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GUEST OBSERVER
There is much confusion about the effects of Labor’s tax proposals with respect to investors in rental housing. They propose to grandfather existing arrangements. But investors in the future can only negatively gear newly constructed housing, while the policy recommends the capital gains discount fall from 50% to 25%.
Claims by Prime Minister Malcolm Turnbull that house prices will collapse appear to be contradicted by his assistant treasurer Kelly O'Dwyer who claims that housing costs will soar. These puzzling assertions arise due to a failure to distinguish between the market in rental housing, where housing is leased, and the market in which investors and owner occupiers buy and sell housing. Critically these two markets are interrelated.
To see why, consider the first round effects of Labor’s proposals when we put the grandfathering arrangements to one side (for the moment). Some existing investors will sell up when leases come up for renewal. There are now more tenants seeking rental housing opportunities than there is supply to meet their demand. Rents will begin to rise.
But the houses which investors quit add to the properties available for sale; there are now more houses available for purchase than there are buyers. House prices will begin to fall.
These market signals trigger a second round of effects. Some tenants will elect to buy rather than rent. After all renting has become more expensive and home ownership has become cheaper. These second round effects help to put a floor under falls in house prices, and help cap rent rises.
By considering the inter-relationships between the two markets we can understand how the government has issued apparently contradictory statements. Rents will rise and so the housing costs of tenants will increase. But there will be falls in house prices (or more likely a slower growth in prices); while existing owners take a hit, first home buyers housing costs are lower and attainment of home ownership becomes more affordable.
The second round effects mean that impacts are likely to be muted. This is made even more likely by a grandfathering proposal that should prevent a stampede by existing investors seeking to relinquish their property investments.
A disappointing aspect of the debate so far has been its neglect of the longer term structural consequences of Labor’s suggested reforms. Our current arrangements encourage high tax bracket investors to take on debt in the “chase” for capital gains. Capital gains are leniently taxed as compared to ordinary sources of income, such as earnings and rents.
Only 50% of capital gains are added to assessable incomes. This is particularly attractive to high tax bracket investors. Moreover, they are taxed on realisation rather than as they accrue. The shrewd investor realises the gains when assessable income from other sources declines; for example, following retirement when the investor’s marginal tax rate commonly falls.
There are not enough high tax bracket investors willing and able to invest in all our private rental housing stock. They tend to cluster in those segments of the market where healthy capital growth is expected, but rental yields are lower. Low tax bracket investors tend to cluster in segments where capital growth is expected to be subdued. Typically these are areas with lower house prices. To ensure adequate returns rental yields have to be higher in these low house price segments.
We therefore get a distorted investment pattern that disadvantages the supply of affordable rental housing.
Labor’s proposals will curb these distortionary effects by reducing the capital gains discount. They will also reduce the tax incentives to leverage investments. Rising indebtedness is a threat to the resilience and stability of our housing market.
Many believe that repayment and investment risks carried by heavily indebted home buyers played a central role in precipitating the global financial crisis. Tax concessions that favour taking on debt exacerbate those risks. If Labor’s proposals succeed in attracting attention to these and other structural problems that plague Australian housing markets, they will have a much wider significance.
 
Gavin Wood is professor of housing, RMIT University and author for The Conversation. He can be contacted <a href="https://theconversation.com/profiles/gavin-wood-113723" target="_blank">here</a>.
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jchancellor-FAypfDUnLy

Will Australian house prices collapse if negative gearing changes?

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GUEST OBSERVER
The Australian tax debate has placed negative gearing under scrutiny. Most of the debate lurches between retentionists, who back negative gearing as a necessary subsidy to support affordable housing, versus abolitionists, who see it as a market-distorting extravagance that delivers an unfair advantage to the wealthy.
But what if there was a middle option between retention and abolition that made it work better?
Negative gearing allows investors to claim a tax concession against their personal income for losses incurred on a rental investment property. It is estimated to be worth around A$8 billion a year in tax concessions.
There is a somewhat obscure technical argument in favour of negative gearing for equalising concessions for property investment losses with similar concessions for other investment classes. But most participants in the debate about negative gearing treat it as a subsidy for investment in housing supply.
The abolitionist argument hinges on two main issues. First, it distorts investment by encouraging deliberate loss-making in property investment. Second, as a form of subsidy, it adds inflationary pressure to housing markets that favour already wealthy investors over home buyers. And the federal government pays for it in tax revenue forgone.
Retentionists, however, argue that abolishing negative gearing would lead to an adverse supply shock in the rental housing sector. That would result in housing shortages, higher rents, and worsening affordability for low-income households.
Labor has taken a moderate abolitionist stance. It proposes to restrict negative gearing to new housing, though with the concession continuing for loss-making landlords who already receive it.
The Coalition government has not yet stated its position on negative gearing. However, there appears to be a strong retentionist stream within government policy statements. The government is also being assailed by property sector lobby groups advocating retention.
<h2>We’re flying blind on policy reform</h2>
There may be another perspective that sits between abolition and retention. A sensible reformist view might be encouraged by the federal government’s preparedness to, in effect, subsidise private market housing by $8 billion per year.
But such a view might also lament the extraordinarily ineffective targeting, outrageously poor transparency about who receives the subsidy, and egregious lack of accountability for supply outcomes.
These concerns emphasise the gross information gaps about the landlords who receive the subsidy and the rental houses that incur the concession. We generally know which landlords receive negative gearing, their occupational status and their income levels. We don’t which properties in the rental market are negatively geared, nor the social status of their tenants.
Thus there is no transparent connection between the landlords receiving the subsidy, the dwellings that are negatively geared and the status of the tenants who live in them. This means there is no direct empirical way to verify whether negative gearing benefits low-income tenants.
The federal government seems willing to forgo $8 billion in tax revenue to subsidise rental housing supply. Surely, then, it ought to ensure this concession assists the neediest tenants in the most pressured parts of the housing market and make landlords transparently accountable for this.
Labor’s partial abolition proposal takes a minimal step towards transparency by limiting negative gearing to new properties.
<h2>Let’s talk about the alternatives</h2>
A reformist approach would seek better value for the government’s A$8 billion-a-year investment, in terms of improved affordability for tenant households. How might this work?
The key requirements would be to ensure transparency about which dwellings are negatively geared and the socioeconomic status of their tenants. There are various ways to achieve this.
One model would be to tie the negative gearing subsidy to specified tenant groups. In this case, only if landlords let properties to target tenants, such as those on Newstart, sole parent or aged pension, would they receive the subsidy. This could be done by requiring tenant social security numbers to be reported with landlord tax returns to enable verification.
This approach could be extended by capping the value of weekly rents on properties to which negative gearing could apply. Locational targeting could focus the subsidy to areas with high market rents and poor affordability.
The transition to such a model could be phased in by starting with minimal transparency and accountability requirements and ramping up to more specific requirements. Additional compliance costs would raise the cost of investing in housing. But, it would weed out the investors who are seeking pure profit and encourage those with a social perspective.
A second model that extends transparency and accountability could involve converting negative gearing to a formal low-income housing tax credit <a href="https://theconversation.com/americas-rental-affordability-crisis-is-about-to-go-from-bad-to-worse-48143">as operates in the US</a>. Such a model provides a tax credit for investors in affordable housing that is certified as managed by a legitimate social housing provider. This could be the fillip that Australia’s small community and non-profit social housing sector needs.
A third model might be to channel negative gearing to a dedicated financial investment vehicle drawing on private investment for affordable housing that is built for or let to low-income tenants. There has been a long-standing debate in Australian housing policy circles about the need for long-term institutional investment in affordable housing.
A finance vehicle that offered a return on capital to investors supported by a tax concession could underpin new affordable housing supply. Other countries have used housing bonds in this way to attract additional investment in affordable housing.
Another model could use a reverse auction approach, with landlords competing to supply housing of certain specifications to tenants of a particular income category in return for set levels of tax credit. This would operate in a similar way to the government’s carbon abatement plan, which involves a reverse auction for renewable energy projects. Though this might raise transaction costs, it might encourage helpful institutional consolidation in the private rental sector.
A fifth approach might be for the government to provide the A$8 billion as vouchers to low-income tenants for use in renting housing of a set standard or location. Landlords would then cash these vouchers in as tax concessions. The US operates a subsidy model of this type known as “Section 8”.
A final option would be to simply take the $8 billion-a-year subsidy represented by negative gearing and build desperately needed public housing. Such an approach guarantees transparency and accountability and could directly build around 20,000 dwellings a year, or more with leveraged private finance.
No doubt the current subsidy could be remixed in multiple other ways to improve effectiveness, transparency and accountability in how it procures affordable housing. The examples offered above show that we could be having a much more positive debate about negative gearing than just abolition or retention.
 
Jago Dodson is professor of Urban Policy and director, Centre for Urban Research, RMIT University and author for The Conversation. He can be contacted <a href="https://theconversation.com/profiles/jago-dodson-2359" target="_blank">here</a>.
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Negative gearing: scrap or preserve?

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According to leading economists and market commentators, liquidity has started to tighten in Australian markets in direct response to regulatory changes implemented by Australian Prudential Regulation Authority (APRA) across the banking sector forcing banks to hold more capital. 
In addition, global and macro-economic factors are adding to the squeeze on liquidity and the impacts on the domestic property sector are far-reaching.
The writing has been on the wall for some time. In mid-2015 we could see market conditions driven by APRA were leading banks to reducing their appetite for construction and development.
So far in 2016, credit for the property sector has tightened even further, particularly from the banking market. All major banks have reduced funding on a loan to valuation ratio basis and also by limiting exposure to developer and construction clients. Some banks now openly state they will not underwrite to new clients in this sector.
The credit pricing has bottomed out.
The increase of margins is partly a way for the banks to respond to return on equity dilution through the increased capital requirements by APRA and potentially alleviate margin squeeze due to liquidity pricing movements on their balance sheets.
Examining Credit Default Swaps (CDS) shows the major banks experienced a blow out at the beginning of 2016 to levels not seen since 2012. As an example, in January, 2016 the CDS price for NAB credit was below 80 basis points and has spiked at around 136 basis points with a current level of around 125 basis points.
This is the first time since the onset of the GFC where we have seen margin pricing increases in the banking market, on property investment loans as well as development and construction loans. Whilst CDS pricing has been at above these levels post GFC, the banks have not increased margins, but at that time they were not dealing with APRA requirements and pressures on profitability.
This trend is growing and market indicators all point toward further margin increases in the short term and securing finance in the next six to 12 months will be critical as setting finance now will lock in margins at historic lows and avoid any potential credit crunch issues.
 
Domenic Lo Surdo is executive director of Stamford Capital and can be contacted <a href="https://www.stamfordcapital.com.au/people" target="_blank">here</a>.
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Is Australia set for a credit crunch? Domenic Lo Surdo

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<div>Two neglected terraces houses in adjoining inner city suburbs went to auction last night, each having their own terribly sad tale.</div>
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<div>Both seemed set to be pretty much a battle of builders to secure the home improvements project in Paddington and Surry Hills.</div>
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<div>The run down Paddington terrace on 50 sqm in Sydney's prestigious inner east suburb secured $1 million at auction through Di Jones selling agent Adam McKay.</div>
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<div>The Paddington property originally had an auction guide of $750,000 but the auction guide was cautiously updated to $800,000.</div>
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<div>
The tradie's got beat as sold for $1 million to a professional home decorator who beat off very strong tradie buyer interest.
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<div>"I like to do up old homes," the (unnamed) Rozelle buyer said. "I've already called my builder. He will do a good job, and I will enjoy living there," she said after the auction win.
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<div>Yellow work vests and steel capped work boots galore at the auction in the upmarket auction room.</div>
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<div>The tradie underbidder was at $975,000. </div>
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<div>The opening $400,000 offer was refused, so bidding instead got under way at $675,000 on the Iris Street offering.
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<div>McKay noted the prospective budget for even the most essential renovation kept most young families from participating in the auction, despite the price being well below the norm.</div>
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<div>
 Paddo's median house price sits around the $1.7 million mark, according to CoreLogic RP Data. It is $1.4 million in Surry Hills.
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<div>Renovation costs are currently soaring in Sydney, up eight percent year on year, compared to a national increase of only 1.5 percent, according to a recent report by services marketplace Serviceseeking.com.au.
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<div> </div>
<div>Carpentry and building saw the largest price increases, up 26 percent and 18 percent due to the labour shortages in the state.</div>
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<div>There are two bedrooms, one bathroom and no toilet as such in the home previously owned by late artist Christina Coombes.</div>
<div>
The property was involved in a bizarre court case where an Iraqi refugee tried to claim the dank hovel by suggesting he was Christina's lover, cat minder and dancing partner for 17 years.
Christina's neighbours intervened and said that he was nothing more than a fruit and junk salesman who occasionally sold items to her.
Christina bought the property with her late butcher husband Kenneth Coombes in 1965 for £3,200.
</div>
<div>Fewer and fewer property in such disrepair - often with the old time dunny in the back yard - now come on to the market given the decades of million dollar makeovers that owners have undertaken in what is perhaps Sydney's most primped and primed suburb.</div>
<div>
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<div>Nothing these days under $1 million.
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<div>
The Surry Hills offering came with its own tale with the woman Sydney forgot to be honoured by the man who bought her terrace house for $1,105,000.
</div>
<div>
Natalie Jean Wood’s skeletal ­remains were found in 2011 in her dilapidated Surry Hills home, where they had lain undiscovered for almost eight years. She was 86 years old.
Her terrace house at 139 Kippax St, described by real estate agents at PRDnationwide Perez Real Estate as completely ­uninhabitable, sold at auction.
“I felt very sad by the story and I’m going to find her grave and leave flowers on it,” the buyer told The Daily Telegraph.
“It just goes to show how sad it is that people aren’t close to their neighbours any more. I won’t forget her.”
Before the auction, agent Corrinne Olsen said she expected the deceased estate to go for about $600,000 to $700,000 based on early interest.
“I thought at most it would go for $850,000,” she said.
There were 28 registered buyers.
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Sydney's timewarp inner city auctions attract strong buyer interest

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The Toorak home of the former ANZ boss Mike Smith and his wife Maria, has been listed for sale.
Set in landscaped gardens with mature French lime trees, the five bedroom home comes with pool and a tennis court wrapped in hedging. 
The expressions of interest campaign closes March 22. 
It was designed by architect Wayne Gillespie with renovations by Rob Mills
<a href="https://www.realestate.com.au/property-house-vic-toorak-121970422" target="_blank">Ross Savas at Kay &amp; Burton</a> is seeking $14 million plus.
Late last year Smith and his wife Maria purchased former Olympic Committee member Kevan Gosper’s three-bedroom apartment in <a href="/expert-insights/buying/kevan-gosper-sells-tower-of-power-south-yarra-sub-penthouse">South Yarra’s botanical gardens precinct</a>.
The Smith's paid $9.75 million for the Hopetoun Avenue home in 2008.
The retain the landmark Spray Farm winery on the Bellarine Peninsula.
Mike Smith and his wife, Maria bought historic <a href="/news/anz-boss-mike-smith-buys-historic-spray-farm-on-bellarine-peninsula">Spray Farm at Bellarine in 2014</a>.
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Retired ANZ banker Mike Smith lists Toorak home

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GUEST OBSERVER
When Australian media company Fairfax reported its recent results, the improved performance of its online real estate business, domain.com, appeared to violate a widely held “law” of the digital economy - that digital creates a winner which takes all markets.
After a number of years trailing behind News Corp Australia owned realestate.com.au (REA), domain.com appears to have narrowed the gap with its major rival and its aggressive strategy of growing its user base is translating into improved revenue.
Closer examination however suggests this result might just be a temporary pause in a much more profound transformation taking place for digital in the residential real estate industry. One that is likely to see the emergence of a new set of players.
<h2>Can there only be one?</h2>
It’s become commonplace for observers of the digital economy to claim that digital creates “winner takes all” markets. The classic example is Google’s dominance in the search market. Estimates suggest Google accounts for more than 75% of search, and almost 90% of organic search traffic, with its major rivals, Microsoft’s Bing and Yahoo struggling to get out of single digits. This effectively places Google in a monopoly position and allows it to create enormous revenues through products like paid search and adwords.
Using this example it would be tempting to conclude that REA, having established a healthy lead over domain.com in terms of unique visits and exclusive listings, would pull away from its Fairfax rival and come to dominate the Australian residential real estate market.
Instead, Domain is closing the gap on its rival. In part this reflects domain.com’s aggressive strategy of driving traffic to its site, one that ironically parallels the approach taken by News-owned carsguide.com.au in its battle with caresales.com.au. It also suggests that domain.com’s focus on the user experience is beginning to pay off.
Unlike REA, which has made a virtue out of outsourcing all its development, Domain has retained inhouse development expertise and this has given it the ability to more rapidly add new features that enhance the user experience, such as its mapping functionality.
While there are important lessons here for business about not giving up and continuing to focus on the customer, viewed in longer perspective, it’s hard not to conclude that domain.com’s improved performance might just be a temporary reversal of a much more significant transformation taking place in the domestic real estate market.
There can hardly be a market more ripe for disruption than residential real estate. Australian residential housing stock is worth an estimated A$5 trillion and the market is riddled with the type of information asymmetries and inefficiencies that emerging technologies are ideally suited to address. While REA and domain.com have displaced the listing of properties in newspapers, they have hardly transformed the industry. Rather they seem to offer a digital version of traditional real estate listings with a few additional bells and whistles. Both are underpinned by largely similar revenue models.
<h2>Reinventing the market</h2>
It’s worth remembering that before Google, search was dominated by Yahoo, Alta Vista and Netscape. Google transformed search by developing an algorithm based on relevancy that improved the results users gained from searching the web and by rethinking how it monetised search. Rather than try to keep users on its page and bombarding them with advertising, Google directed users away from its page and towards the pages they were looking for. It’s reasonable to expect that the residential real estate market is likely to undergo a similar transformation over the next few years.
It’s interesting to compare the very traditional approach of realestate.com and domain.com with the radically different business models that are emerging in startups looking to disrupt the residential real estate market.
A good example is openagent.com.au, an Australian-based startup founded by two young women who started their careers in consulting. Recognising the highly localised nature of real estate markets and the importance of agents, openagent.com.au takes advantage of publicly available data sets and user reviews to provide sellers and buyers with reviews and metrics on agents in their local areas.
Rather than attempt to charge users for accessing the information, or agents for better listings, openagent’s revenue comes from the referral fees payable by agents who get listings as a result of the reviews on the site. This is a much purer digital play than either REA or domain.com. By providing them access to data in a usable form openagent.com.au seeks to empower buyers and sellers and increase transparency in this very opaque market.
Perhaps the most important lesson Fairfax could draw from the performance of domain.com is not that the winner takes all logic of digital markets is reversible, but that they should have the courage of their convictions and go all in on digital, in the residential real estate market. Rather than just try to close the gap on REA it should be seeking to build a business that will do away with the need for businesses like domain.com at all. It might just find that if the solution it develops is good enough, the law of winner takes all will reassert itself.
Nick Wailes is associate dean Digital and Innovation, UNSW Business School, UNSW Australia and author for The Conversation. He can be contacted <a href="https://theconversation.com/profiles/nick-wailes-108369" target="_blank">here</a>.
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Domain versus REA shows it’s time Fairfax went all in on digital

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<div class="cq-article-content-paras section">
In its first interim half year results since listing, McGrath Estate Agents yesterday reported record revenue of $74.9 million, with listings up 23 percent, sales volumes up 15 percent and properties under management up 28 percent.
Excluding the cost of the IPO, pro-forma net profits rose 13 percent to $8.5 million. 
McGrath Ltd plans to pay a maiden final FY16 dividend of 4.5¢ a share.
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<div class="cq-article-content-paras section">
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<img src="/images/2016/02/25/Screen%20Shot%202016-02-25%20at%209.43.17%20AM.png" alt="">
But perhaps given fears of housing market disruption, McGrath Ltd shares hit a new low despite the real estate group saying it had met all its prospectus forecasts in its first interim results since floating on the ASX last December.
McGrath shares began the day at $1.70 falling to $1.37 soon after the publication of the group's first interim results and ended the day at $1.45.
The company floated at $2.10. It is trading at $1.46 in today's trade.
"For myself and the people in the company it is a concern. [The float] has not yielded the results we expected, but we are in it for the long term" Mr McGrath, who owns 61 per cent of McGrath Limited, told the Australian Financial Review.
The report noted challenging market conditions due to short term industry uncertainty "outside of our control" - APRA regulatory changes, slowdown in Chinese buying activity, stock market volatility impacting near term confidence and concerns about possible changes to negative gearing.
Listed on ASX on 7 December 2015, it reported the number of sales over the half year was up 15% to 6,492.
The properties under management up 28% to 7,648.
Its agent numbers were up 59 (10%) to 624.
The company had no debt, with $14 million cash and an undrawn $11.5 million term facility.
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McGrath meets prospectus forecasts, but shareholders spooked by housing market disruption

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Boutique advisory firm Moelis &amp; Co is closing in on a deal to buy pubs portfolio Redcape Hotel Group, according to the well-placed Street Talk column in the Australian Financia Review.
It is understood Moelis and Redcape have signed a heads of agreement, which will allow final due diligence.
Moelis reduced its offer for Redcape earlier this month after share market volatility meant the initial public offering was off the table.
It was suggested the current offer price is around $620 million compared to $650 million.
An ASX listing was considered last year with hedge funds York Capital and Varde Partners cashing out. 
Redcape owns 23 pubs in NSW.
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Moelis in Redcape deal?

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Construction activity eases: Construction work done in the December quarter fell by 3.6 percent, driven by a 9.5 percent slump in engineering work. Residential work lifted by 2.8 per cent to record highs while commercial building rose 2.5 percent.
Building inflation: Building inflation rose by 1.1 per cent in the December quarter, the biggest quarterly gain in seven years. The annual rate of construction inflation rose from 1 per cent to 1.9 percent – matching the fastest annual growth rate in four years.
Slow wage growth: The wage price index rose by 0.5 percent in the December quarter after a 0.6 percent rise in the September quarter. Annual wage growth eased from 2.3 percent to a record (18-year) low of 2.2 percent.
Industry with fastest annual wage growth: Financial and insurance services (up 2.8 percent) followed by education &amp; training (up 2.6 percent).
Industries with slowest annual wage growth: Administrative and support services (up 1.4 percent), followed by Mining (up 1.5 percent).
The data on construction work is important for builders, building material companies and developers.
What does it all mean?
The ‘baton pass’ from engineering to residential building is clear for all to see. Engineering work continues to recede while home building has hit new highs. Interestingly building (residential and commercial) has surpassed engineering in terms of total work for the first time in five years. The results are even more staggering when you consider that just two years ago engineering work surpassed total building by more than $11 billion. 
The speed of the turnaround has shown up in the patchiness across the national economy and in effect highlights the difficulties faced by policymakers in trying to shore up growth.
<a href="/images/2016/02/25/Screen%20Shot%202016-02-25%20at%209.02.12%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/02/25/Screen%20Shot%202016-02-25%20at%209.02.12%20AM.png" alt="">
The wages data confirmed that inflation is well and truly in check. However an area to watch over the next couple of quarters is inflationary pressures in the high-flying home building sector. Inflation in the construction sector rose by the 1.1 percent in the December quarter – the fastest quarterly growth rate in seven years. The lack of inflation in the rest of the economy should ensure that for the moment the latest result doesn’t trouble the Reserve Bank.
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<img src="/images/2016/02/25/Screen%20Shot%202016-02-25%20at%209.05.59%20AM.png" alt="">
Clearly, the job market is improving because the cost of labour has become more affordable for businesses. While low wage growth is good for keeping costs down for businesses, modest real wage growth (wages less prices) makes it more difficult for consumer-focussed businesses.
Real wage growth remains positive – around 0.5 percentage points if judged against “headline” inflation (15-year average 0.7 percentage points) and around 0.2 percentage points when judged against “underlying” inflation.
Today’s data is unlikely to alter the Reserve Banks thinking when it comes to rates. While policymakers may discuss the merits of another rate cut, they are unlikely to pull the trigger on domestic conditions. Rather a rate cut would be driven by changes in the global environment.
What do the figures show?
Construction Work
Construction work done fell by 3.6 per cent in real (inflation-adjusted) terms in the December quarter after sliding by 1.8 percent in the September quarter. Work done is down by 4.3 percent on a year ago. Public sector construction work rose by 1.2 percent in the quarter while private sector activity fell by 4.6 percent.
Construction work fell in five of the states and territories in the December quarter. Leading the falls was Northern Territory (down 17.7 percent), followed by Western Australia (down 9.5 percent), Tasmania (down 4.3 percent), South Australia (down 3.1 percent), and Queensland (down 1.4 percent). Tasmania (down 1.8 percent) and ACT (down 0.6 percent). Construction rose in Victoria (up 1.1 percent), ACT (up 1 percent) and NSW (up 0.2 percent).
Engineering work fell by 9.5 percent in the December quarter and has now fallen almost 25 percent in the past three years. Engineering construction is down by 14.7 percent on a year ago.
Commercial (non-residential) building rose by 2.5 percent in the December quarter to be up 2.2 percent over the year.
Residential building rose by 2.8 percent in the December quarter and was up by 11.5 percent over the year.
Alterations &amp; additions fell by 1.2 percent in the quarter while new residential work rose by 3.3 percent.
The measure of inflation in the construction sector (deflator) rose by 1.1 percent in the December quarter, the biggest gain in 7 years. The annual rate of construction inflation rose from 1 percent to 1.9 percent – matching the fastest annual growth rate in four years. Engineering prices rose by 1.5 per cent in the quarter (up 0.8 percent over the year) while building prices rose by 0.5 percent in the quarter (2.7 percent over the year).
Wage price index
The wage price index rose by 0.5 percent in the December quarter after a 0.6 percent rise in the September.
Annual wage growth eased from 2.3 percent to a record (18-year) low of 2.2 percent.
Private sector wages rose by 0.5 percent in the quarter while  public sector wages also rose by 0.5 percent.
Annual growth of private sector wages fell from 2.1 percent in the September quarter to a record low of 2.0 percent in the December quarter. Public sector wage growth fell from 2.8 percent to 2.6 percent in the December quarter.
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<img src="/images/2016/02/25/Screen%20Shot%202016-02-25%20at%209.13.15%20AM.png" alt="">
 
Including bonuses, wages rose by 0.5 percent in original terms in the December quarter to be up 2.2 percent on a year ago – a record low. Private sector wages including bonuses rose by 0.5 percent in the quarter to be up 2.1 percent on a year ago (or up 2.2 per cent at a total hourly rate).
Industries with fastest annual wage growth: Financial and insurance services (up 2.8 percent), followed by education &amp; training (up 2.6 percent) and Manufacturing and retail trade (both up 2.5 percent).
Industries with slowest annual wage growth: Administrative and support services (up 1.4 percent), followed by Mining (up 1.5 percent), Professional, scientific and technical services and Construction (both up 1.6 percent).
Annual wage growth across States &amp; Territories: NSW, 2.1 percent; Victoria, 2.4 percent; Queensland, 1.9 percent; South Australia, 2.3 percent; Western Australia, 1.8 percent; Tasmania, 2.2 percent; Northern Territory, 2.4 percent; and ACT, 1.6 percent.
What is the importance of the economic data?
The Bureau of Statistics releases quarterly estimates of  Construction work done. The estimates are based on a survey and cover around 85 percent of the construction work done in the period. Revised estimates will be released in coming months. The data is useful largely for historical purposes but the work yet to be done estimates provide an early warning signal of future activity. The residential work figures give a good early guide to the strength of residential investment in the national accounts.
The Wage Price Index has been compiled since September quarter 1997 and measures quarterly changes in wage and salary costs for employees. The index is based on a representative sample of employees, and includes measures of non-wage costs including superannuation, payroll tax, public holiday and workers compensation.
The Wage Price Index is useful in measuring wage pressures in the economy. While strong growth in wages would boost domestic spending, it could also serve to lift employer costs and prices and add to economy-wide inflationary pressures. The wage price index is a measure of hourly pay rates (excluding bonuses).
What are the implications for interest rates and investors?
There is plenty of work in the construction sector. But there are winners and losers across states and industry sectors. Construction activity in Queensland remains a concern. In the past two years, construction work has slumped by 45 percent in Queensland – the most of any state or territory. The lack of construction work in Queensland needs to be addressed by the State Government as it is robbing the economy of momentum.
In contrast to Queensland, construction activity in Victoria hit record highs in the December quarter. Builders, tradespeople and construction firms need to be mobile in the current environment.
The Reserve Bank will be pleased about current trends in construction. Overall activity is correcting as expected and adjusting to the new realities. And while inflation in the home building is higher than in the rest of construction and higher than consumer prices, that is to be expected given soaring activity.
We expect the Reserve Bank to stay on the interest rate sidelines over coming months.
<a href="/images/2016/02/25/Screen%20Shot%202016-02-25%20at%209.21.01%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/02/25/Screen%20Shot%202016-02-25%20at%209.21.01%20AM.png" alt="">
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Tame wages and home building at record highs: Savanth Sebastian

<html><body>
GUEST OBSERVER
The construction sector is a source of weakness as work on major mining projects nears completion.
This was apparent in 2015, with a soft end, -3.6%qtr, to a soft year.
This is the third consecutive year of decline: -2.2%yr December 2013; -5.9%yr December 2014; and -4.3%yr December 2015.
In Q4, the upswing in home building activity provided only a partial offset to mining sector weakness, as did the emerging upswing in public infrastructure, centred on transport projects.
Construction activity will subtract around 0.4ppts off Q4 GDP, a bigger hit than we anticipated, around -0.25%.
By state, weakness in Q4 was understandably centred in the mining jurisdictions: –17.7% NT; –9.5% WA; and to a less extent Qld, –1.4%.
Work was resilient in NSW, +0.2% and advanced in Victoria, +1.1%.
Details
Total construction                –3.6% Private construction            –4.6% Public construction             +1.2%
Private - by segment
Infrastructure                        –13.9% Dwelling, new                      +3.6% Dwelling renovations          –1.0% Non-res. building                 +4.6%
Public - by segment
Infrastructure                        +3.9% Building                                 –6.9%
Andrew Hanlan is senior economist for Westpac and can be contacted <a href="https://www.propertyobserver.com.au/https://au.linkedin.com/pub/andrew-hanlan/3/222/430" target="_blank">here</a>. 
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Construction work in Q4 fell more sharply than anticipated: Westpac's Andrew Hanlan

An entity directed by HSN's Rafi Assouline and Rebel Property's Allen Linz has filed plans for an impressive new precinct in Woolloomooloo.

The major mixed-use development would transform a prominent William Street site into a new residential village anchored by affordable housing and a large public park.

The proposal, submitted as a State Significant Development Application, covers 164-172 and 174-194 William Street, a 6,398 sqm site between Forbes Street and Dowling Street on the southern edge of Woolloomooloo.

Designed by fjcstudio in collaboration with Bangawarra, Studio Bright and Tribe Studio Architects, the scheme would deliver 227 apartments across four residential buildings ranging in height up to 18 storeys, alongside retail space, public domain improvements and a new publicly accessible park.

<img alt="Rebel" data-entity-type="file" data-entity-uuid="0eb59b7c-914a-4a5c-b849-3a56749f5e93" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-06-12%20at%2011.18.51%E2%80%AFAM.png?VersionId=mxM6EEqeoLjrCiTlCzTKTvzpKuh6kSkH" />

It's another design scheme for Rebel, who took <a href="https://www.apartments.com.au/news/nsw/first-look-rebel-property-group-takes-woolloomooloo-precinct-to-nsw-government">concept plans to the NSW Gov late last year</a>.

The latest plans will be a mix of 167 build-to-sell apartments and 60 affordable apartments, with the affordable housing component representing 15 per cent of the project's gross floor area. The apartment mix includes 12 one-bedroom, 53 two-bedroom, 89 three-bedroom apartments and 13 penthouses, while the affordable housing component would comprise 42 one-bedroom and 18 two-bedroom apartments.

<img alt="Rebel" data-entity-type="file" data-entity-uuid="3b3d4553-8a8c-4af5-aa8c-519ffb1e28c6" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-06-12%20at%2011.20.12%E2%80%AFAM.png?VersionId=_Yb6ibN7eDnOtQjCNDK2eviORa4qzgv." />

Rebel Property is seeking to take advantage of the NSW Government's infill affordable housing bonus provisions under the Housing SEPP, which provide additional floor space and height in exchange for the delivery of affordable housing for a minimum of 15 years. The planning pathway allows a 30 per cent increase in floor space ratio and building height where 15 per cent of the development is dedicated to affordable housing.

&nbsp;

At the centre of the development is a 1,356 sqm sunlit public park designed to become a new community gathering space at the gateway to Woolloomooloo. The park would be complemented by a network of pedestrian laneways connecting William Street with the surrounding streets, improving permeability through what is currently a largely impermeable block.

<img alt="Rebel" data-entity-type="file" data-entity-uuid="257af931-a393-4007-8c6d-7219796df58d" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-06-12%20at%2011.20.51%E2%80%AFAM.png?VersionId=KAHy94GrhaReFsWTGDKfy39EDJ8gEEv4" />

The design team says the public domain has been heavily influenced by the site's topography and Aboriginal cultural heritage, drawing on the escarpments, gullies and landscape characteristics that historically defined the area before urbanisation. The landscape design has been developed in partnership with First Nations consultancy Bangawarra.

The project would be delivered across four separate buildings. The William Street East and William Street West buildings, designed by fjcstudio, would contain the majority of the apartments. Melbourne-based Studio Bright has designed the Forbes Street building, while Tribe Studio Architects is responsible for the Dowling Street building.

Rebel had secured approval for the concept plans late last year.

Joel Robinson

First look: HSN, Rebel, advances Woolloomooloo precinct plans

A locally heritage-listed furniture showroom on Water Street is set to become the centrepiece of a new mixed-use residential development as local developer&nbsp;<a href="https://www.apartments.com.au/developers/keylin-group">Keylin</a> seeks approval for <a href="https://www.apartments.com.au/new-apartments/lotus-on-water-street-290-water-street-fortitude-valley-qld-4006">Lotus on Water Street</a>, a 15-storey project on the Fortitude Valley side of Spring Hill.

The proposal spans 290 Water Street and 137-141 Warry Street, combining several properties into a 2,869 sqm site that sits between Fortitude Valley, Spring Hill and the rapidly evolving Victoria Park precinct. Keylin's plans would deliver 132 apartments alongside new retail, hospitality and commercial space, while retaining and repurposing the historic Brunswick Home Furnishers Showroom that fronts Water Street.

Designed by <a href="https://www.apartments.com.au/architects/jackson-teece">Jackson Teece</a>, Lotus on Water Street comprises a 12-storey residential tower rising above a three-storey podium and communal rooftop terrace. The development includes 76 apartments classified as multiple dwellings and a further 56 units proposed as short-term accommodation, designed to be flexibly used as either accommodation or permanent residences. The apartment mix comprises six one-bedroom, 54 two-bedroom and 16 three-bedroom homes.

<img alt="First look: Keylin unveils heritage-led Lotus on Water Street tower in Fortitude Valley" data-entity-type="file" data-entity-uuid="9822bb79-6c49-49c9-95ba-319e8c8d81c3" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/fortitude%20valley%20front.png?VersionId=ioW8zbN4UVebbLetTFuv92t.HkdgfR5e" />

Residents would have access to an extensive rooftop recreation level spanning more than 1,200 sqm of communal open space. Plans include a pool, gym, sauna, infrared sauna, yoga area, library, private dining room, barbecue facilities and landscaped entertainment spaces, making the rooftop the project's largest shared amenity offering.

At street level, the proposal focuses on the adaptive reuse of the heritage buildings along Water Street, where 518 sqm of retail and commercial space is planned across shop, office and food and drink outlet uses. A permeable residential lobby would be positioned between the retained heritage buildings, creating a pedestrian connection between the historic streetscape and the new tower behind.

<img alt="First look: Keylin unveils heritage-led Lotus on Water Street tower in Fortitude Valley" data-entity-type="file" data-entity-uuid="269cf3e0-7d13-48bf-a318-05a00deb5c10" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/fortitude%20valley%20podium.png?VersionId=DLXmTCLsp6GOcLpQ0h.0z7wKCw59EhN_" />

The heritage retention strategy is central to the scheme. The development application notes that the Brunswick Home Furnishers Showroom and adjoining heritage buildings will remain, with only non-significant structures on the site earmarked for removal under a previously issued Heritage Exemption Certificate. Levels one and two of the new podium are recessed behind the heritage façades to maintain their prominence within the streetscape.

Jackson Teece has drawn inspiration from the site's manufacturing history when designing the podium. The planning documents state that the façade incorporates perforated metal screening that references the woven and rattan furniture historically produced on the site. Cascading and climbing plants are integrated throughout the podium to soften the building's presentation and screen parking levels behind. The landscape strategy also informs the project's name, Lotus on Water Street, drawing on the historic Spring Hollow waterholes that once ran through Spring Hill and the blue water lilies associated with Meeanjin, Brisbane's traditional name.

The proposal also incorporates the neighbouring property at 141 Warry Street, currently occupied by a healthcare service. The existing building would remain, with nine dedicated parking spaces allocated within the new development to support its ongoing operation. In total, Lotus on Water Street proposes 117 car spaces, including 110 resident spaces and seven visitor bays, alongside 100 bicycle spaces.

<img alt="First look: Keylin unveils heritage-led Lotus on Water Street tower in Fortitude Valley" data-entity-type="file" data-entity-uuid="70cf07bc-4fd8-4e70-92dd-be8b21c4e4f0" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/fortitude%20valley%20site.png?VersionId=txlxrJImM0Sm_vTzHVKh5DDUkyL_CiiA" />

The site sits within the Spring Hill East Precinct of the Spring Hill Neighbourhood Plan and is positioned around 650 metres from both Fortitude Valley Station and Exhibition Station. It is also within walking distance of the King Street precinct, Royal Brisbane and Women's Hospital, Herston Quarter and Victoria Park, which is earmarked to become a major venue precinct ahead of the Brisbane 2032 Olympic and Paralympic Games.

Planning documents describe the location as a key gateway between Spring Hill and Fortitude Valley and highlight the area's increasing importance as new transport infrastructure and Olympic-related investment reshape Brisbane's inner north. The development team argues the project will contribute additional housing supply while activating a section of Water Street that has historically received less investment than other parts of the Valley.

Keylin has become increasingly active across Brisbane and southeast Queensland, assembling sites in strategic inner-city locations. They are currently selling and delivering <a href="https://www.apartments.com.au/new-apartments/oria-spring-hill-447-gregory-terrace-spring-hill-qld-4000">Oria Spring Hill</a>, just over 140 apartments due for completion in 2027.

Keylin plans heritage-led Lotus on Water Street apartment development in Fortitude Valley

Roseville is poised for a wave of new apartment development following the NSW Government's rezoning of land around Roseville Station under its Transport Oriented Development program.

The new planning controls have unlocked significant development potential within walking distance of the station, with a number of sites expected to be amalgamated and redeveloped in the coming years as developers seek to take advantage of the increased density allowances.

One of the more restrained developments in the precinct, and set among the first to be delivered having commenced well before the recent changes, is Hyecorp's Juliet. The boutique apartment project is already well under construction and remains on track to welcome residents by the end of the year, offering a markedly different proposition to many of the larger-scale developments now likely to emerge across the suburb.

[smartcode_project:default project_id=7395 project_image_fid=278194]

<a href="https://www.apartments.com.au/new-apartments/juliet-roseville-64-pacific-highway-roseville-nsw-2069">Juliet</a> will comprise just&nbsp;34 one-, two-, and three-bedroom apartments opposite Roseville Station. For Hyecorp, which has delivered projects across Sydney's Lower North Shore for more than three decades, Roseville presented a rare opportunity to address a growing gap in the market.

"<a href="https://www.apartments.com.au/developments/roseville-nsw-2069">Roseville</a> has long been one of the North Shore's most tightly held and desirable suburbs, offering a unique combination of village charm, established greenery, excellent transport connections, and proximity to some of Sydney's best schools and lifestyle amenities," Hyecorp said.

"We recognised a growing demand from local homeowners seeking to downsize without leaving the community they have built their lives around. The location presented a rare opportunity to create homes that cater specifically to that buyer profile."

[smartcode_project:default project_id=7395 project_image_fid=278196]

The six-level development has been designed by <a href="https://www.apartments.com.au/architects/pbd-architects">PBD Architects</a> as a collection of residences that feel more like homes than apartments. The brief centred generous floorplans, abundant natural light, quality finishes, and strong connections to outdoor space.

PBD Architects drew inspiration from Roseville's established garden suburb character, creating a building that sits comfortably within its surroundings rather than dominating them. The architecture incorporates natural materials, soft forms, layered landscaping, expansive balconies, and generous setbacks to strengthen the connection between residents and the suburb's leafy environment.

"The focus was on designing spacious, house-like residences for discerning owner-occupiers and downsizers who wanted to remain on the North Shore without compromising on comfort, privacy, or design," PBD said.&nbsp;

"Every apartment was to feel considered, timeless, and highly functional."

[smartcode_project:default project_id=7395 project_image_fid=278195]

Inside, residences feature engineered timber flooring, stone kitchen benchtops and splashbacks, integrated Fisher &amp; Paykel appliances, ducted air conditioning, and large outdoor entertaining areas designed to take advantage of district and treetop views.

Residents will also have access to a rooftop barbecue and lounge area, alongside practical amenities including parcel lockers, EV charging capability, bicycle storage, a dog wash bay, and a basement car wash facility.

The majority of purchasers so far have been local owner-occupiers from Roseville, Lindfield, Chatswood, Killara, and the broader Upper North Shore, many of whom are transitioning from larger family homes.

"Buyers are looking for spacious, house-like apartments that allow them to downsize without feeling like they are sacrificing comfort or functionality," Hyecorp noted.

"They value large kitchens, generous living areas, ample storage, quality finishes, secure parking, lift access, and low-maintenance living."

[smartcode_project:default project_id=7395 project_image_fid=278204]

Juliet sits directly opposite Roseville Train Station and within walking distance of Roseville Village, while Chatswood's retail and dining precinct is only minutes away. The development is also surrounded by some of Sydney's most established schools, including Roseville College, Ravenswood, Pymble Ladies' College, and Knox Grammar, as well as nearby parklands and golf courses.

Juliet is currently more than 75 per cent sold ahead of its anticipated completion in late 2026.

[smartcode_project_cta:default project_id=7395]

Juliet to sit quietly amid Roseville apartment boom

Sherpa Property Group has unveiled the third instalment of its Flourish series, securing full approval for the two-tower, $500 million Flourish Soleira development in Palm Beach.

<a href="https://www.apartments.com.au/new-apartments/flourish-soleira-1150-1154-gold-coast-highway-palm-beach-qld-4221">Flourish Soleira</a> will rise from a prominent site in the commercial heart of Palm Beach, the long-time home of Cash Converters and a range of local retailers.

The project will introduce a new retail and dining precinct at ground level, beneath 286 apartments.

[smartcode_project:default project_id=150017 project_image_fid=370959]

“We’re very committed to not only providing affordable residential offerings that are much needed in Palm Beach, but also delivering a vibrant new commercial heart that complements the extraordinary growth of the southern Gold Coast,” Sherpa Property Group founder Christie Leet said.

The development will sit under Sherpa's Flourish brand, which is aimed at providing a pathway into the beachside suburb for locals, first-home buyers and downsizers. In a move designed to assist first-home buyers entering the market, Sherpa has reserved all one and two-bedroom, one-bathroom apartments exclusively for eligible first-home buyers.

[smartcode_project:default project_id=150017 project_image_fid=370964]

“Our vision through Flourish is to create a vibrant retail and lifestyle focal point within the Palm Beach centre zone, delivering thriving communities underpinned by lifestyle-rich locations,” Leet said.

“So far, Flourish has been an incredible success, and we hope to carry this momentum as we progress the next two Flourish projects in Palm Beach.”

[smartcode_project:default project_id=150017 project_image_fid=371430]

Located across 1150-1164 Gold Coast Highway and 3 Sixth Avenue, the development will comprise two towers. The northern tower will deliver 154 apartments, while the southern tower will add a further 132 residences, helping address ongoing demand for new apartments in the tightly held coastal suburb.

Flourish Soleira will also feature the most extensive rooftop amenity offering ever delivered in Palm Beach.

The two towers will be connected by a skybridge, with residents gaining access to a rooftop recreation deck featuring a full-width swimming pool, hot and cold plunge pools, wellness spaces, a gymnasium, private dining facilities, massage treatment rooms, barbecue areas, a basketball court, golf simulator, indoor and outdoor dining spaces, sun lounges and extensive landscaping.

LPS Group is expected to start construction later this year.

Sherpa is already well advanced on construction of its debut Flourish project, Flourish Amargo, located just around the corner from Soleira. Meanwhile, Flourish Oasis, positioned opposite Amargo, recently commenced construction and has nearly sold out its collection of 47 apartments.

[smartcode_project_cta:default project_id=150017]

Sherpa unveils $500m mixed-use Palm Beach precinct, Flourish Soleira

Are mortgage holders set to get a reprieve from the RBA in 2026?

Big Four bank NAB believes so. They are now expecting the next move from the RBA to be a cut, rather than a hike, which they had pencilled in for August. They are unsure of the timing of the cut however, they note in their latest&nbsp;NAB Economics RBA Watch.

NAB Chief Economist, Dr Sally Auld, said recent data suggests the economy has lost momentum and the outlook for rates has shifted, noting that the broader economic backdrop has changed since earlier in the year.

“The next move in the cash rate is likely to be down, but the timing is uncertain," Dr Auld said.

"In February, growth was above trend, the economy was operating above capacity and there was uncertainty over the restrictiveness of rates. None of these conditions exist today,” she outlined.

Dr Auld said recent data pointed to softer momentum across the economy while acknowledging that at the same time, uncertainty remains a key feature of the outlook.

“Both Q1 GDP data and the NAB business survey suggest momentum in the economy has slowed, meaning that growth has likely peaked for the cycle. That said, we are cognisant there is still considerable uncertainty around the outlook, both with respect to activity and inflation.”

Dr Auld said inflation risks and labour market outcomes would be important to watch.

“On the prices side, we are still forecasting above target core inflation through to mid-2027. Margins will compress and weaker labour market outcomes are a risk.”

She said tighter financial conditions are expected to weigh on housing and activity.

“Tighter financial conditions will be reflected in a slowing in house price growth and housing credit growth. In summary, we have greater conviction that the next move in rates is down, but less conviction on the timing.”

Jonathan Chancellor

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