GUEST OBSERVER
Renters are already the weak party at the negotiating table because they cannot ignore their need for a place to live.
But a new series of apps that pit renter against renter will only further tip the balance of power in favour of landlords, making it even harder to get a house.
The fierce competition in the rental market often results in renters paying more than is necessary. Over 150,000 tenants pay more than 50 percent of their incomes for housing. 
These apps may seem like they give renters more power – they are marketed using words like “fairness” and “transparency”, but they also note that landlords are missing out on “millions and millions”. 
Renting is a zero-sum game. Every dollar that a landlord gains is a dollar out of the tenant’s pocket. And in a market already tilted in favour of landlords, these apps could further push up rents.
To address the problem of renting affordability we need technologies that promote more cooperation between renters, rather than competition.
The apps
There are several different rent bidding apps, and they all work in different ways.
Live Offer asks prospective tenants to fill out forms and these are then ranked for the landlord to choose. The prospective tenants can see where they are in the rankings, in real time.
Rentberry is more of a real-time auction site. Prospective tenants submit bids, can see what the current highest bid is and how many bids there have been. 
With Rentwolf, prospective tenants set up extensive profiles, as they would with AirBnB, and then apply for properties through the marketplace.
What is the right price?
Real estate is worth what people are prepared to pay for it. But tenants will always be the weak party at the negotiating table. 
At least as far back as David Ricardo in 1817, economists have theorised that landlords take what is left over once other costs are deducted from the tenant’s income. In other words, rent is as much as tenants are able to pay.
Even before that, Adam Smith recognised that all real estate is a monopoly for landowners. This is because the supply of land is strictly limited, giving excessive negotiating power to whoever owns it. 
But these apps overwhelmingly rely on auctions, which can itself be a problem due to what is called the “winner’s curse”.
Studies have shown that so long as there are at least two motivated bidders, the winning bid tends to either equal the value, or be one bid above it. In other words, the winning bidder in an auction will often overpay and will “suffer” for having won. 
In the case of renters, this means paying excessive rents throughout the lease. Even worse, as more people bid similarly, the ruinous rents become accepted as normal. They become the market rent.
This same phenomenon has been shown in everything from jars of coins to oil-drilling rights and, yes, real estate.
Some research has further shown that in an auction the second-highest bid could be the “rational price”. 
My own controlled experiments have shown that people are easily encouraged by necessity to bid excessively in auctions. This is despite full knowledge of the ruinous consequences. 
This is because people have only a limited capacity to vary their needs. We all need to live somewhere, and our culture limits the options. If the option is sharing with relatives or accepting a lower standard of living due to high rents, then our sense of independence will often prompt our willingness to tighten our belts.
These rental apps will play into these stresses and uncertainties, making it more likely people will overbid in the auctions. This is why these rental apps are likely to result in higher rents.
How technology can reduce rents
Some time ago researchers suggested that renters might be able to reduce rents by banding together.
Working together, renters would be able to create the equivalent of there being only one buyer in the market – a monopsony. A monopsony works like a monopoly, but for buyers rather than sellers. For real estate rents, if land owners enjoy a natural monopoly-like advantage, then tenants have to behave like a monopsony to negate the power imbalance. 
The current crop of rental apps do not address this imbalance. They only inform bidders as to what other, similarly stressed people, are bidding. It stresses them to bid higher.
Already, we are seeing the power of Facebook to build communities around renting. There are groups that help people find flatmates, for example. If the internet is to tackle the problem of renting affordability, then we need to extend this community, for renters to act in unison on rent.
Without a service that seeks to unite renters, rather than have them compete, housing affordability will only get worse. Rent bidding apps will increase landlord revenues and do so at the expense of tenants.
Garrick Small is associate professor, CQUniversity Australia and author for The Conversation. He can be contacted <a href="https://theconversation.com/profiles/garrick-small-369026" target="_blank">here.</a>
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Why rent bidding apps will make the rental market even more unaffordable

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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