The residential transformation of St Kilda Road is set to continue into with more new apartment plans for the sought-after boulevard.

Wing Tai Asia has lodged plans for a major residential tower at 464-466 St Kilda Road, replacing the former VACC House with an 18-storey mixed-use development designed around a retained heritage podium and a sculpted contemporary tower.

The proposal, prepared under Victoria’s Significant Residential Development with Affordable Housing pathway, would deliver 325 apartments and ground-floor retail across the prominent 4,653 sqm boulevard site in Melbourne’s St Kilda Road North Precinct.

The project centres on the adaptive reuse of the site’s heritage-listed VACC Building, an eight-storey office designed by Bernard Evans that has occupied the address for decades. Planning documents state the development would involve “carefully dismantling and conserving off-site the original metal fabric of the podium visible from St Kilda Road,” before reinstating it as the defining frontage of the new scheme.

Above the restored podium, Wing Tai is proposing a curvilinear residential tower. The scheme includes 172 one-bedroom apartments, 63 two-bedroom apartments, 66 three-bedroom apartments, and 24 four-bedroom apartments, alongside two ground-floor food and beverage tenancies fronting St Kilda Road.

The tower has been designed with substantial articulation and variable setbacks to minimise perceived bulk and maintain view corridors along the boulevard. Urbis, which prepared the planning report, said the design “has been significantly articulated through a curvilinear design” with “an interplay with materials, façade expression and depth” to create visual separation and visual interest.

The proposal also includes 254 basement car spaces, landscaped pedestrian links connecting St Kilda Road and Queens Lane, and a biophilic landscape strategy featuring canopy trees, raised planters, cascading greenery and a glass oculus pool overlooking the eastern frontage.

Planning documents confirm the $270.1 million development will contribute 3 per cent of project costs to the Social Housing Growth Fund as part of the application process.

Wing Tai acquired the St Kilda Road property in 2018 alongside Abacus Property Group for $95.38 million, before later consolidating ownership of the site. The property previously served as the Victorian Automobile Chamber of Commerce headquarters for around 60 years.

The transformation of the St Kilda Rd boulevard is already beginning to materialise, with a number of high-profile projects recently completed, launched, or approaching launch as developers continue to back the long-term appeal of the precinct.

Among the most notable recent completions is Louise by Samuel Property Group, just off the strip on Queens Lane, the same pocket Hirsch &amp; Faigen recently launched The Queensbury. Mirvac is too on the same street with The Albertine, which is approaching completion.

Dexus recently secured approval for its slice of St Kilda Road, while Gurner also has approved plans for the precinct.

Joel Robinson

Wing Tai unveils 325-apartment St Kilda Road tower on former VACC House site

Malaysian developer <a href="https://www.apartments.com.au/developers/s-p-setia">SP Setia</a> is the latest to jump into St Leonards booming Transport Oriented Development precinct.

The developer, which has previously delivered Sapphire by the Gardens apartment development in Melbourne, identified the Atchison Street site in 2023. It filed a Scoping Report around 12 months ago, and now has revealed the designs for the new&nbsp;40-storey mixed-use tower.

The State Significant Development Application covers <a href="https://next-portal.urban.com.au/projects/14650/summary">20-22 Atchison Street</a>, a 1,374 sqm site positioned between St Leonards Station and the new Crows Nest Metro station.

Designed by <a href="https://www.apartments.com.au/architects/cox-architecture">COX Architecture</a>, the project would deliver 181 apartments, above a four-storey commercial podium, five basement levels, and new public domain works along Mitchell Street. The apartment mix comprises 35 one-bedroom apartments, 39 one-bedroom-plus-study apartments, 85 two-bedroom apartments, and 22 three-bedroom residences.

The proposal has been lodged as a shop-top housing development under the NSW Government’s TOD planning pathway, which allows increased density around key transport infrastructure. The site sits within the recently rezoned Crows Nest Accelerated TOD Precinct.

<img alt="First look: SP Setia targets St Leonards skyline with 40-storey TOD tower" data-entity-type="file" data-entity-uuid="b799673d-48e2-46b0-801a-0e33a9330100" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/atchinson%20site.png?VersionId=dPh0UfwfaHpbFL1R7H1cbZNbIW0CHbCC" />

SP Setia acquired the Atchison Street site as part of its continued expansion into the Australian apartment market. In comments made to City &amp; Country (The Edge Malaysia) in 2023, SP Setia President and CEO Datuk Choong Kai Wai described the acquisition as “a strategic move” aligned with the group’s post-pandemic market recovery strategy.

“Our target for this exceptional development is local and overseas buyers, including first-home buyers, downsizers and investors,” Choong said.

The tower has been designed as a slender vertical form rising from a mixed-use podium, with COX Architecture positioning the development as a response to the evolving St Leonards and Crows Nest skyline.

“The purpose of the project is to facilitate the delivery of high-quality housing at a strategically located site and deliver a built tower outcome that is consistent with the desired future character of St Leonards and aligns with the TOD controls,” the design report stated.

<img alt="First look: SP Setia targets St Leonards skyline with 40-storey TOD tower" data-entity-type="file" data-entity-uuid="b1a85eee-76f7-436c-a6da-73ba827b9b13" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/atchinson%20entry.png?VersionId=dA9jHGPMcm.dDbwk4QfxqWiY5bfh3UVt" />

The podium would incorporate retail uses fronting Atchison Street, commercial tenancies, landscaped communal areas, and pedestrian improvements along Mitchell Street. Vehicle access and loading would be consolidated via Atchison Lane.

Residents would have access to more than 665 sqm of communal indoor and outdoor spaces, while the development proposes 96 parking spaces across five basement levels.

The proposal also includes a commitment for 10 per cent of residential floor space to be allocated toward affordable housing through a monetary contribution.

COX said the tower form responds directly to the emerging high-density character of the precinct while seeking to maximise solar access, cross ventilation, and outlook from apartments.

<img alt="First look: SP Setia targets St Leonards skyline with 40-storey TOD tower" data-entity-type="file" data-entity-uuid="2163f85c-f63b-4be3-aafa-f8763976cec5" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Article%20Feature%20Image%20%28Grid%29_5.png?VersionId=WiAmtIKJ6.ZQ41EtYEQ1fol7AeorKBlL" />

“The building is orientated towards north,” the Apartment Design Guide compliance report noted, adding that the tower’s slim form was driven by the constrained inner-urban site dimensions.

The design also incorporates landscaped setbacks and communal open space at podium level, intended to soften the interface with surrounding streets and improve pedestrian amenity.

The project adds to a growing wave of redevelopment proposals reshaping St Leonards and Crows Nest following the opening of the Sydney Metro City line and the NSW Government’s push for higher-density housing around major transport nodes.

Last week Stockland filed plans just down the road. They want to build a <a href="https://www.apartments.com.au/new-apartments/601-pacific-highway-st-leonards-nsw-2065">52-storey tower on Pacific Highway</a>.

Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-stockland-plans-52-storey-538-apartment-st-leonards-tower">First look: Stockland plans 52-storey, 538-apartment St Leonards tower&nbsp;</a>

First look: SP Setia targets St Leonards skyline with 40-storey TOD tower

<a href="https://www.apartments.com.au/developers/urban-property-group">Urban Property Group</a> has revealed plans for a new mixed-use tower at 10 Dangar Street, Wickham, advancing a proposal that would reshape the southern gateway to Newcastle’s city centre with one of the city’s tallest residential buildings.

The State Significant Development proposal, now on exhibition, seeks approval for a <a href="https://www.apartments.com.au/new-apartments/bowline-10-dangar-street-wickham-nsw-2293">43-storey tower</a> immediately adjacent to the Newcastle Interchange. The project would deliver around 200 apartments, including 42 affordable housing dwellings, alongside 99 co-living units, a 171-room hotel, retail space, and new public domain integrated through the site.

The scheme marks a significant escalation of plans previously approved for the site. Urban Property Group took over the prominent 2,904 sqm parcel, where excavation and demolition had already commenced under an earlier consent for a 14-storey mixed-use development.

<img alt="First look: Urban Property Group unveils Newcastle’s next supertower at Wickham interchange" data-entity-type="file" data-entity-uuid="58a96dd9-407f-4d20-86b4-94e4bfeef74b" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/wickham%20podium.png?VersionId=LGlf08pdFGAZDzvx_CXC4XakHNZRuEE0" />

Designed by <a href="https://www.apartments.com.au/architects/sjb-architects">SJB</a>, the tower has been conceived as a landmark transit-oriented development anchored to the Newcastle Interchange precinct. The proposal includes 245 build-to-sell apartments across a mix of one, two, and three-bedroom residences, as well as two penthouses. Fifteen apartments and one operational unit are earmarked for NDIS housing. The co-living component would add a further 99 units, while the podium would accommodate retail uses and hotel facilities.

SJB said the site presents “a valuable opportunity to anchor the precinct by setting the standard for design, active ground planes and character at the key southern gateway.”

The architecture responds directly to the site’s position beside major transport infrastructure and within one of Newcastle’s fastest-evolving urban renewal precincts. The tower form sits above a sculpted podium designed to frame new public spaces, including a through-site pedestrian link connecting Station Street to Hannell Street, landscaped plazas, and activated retail edges.

<img alt="First look: Urban Property Group unveils Newcastle’s next supertower at Wickham interchange" data-entity-type="file" data-entity-uuid="a7bd6ff0-f7db-4ce8-a6dc-ea56e72c6149" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/wickham%20lanne.png?VersionId=xzf39VADyhj7zBQY2I9fx9vI62u2tuSb" />

The design report describes the project as part of the broader transition of Wickham into “a vibrant, high-quality mixed-use urban precinct” that leverages proximity to the station, open space, and regional connectivity.

A detailed public art strategy has also been prepared for the development. The strategy positions the project as “a transit-oriented development of state significance at the gateway to Newcastle’s city centre” and outlines a series of integrated artworks responding to Newcastle’s industrial and transport heritage.

Creative Road’s curatorial framework for the project, titled Unveil, draws on “stratified surfaces, carved volumes, and light-filled apertures” while referencing Newcastle’s transformation from an industrial city into a contemporary education and technology hub.

<img alt="First look: Urban Property Group unveils Newcastle’s next supertower at Wickham interchange" data-entity-type="file" data-entity-uuid="77a882bb-14b1-4d28-99ff-9438e39508c0" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/wickham%20site.png?VersionId=cevgo_vN0eKPK78P8YcEu3mKPLkpFqE7" />

The proposal is being advanced through the NSW Housing Delivery Authority pathway after being declared State Significant Development in June 2025. The accompanying scoping report states the development aims to “maximise the site’s proximity to the Newcastle Interchange by delivering transit-oriented development” while increasing housing supply and affordable housing provision within the Newcastle LGA.

Urban Property Group’s plans align with the long-term strategic vision established under the Wickham Master Plan, which identified the interchange precinct as suitable for substantial uplift in height and density. The current proposal would significantly intensify that vision, positioning the tower among the tallest developments proposed for Newcastle.

The site sits immediately north of the Newcastle Interchange, bounded by Dangar Street, Hannell Street, and Charles Street. It is surrounded by a rapidly growing cluster of residential towers and mixed-use projects that have emerged following the completion of the light rail and transport interchange.

First look: Urban Property Group unveils Newcastle’s latest tower at Wickham interchange

Bottega House has completed settlement of a landmark riverfront site in Macquarie Street, St Lucia, representing its first major Brisbane development.&nbsp;

Positioned on the banks of the Brisbane River, the <a href="https://www.apartments.com.au/new-apartments/180-macquarie-street-st-lucia-qld-4067">premium site at 180 Macquarie Street</a> features uninterrupted river frontage in one of Brisbane’s most tightly held residential precincts.&nbsp;

The proposed development, currently under assessment with Brisbane City Council, has been designed by <a href="https://www.apartments.com.au/architects/plus-studio">Plus Studio</a> with interiors by <a href="https://www.apartments.com.au/interior-designers/mim-design">Mim Design</a> and will deliver a boutique collection of premium residences positioned specifically for owner occupiers and downsizers.&nbsp;

The residences are set to redefine luxury apartment living in the area, with a focus on architectural quality, refined finishes, landscape integration and elevated amenities including curated wellness facilities, resort-style pools and recreation spaces rarely seen in the local market.&nbsp;

Exclusive sales for the project will be led by Keenan &amp; Byrne, ahead of an anticipated launch later this year.&nbsp;

Bottega House Managing Director Nick Malloch said the project reflects the group’s ambition to deliver a highly curated residential offering within one of Brisbane’s most tightly held precincts.&nbsp;

“This is an incredibly rare riverfront opportunity and one we have approached with a long-term perspective,” Malloch said.&nbsp;

“Our vision from the outset was to create a boutique collection of residences that feel more like private homes than traditional apartments, with generous proportions, refined finishes and exceptional amenity throughout."

Malloch says there is a&nbsp;lack of premium owner-occupier stock of this quality in the market, particularly for downsizers wanting space, privacy and a true lifestyle offering without compromise.&nbsp;

"Demand is expected to be strong given the scarcity of premium riverfront opportunities of this nature within Brisbane’s inner-west."&nbsp;

Bottega House secures landmark riverfront site in St Lucia 

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The arrival of the first piling rig officially marks the commencement of construction at SIERA’s new beachside apartment development, Exhale, in Northcliffe.

<a href="https://www.apartments.com.au/new-apartments/exhale-surfers-paradise-8-enderley-avenue-surfers-paradise-qld-4217">Exhale</a>, a glass-encased tower featuring 54 large-scale apartments at 8 Enderley Avenue, is SIERA’s third Gold Coast development. It follows the recently completed PIPIS Bilinga beachfront project, which achieved suburb-record prices, and the soon-to-be-completed Chevron Island development, Tapestry.

[smartcode_project:default project_id=112661 project_image_fid=359603]

<a href="https://www.apartments.com.au/developers/siera">SIERA</a> Founder and Managing Director Brent Thompson said the arrival of the piling rig represented a significant milestone for the development, which is scheduled for completion in late 2028.

Over the next month, around 260 piles are expected to be installed as work progresses on the basement structure. The building is anticipated to rise above ground level early next year, before unveiling its sculptural glass curtain wall, developed in collaboration with specialist façade engineers.

“The façade was designed to maximise panoramic coastal views while creating a distinctive architectural identity,” Thompson said.

[smartcode_project:default project_id=112661 project_image_fid=355935]

Designed by BDA Architecture, Exhale will comprise just 54 two- and three-bedroom residences across 26 levels, a level of low-density living rarely delivered in this beachside pocket between Surfers Paradise and Broadbeach.

The project has been conceived as a resident-only building, with no short-stay accommodation permitted. SIERA says the model is intended to appeal to long-term owner-occupiers rather than transient holiday demand.

[smartcode_project:default project_id=112661 project_image_fid=361052]

Residences have been designed with large-format layouts and expansive glazing, with most apartments featuring more than 30 metres of glass frontage to maximise natural light and ocean views.

The amenity offering spans two levels and centres on wellness and lifestyle, including a heated magnesium pool, sauna, yoga and Pilates studio, gymnasium, private dining facilities, cinema lounge, and dedicated surfcraft storage.

[smartcode_project:default project_id=112661 project_image_fid=359607]

More than half of the apartments have already sold. SIERA has also opened a sales gallery for Exhale at its Chevron Island commercial premises, near its Tapestry tower and the site of its second Chevron Island apartment development, which is slated to launch in early 2027.
</section>
</section>

[smartcode_project_cta:default project_id=112661]

SIERA kicks off construction at Northcliffe tower Exhale

National Australia Bank (NAB) has brought forward the timing of the first RBA cash rate cut by three months.

NAB is now expecting a cut in February, in line with ANZ and Westpac, having initially thought a cut wouldn't come until May.

Commonwealth Bank, the nation's largest lender, still thinks the first cut will come in December.

NAB changed its call following the August monthly inflation figures that were released at the end of September, showing it had dropped to 2.7 per cent.

"The risk has been skewed to a first cut earlier in 2025, and today’s change acknowledges the balance of risks has likely shifted sufficiently for the RBA to feel comfortable cutting a little sooner than we earlier expected," NAB noted in its latest update.

They added that the cadence of the cuts may be faster than its central profile.

"Domestic inflation pressures are cooling, but only gradually, and we continue to expect the conditions for a cut will not be in place this year.

NAB believes the easing cycle will end at 3.1 per cent by early 2026, which is five cuts from the current 4.35 per cent cash rate.&nbsp;

CBA also thinks 3.1 per cent will mark the end of the cutting cycle, while Westpac is forecasting 3.35 per cent, and ANZ is the most pessimistic at 3.6 per cent, which would be just three interest rate cuts.

<h2>What would a rate cut in February look like for borrowers?</h2>

According to&nbsp;<a data-saferedirecturl="https://www.google.com/url?q=https://link.mediaoutreach.meltwater.com/ls/click?upn%3Du001.IVvjJ-2BPT0A8C3VxtqKc6e3bj5hBuw27WFEYqovsYs7kPsgFulYrdOzeP8gI7CybJOya3_RgrM7qq-2BfK-2FtAHeRBLv5Qrb-2Bii5fzjLeKcP4w-2FkNgJPXygpiRhVUan3WV3QEggcf617UC8Z60RjQJZAqx7PiO7FtVJQSn0D46Zc3iTVP0kAhTTzG51cPpa5hrqz1OkSA-2BiXAxUajQ686MTtiseWBIdMdknd83aB7cOVgXlVTeHCGf3-2BcMHwfvI8TYlkUovqEhn4dj0KXf2eJGpb9-2BBv20hPXdLlPP9yD7DvFFDBM5yrTqxvcCiMfAsW1onD-2FcriL628eYdhNQE7bwzYrxcOYnmaYfRhGl-2FEHQ6eK2uQcLxs6Cbu6Dx0bYvpi5A6enmxMWU5TkcRYrP6Z8GbXZYtc5qSoKu6eWFBQR9K7fsjXwHMmby3D3X6Yx-2BxcDcdRruTG&amp;source=gmail&amp;ust=1727774368149000&amp;usg=AOvVaw2vK2ujS77CHs9VRvSSXzLC" href="https://link.mediaoutreach.meltwater.com/ls/click?upn=u001.IVvjJ-2BPT0A8C3VxtqKc6e3bj5hBuw27WFEYqovsYs7kPsgFulYrdOzeP8gI7CybJOya3_RgrM7qq-2BfK-2FtAHeRBLv5Qrb-2Bii5fzjLeKcP4w-2FkNgJPXygpiRhVUan3WV3QEggcf617UC8Z60RjQJZAqx7PiO7FtVJQSn0D46Zc3iTVP0kAhTTzG51cPpa5hrqz1OkSA-2BiXAxUajQ686MTtiseWBIdMdknd83aB7cOVgXlVTeHCGf3-2BcMHwfvI8TYlkUovqEhn4dj0KXf2eJGpb9-2BBv20hPXdLlPP9yD7DvFFDBM5yrTqxvcCiMfAsW1onD-2FcriL628eYdhNQE7bwzYrxcOYnmaYfRhGl-2FEHQ6eK2uQcLxs6Cbu6Dx0bYvpi5A6enmxMWU5TkcRYrP6Z8GbXZYtc5qSoKu6eWFBQR9K7fsjXwHMmby3D3X6Yx-2BxcDcdRruTG" target="_blank">Canstar</a>, if there is a cut in February, a borrower with a $600,000 loan today and 25 years remaining would see their monthly repayments drop by $92.&nbsp;

<table border="1" cellpadding="0" cellspacing="0">
	<tbody>
		<tr>
			<td colspan="3">
			Impact of 0.25% pt cut in February 2025
			</td>
		</tr>
		<tr>
			<td>
			Current loan size
			</td>
			<td>
			Drop in monthly repayment
			</td>
			<td>
			New monthly repayment
			</td>
		</tr>
		<tr>
			<td>
			$600,000
			</td>
			<td>
			-$92
			</td>
			<td>
			$3,907
			</td>
		</tr>
		<tr>
			<td>
			$750,000
			</td>
			<td>
			-$114
			</td>
			<td>
			$4,884
			</td>
		</tr>
		<tr>
			<td>
			$1M
			</td>
			<td>
			-$153
			</td>
			<td>
			$6,512
			</td>
		</tr>
		<tr>
			<td colspan="3">
			Source:&nbsp;<a data-saferedirecturl="https://www.google.com/url?q=https://link.mediaoutreach.meltwater.com/ls/click?upn%3Du001.xWMOP9hChsvn-2BC9O-2FebBihXIZ4cEzbiuENdxm-2Bx3-2FYEEgYMhZlKWNj5Zzy1YZ56RuASD_RgrM7qq-2BfK-2FtAHeRBLv5Qrb-2Bii5fzjLeKcP4w-2FkNgJPXygpiRhVUan3WV3QEggcf617UC8Z60RjQJZAqx7PiO7FtVJQSn0D46Zc3iTVP0kAhTTzG51cPpa5hrqz1OkSA-2BiXAxUajQ686MTtiseWBIdMdknd83aB7cOVgXlVTeHCGf3-2BcMHwfvI8TYlkUovqEhn4dj0KXf2eJGpb9-2BBv20v2akwr6-2BqLyRrlEgkJ4J-2BCCyY0x189xEHZA4Ylf8c7ChBqNIkhmftZzoFuZKFn43pw3oJVg2o1gumrpdA-2B7MB-2FBtmL2rFCI-2FXORATQHySCLVOMg7Vywv-2BqnnQUAtDz6XkvpwxdHFXh70VwKazzhJsICilEYOvP4ju0sIfi5g6TL&amp;source=gmail&amp;ust=1727774368149000&amp;usg=AOvVaw2qVnp6oqATgqDUi2Frm22q" href="https://link.mediaoutreach.meltwater.com/ls/click?upn=u001.xWMOP9hChsvn-2BC9O-2FebBihXIZ4cEzbiuENdxm-2Bx3-2FYEEgYMhZlKWNj5Zzy1YZ56RuASD_RgrM7qq-2BfK-2FtAHeRBLv5Qrb-2Bii5fzjLeKcP4w-2FkNgJPXygpiRhVUan3WV3QEggcf617UC8Z60RjQJZAqx7PiO7FtVJQSn0D46Zc3iTVP0kAhTTzG51cPpa5hrqz1OkSA-2BiXAxUajQ686MTtiseWBIdMdknd83aB7cOVgXlVTeHCGf3-2BcMHwfvI8TYlkUovqEhn4dj0KXf2eJGpb9-2BBv20v2akwr6-2BqLyRrlEgkJ4J-2BCCyY0x189xEHZA4Ylf8c7ChBqNIkhmftZzoFuZKFn43pw3oJVg2o1gumrpdA-2B7MB-2FBtmL2rFCI-2FXORATQHySCLVOMg7Vywv-2BqnnQUAtDz6XkvpwxdHFXh70VwKazzhJsICilEYOvP4ju0sIfi5g6TL" target="_blank">www.canstar.com.au</a>. Starting rate is the RBA existing average owner-occupier variable rate of 6.36%. Assumes banks pass the cash rate cut on in full the month after the meeting.
			</td>
		</tr>
	</tbody>
</table>

Canstar Data Insights Director, Sally Tindall, says if core inflation continues to track in the right direction, or unemployment starts to accelerate significantly, we could well see a cash rate cut as early as February of next year.

“All four big banks now believe the RBA will be ready to cut the cash rate in just over four months’ time, if not before, in the case of CBA.

“However, the outlook for both inflation and unemployment is still highly uncertain. A couple of wobbly sets of inflation data could see the RBA holding for longer, particularly if unemployment remains relatively steady."

&nbsp;

Commonwealth Bank, the nation's largest lender, still thinks the first cut will come in December.

NAB bring forward first RBA cut to February 2025

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GUEST OBSERVER
Today’s decision to leave the cash rate unchanged came as no surprise to either economists or market participants. As such, the focus was on the Governor’s accompanying Statement which turned out to be basically a carbon copy of last month’s wtatement.
With concerns around the outlook in China weighing on global markets we thought that the Statement might contain something new on China, but the Governor simply repeated last month’s comment that there has been, “some further softening in conditions in China and east Asia of late”.
The Governor’s comments on the Australian labour market are unchanged which means that their forecasts for a flat unemployment rate over the next year remain intact.
There were only two material changes from last month’s statement. The Governor notes that dwelling prices “continue to rise strongly in Sydney and Melbourne” (last month only Sydney was cited). And Steven’s stated that “the available information suggest that moderate expansion in the economy continues” (last month he stated that “most of the available information.....”)
The Governor again refrained from making any comments around the AUD needing to move lower. In our view, the AUD is currently trading in the RBA’s ‘comfort zone’. It’s has fallen enough to help the Australian economy rebalance without posing a risk to the near term inflation outlook. We see the AUD falling further over the next few months.
The outlook
Markets are assigning a 50% probability that the RBA eases policy again in 2015 (a 29% chance of a November rate cut is priced). In our view, the case to leave rates unchanged is stronger than the case for a near term rate cut so we have the RBA on hold at 2.0%. The forward looking indicators of the labour market are consistent with a flat unemployment while the lower AUD is helping the economy to rebalance. The RBA would need to downgrade their growth forecasts in the November Statement on Monetary Policy to justify a rate cut and in our view that looks unlikely.
The focus for RBA enthusiasts turns to a run of speeches by RBA officials (Assistant Gov. Debelle [7 Oct.], Head of Economic Research Simon [8 October] and Deputy Gov. Lowe [13 Oct]. On the data front, QIII inflation data towards the end of the month and the jobs report next week are the most important pieces of economic information ahead of the November meeting. A decent employment report next week would probably see market pricing for a November rate cut recede. But a poor print and a low CPI outcome would mean that the November meeting would be seen as ‘live’. 
<a href="/images/2015/10/06/Screen%20Shot%202015-10-06%20at%209.09.11%20PM.png" target="_blank">Click to enlarge</a>
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Gareth Aird is economist at Commonwealth Bank and can be contacted <a href="https://www.propertyobserver.com.au/https://au.linkedin.com/pub/gareth-aird/14/790/905" target="_blank">here</a>.
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Melbourne gets added to the strong as October RBA issues a carbon copy of last month’s statement: Gareth Aird

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The Reserve Bank of Australia (RBA) has kept the official cash rate at 2%, for the fifth month. The meeting noted regulatory measures are helping to contain risks that may arise from the housing market. 
CoreLogic RP Data head of research Tim Lawless said the flat rate of growth across the Sydney housing market last month, together with a slowdown in investment related mortgage activity wasn’t enough to sway the RBA into another interest rate cut this month. 
"We saw the rate of capital gain flatten out across the Sydney housing market during September, however the trend rate of growth remains very strong, with Sydney values almost 17% higher over the past twelve months and 4.6% higher over the September quarter," he said.
"In contrast, Australia’s second largest housing market has gathered some momentum over the past quarter, outperforming Sydney with a 2.4% rise in dwelling values last month and a 7.4% shift over the quarter. Other housing market data is suggesting that conditions may be slowing, with clearance rates reducing to the low 70% range in both Sydney and Melbourne on higher volumes and the number of homes available for sale rising higher than a year ago, providing prospective buyers with more options and less urgency in their decision making. 
"With the Aussie dollar holding around the US$0.71 mark, inflation remaining low and labour market conditions relatively steady, the RBA is in a good position to keep interest rates at their record lows.
"The slower capital gain conditions in Sydney may give the RBA some flexibility when considering future interest rate movements, however if the Melbourne market continues to gather pace as Sydney slows down, the effects of slower conditions in Sydney may not be seen in the headline readings for housing market performance. 
"With interest rates remaining on hold, borrowers are still enjoying historically low mortgage rates which should continue to drive demand for housing."
 
Laing+Simmons managing director Leanne Pilkington supported the RBA’s decision to leave interest rates on hold as the wider market undergoes several key shifts heading towards summer.
 
“By maintaining the low interest rate environment for the foreseeable future, the Reserve Bank is providing stability to a real estate market that is otherwise undergoing a significant transition at the moment,” Ms Pilkington said.
 
“Firstly – and at long last – we are beginning to see new stock come online and present some more options for buyers. This is the result of a combination of factors, including a new wave of development bringing new supply as well as the spring selling season playing out.
 
“As a consequence auction clearance rates have been lower in recent weeks, albeit from an extremely high base, as buyers exercise the discretion that comes with more alternatives.
 
“Nevertheless, warnings about auction bloodbaths and plummeting prices remain the domain of doomsayers as opposed to actual experts in the market."
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RBA holds rates at 2% for fifth month

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Statement by Glenn Stevens, Governor: Monetary Policy Decision
At its meeting today, the Board decided to leave the cash rate unchanged at 2.0 per cent.
The global economy is expanding at a moderate pace, with some further softening in conditions in China and east Asia of late, but stronger US growth. Key commodity prices are much lower than a year ago, in part reflecting increased supply, including from Australia. Australia's terms of trade are falling.
The Federal Reserve is expected to start increasing its policy rate over the period ahead, but some other major central banks are continuing to ease policy. Equity market volatility has continued, but the functioning of financial markets generally has not, to date, been impaired. Long-term borrowing rates for most sovereigns and creditworthy private borrowers remain remarkably low. Overall, global financial conditions remain very accommodative.
In Australia, the available information suggests that moderate expansion in the economy continues. While growth has been somewhat below longer-term averages for some time, it has been accompanied with somewhat stronger growth of employment and a steady rate of unemployment over the past year. Overall, the economy is likely to be operating with a degree of spare capacity for some time yet, with domestic inflationary pressures contained. Inflation is thus forecast to remain consistent with the target over the next one to two years, even with a lower exchange rate.
In such circumstances, monetary policy needs to be accommodative. Low interest rates are acting to support borrowing and spending. Credit is recording moderate growth overall, with growth in lending to the housing market broadly steady over recent months. Dwelling prices continue to rise strongly in Sydney and Melbourne, though trends have been more varied in a number of other cities. Regulatory measures are helping to contain risks that may arise from the housing market. In other asset markets, prices for commercial property have been supported by lower long-term interest rates, while equity prices have moved lower and been more volatile recently, in parallel with developments in global markets. The Australian dollar is adjusting to the significant declines in key commodity prices.
The Board today judged that leaving the cash rate unchanged was appropriate at this meeting. Further information on economic and financial conditions to be received over the period ahead will inform the Board's ongoing assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target.
 
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Varied housing prices noted with Melbourne stronger: RBA Governor Glenn Stevens' October 2015 meeting statement

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With one of the country’s biggest lenders announcing lending restrictions to certain suburbs, could this signal changes which could have a much broader impact to the property market? 
Tiered pricing 
It’s not unrealistic for banks to change pricing structures and cap LVR’s based on suburbs. This could take the form of higher rates and/or low LVR caps for certain ‘high risk’ suburbs and lower rates and higher LVRs for what lenders consider a ‘safer’ suburb. A recent example was ING DIRECT’s decision in June to restrict investment lending in NSW to a maximum LVR of 80% (usually 90%), but this has since been restricted to 80% in all other states as well. If this becomes a market-wide issue, this could impact existing owners if they decided to refinance under new rules by making such a move to the goalposts.
Specific apartment developments under the spotlight 
If lenders start to put a red flag on suburbs, specific apartment developments which are deemed high risk or where there’s a glut of development, might be next. This could squeeze a huge percentage of investors out of the market,  reducing the affordability and ‘entry point’ for many first time buyers and see them locked out of certain developments but leave the gate open for overseas investors. 
These two changes could see a big shift in the way people buy property altogether by changing buying habits, upping rates and lowering accessibility for new buyers. 
Change buying habits
If either of these changes occur, we’ll see a shift in the market. Investors will flood certain suburbs because it’s the only places they can buy and owner occupiers will be locked out of certain suburbs due to LVR restrictions. This could have a big impact on property prices - and that of surrounding suburbs - and at a higher level, the demographic make-up of a city. 
Increase in number of declined loans 
Being knocked back for finance based on a building type or suburb could have a residual impact on a borrower’s ability to apply for loans. This could also impact a borrowers credit score more broadly. 
Higher rates across the board 
If tiering and capping presents too much of a logistical challenge for lenders combined with a backlash from borrowers, lenders may choose to cover their credit risk by simply increasing interest rates across the board. 
Lenders withdrawing from some areas altogether 
Mining towns have already been mentioned as high risk areas and if we see large lenders withdraw form these areas, smaller lenders will likely follow suit. This trend tends to apply for most high level changes like pricing or lending criteria – when the big guys move, the smaller lenders follow.
STEVE JOVCEVSKI is property expert at Mozo.com.au.
FOR MORE INSIDER INFORMATION ON PROPERTY LOANS, RATES AND MORE: DOWNLOAD THE<a href="http://propertyobserver.com.au/forward-planning/tools/ebooks-and-webinars/42368-get-loan-savvy-expert-tips-for-a-first-time-investment-or-refinancing-loan-in-a-free-ebook" target="_blank"> FREE MOZO EBOOK</a>.
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Lending criteria changes have potential to lock owner-occupiers out of market: Mozo's Steve Jovcevski

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The Australian Securities and Investments Commission has released a calculator to help potential investors work out three key factors behind an interest-only mortgage.
The interest-only mortgage calculator, <a href="https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/interest-only-mortgage-calculator?utm_medium=email&amp;utm_campaign=MoneySmart+tips+-+October+2015&amp;utm_content=MoneySmart+tips+-+October+2015+CID_0285e24379a5279d45b24b562a5b1177&amp;utm_source=CampaignMonitor&amp;utm_term=interest-only%20mortgage%20calculator" target="_blank">available here</a>, crunches the numbers behind the repayments before and after the interest-only period, the total cost of an interest-only mortgage and how much more you will pay with an interest-only mortgage compared to a principal and interest loan.
ASIC has also released a handy guide to interest-only loans for property investors <a href="/expert-insights/finance/asics-interest-only-guide-for-property-investors">available here</a>, as well as a checklist for property investors considering <a href="/expert-insights/finance/are-interest-only-mortgages-in-your-interest-asic">interest-only payments for mortgages</a>
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ASIC releases interest-only mortgage calculator

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The CAMA RBA Shadow Board believes the RBA will keep the current interest rate on hold at 2% due to a weakening outlook for the global economy and shaky financial markets.
According to the CAMA RBA Shadow Board, due to the latest estimates of inflation at 1.5%, below the RBA’s target band of 2-3%, and delayed action by the US Fed, 72% of Shadow Board members believe the RBA will keep rates as they are.
The said the Australian property market is still looking strong, with the construction PMI surging to 53.8 in August, from 47.1 in July. 
"However, in the same month building permits have fallen by nearly 7%. The local stock market has been suffering considerable losses, the S&amp;P/ASX200 closing below 5000 earlier this week. With heightened uncertainty affecting global capital markets, it is unlikely domestic share prices will rebound significantly," it said.
"The Federal Reserve Bank has delayed the highly anticipated increase in the federal funds rate, citing low inflationary pressure and fragile capital markets. Delayed action by the Federal Reserve is likely to reduce the pressure to increase the domestic cash rate. In Europe, attention has shifted from the Greek debt crisis to the unabating refugee crisis. China’s economy continues to slow, with its manufacturing sector contracting for the second month in a row. Many experts are now expecting China’s GDP growth to fall to 6%. Global capital markets continue to pose threats.
"The probabilities at longer horizons are as follows: 6 months out, the estimated probability that the cash rate should remain at 2% equals 25% (27% in September). The estimated need for an interest rate increase lies at 62% (65% in September), while the need for a rate decrease is estimated at 13% (8% in September). A year out, the Shadow Board members’ confidence in a required cash rate increase equals 68% (six percentage points down from September), in a required cash rate decrease 14% (9% in September) and in a required hold of the cash rate 18% (unchanged)."
 
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RBA to keep interest rates on hold

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GUEST OBSERVER
Fixed rate home loan demand fell significantly last month. 
According to the latest national home loan approval data from Mortgage Choice, fixed rate home loans accounted for just 14.41% of all loans written throughout the month of September – down from 17.41% the month prior. 
Demand for fixed rate home loans hasn’t been this low for more than four years. 
The last time fixed rate demand was this low was back in August 2011, when this type of home loan accounted for 13.78% of all home loans written. 
It seems borrowers are increasingly opting for variable rate home loans as they believe rates are unlikely to rise for some time yet. And, if the minutes of the Reserve Bank of Australia’s September Board meeting are anything to go by, the official cash rate could be left on hold for the foreseeable future.
In the September Board meeting, the Reserve Bank said inflation was forecast to remain consistent with the target over the next one to two years. 
If this proves to be the case, we could see rates left on hold for some time yet. 
Across the country, demand for fixed rate home loans was weakest in Victoria, where this type of product accounted for just 8.61% of all loans written. 
Western Australia was not far behind, with fixed rate home loans accounting for 12.35% of all loans written. At the other end of the spectrum, fixed rate demand was strongest in New South Wales, with this type of product accounting for 16.65% of all loans written.
Of the variable rate loans on offer, ongoing discount products once again proved the most popular with borrowers, with this type of product making up 50.51% of all loans written in September. 
While the property market is showing signs of volatility at the moment, one thing is constant – low rates. 
While rates are low and there is little talk of future rate hikes, borrowers will continue to opt for variable rate products.
<a href="/images/2015/10/02/Screen%20Shot%202015-10-02%20at%208.08.27%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2015/10/02/Screen%20Shot%202015-10-02%20at%208.08.27%20AM.png" alt="">
 
John Flavell is chief executive officer <a href="https://www.mortgagechoice.com.au/" target="_blank">Mortgage Choice</a>.
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Fixed rate demand hits four year low: Mortgage Choice's John Flavell

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GUEST OBSERVER
World interest rates are currently very low. Market expectations for future interest rate movements are also remarkably benign.
If we look at the forward swap curves for US and Australia we note the following profiles:
US: Current Federal Funds Rate is 0.12% and markets expect the rate to be 0.61% in one year’s time.
Over the following years markets expect the Federal funds rate to average: 0.9% in the year to September 2017; 1.4% in the year to September 2018; and 1.8% in the year to September 2019.
Australia: Current RBA cash rate is 2.0% and markets expect that rate to be 1.75% in one year’s time.
Over the following years markets expect the RBA cash rate to average 1.8% in the year to September 2017; 2.0% in the year to September 2018; and 2.4% in the year to 2019.
The question is whether these extremely benign expectations are realistic.
For the US for instance these market expectations imply that even over the next 4 years, when inflation is expected to “settle” at around 2%, real interest rates will still be negative.
Real interest rates are also expected to be negative over that period in Australia with inflation reasonably expected to average around 2.5% - the middle of the RBA’s target 2-3% zone.
How does this outlook compare with the pre-GFC period in the US?
Taking a starting date of 1985, when US inflation had moved towards a more normal range, we note that the FEDERAL FUNDS Rate averaged 5.1% and the 10 year bond rate averaged 6.4%.
Over that period economic growth averaged around 3.2% and inflation around 2.5%. A reasonable “rule of thumb” is for bond rates to reflect the sum of economic growth and inflation. We accept that the “theoretical bond rate is the sum of the real cash rate; expected inflation and the term premium although we would expect that the term premium should be related to an expected growth concept.
With the equilibrium margin between bond rates and the cash rate at around 1.5% the current market expectation for bond rates over the 4 years to September 2019 is around 3% (cash rate averaging around 1.5%).
Most forecasters for the US economy would expect growth to average around 2% and inflation around the same. That suggests that current market pricing for rates is probably too “low”, even given the more subdued outlook for growth and inflation since the GFC.
How does this compare for Australia?
If we take a comparable post boom inflation period for Australia: 1993 – 2007 we note that average GDP growth was 3.7% while inflation averaged 2.6%. The 10 year bond rate averaged 6.5% and the RBA cash rate averaged 5.6%. That “rule of thumb” with growth and inflation broadly in line with bond rates also held for Australia during that period.
The equilibrium margin between the cash rate and the bond rate was around 1% - lower than in the US.
The Forward Curves are pricing in much lower interest rates post GFC than pre-GFC.
Is it indeed reasonable to assume a much more subdued outlook for growth and inflation post GFC?
I believe that the answer is a qualified “yes” mainly due to the headwinds which developed economies are now facing on the demand side as a result of the build -up in private and public sector debt since the GFC.
Consider the US: between December 2003 and December 2007 household debt ballooned from USD 9012 trillion to USD 13228 trillion (up nearly 50% in 4 years). Despite significant write-offs US household debt remains at USD 12692 trillion – limited progress has been made in rewinding the debt. Households are cautious, unwilling to take on more debt – that behaviour blunts the effect of low rates, constrains growth, and widens negative output gaps.
Similarly US government debt has ballooned from USD 7959 trillion in late 2007 to USD 16049 trillion by end June 2015. Governments are a drag on growth constantly seeking to repair fiscal damage – this effect is also likely to continue well beyond even the 4 year period we are considering with the yield curves.
In the case of Australia, gross household debt ballooned from 100% of disposable income in 2000 to 153% by the beginning of the GFC. Households have been able to stabilise this ratio at 155% of disposable income but have had no success in being able to reduce the ratio.
However, we have seen how these debt levels have muted the impact of the RBA’s rate cuts with households generally choosing to use any cash flow improvements to pay down debt rather than boost spending.
Although Australian corporates have generally low gearing they have behaved as if they are in a debt minimising world rather than necessarily profit maximising. Prior to the GFC non mining investment averaged around 13.5% of GDP. That ratio fell sharply to around 10.5% and has remained stubbornly around that level ever since. 
Government debt levels have constrained both state and Federal governments. Net government (including both state and Federal) debt has risen from -1.2% of GDP in 2007/08 to 27% of GDP in 2014/15.
Policies to address fiscal fragility have impacted government’s scope to boost growth on the demand side.
Equally we might address the growth outlook from the supply side. Political difficulties associated with the debt levels have constrained government’s scope to embrace the reform needed to boost productivity while the weak demand conditions tempt governments to slow down immigration impacting on the future growth in the workforce.
Similarly firms’ fixation with debt and associated cautious approach to investment will also detract from boosting productivity.
So do these more subdued growth and inflation outlooks post GFC justify current market pricing?
The answer is a qualified “no”.
US pricing implies a bond rate in equilibrium of around 3% whereas, even in a post GFC world, growth (2%) and inflation (2%) implies a bond rate of around 4% rather than 3%.
For Australia, pricing indicates an equilibrium bond rate of around 4.0% whereas inflation (2.5%) and growth (2.5%) would imply a bond rate much nearer to 5%.
Conclusion
Markets are pricing in an incredibly benign outlook for interest rates. There are good reasons associated with the pre and post GFC build up in debt levels that justify a lower growth and inflation outlook.
But markets have gone too far with these assessments and implied bond and cash rates look to be around 1% lower over the next 4-5 years than economic fundamentals would imply.
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BILL EVANS is chief economist of <a href="https://www.westpac.com.au/" target="_blank">Westpac</a>.
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Benign outlook for growth and inflation: Westpac's Bill Evans

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GUEST OBSERVER
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A shift in the balance of risks in Australia has prompted us to forecast that the RBA will ease rates twice more, in H1 2016.
This shift in tact means that the probability that the AUD overshoots its fundamental fair value has risen and we revise our forecasts lower. The AUD will now trough at USD0.64.
This means that we are now expecting the AUD/NZD to depreciate modestly. We look for the cross to ease towards 1.0850 by the middle of 2016.
The AUD has continued to trade in a fashion consistent with an overshooting framework for the currency (as outlined in our FX Insight published on 14 September). That is to say, global investors have diverted their collective attention away from events in both the domestic economy and broader commodity markets, and have been more focused on financial market volatility.
In the period ahead, the focus is set to shift back to the domestic economy. ANZ is expecting the RBA to ease rates by a further 50 basis points next year. While we do not expect growth to deteriorate drastically, we do think that growth will not be sufficient over 2016 and 2017 to eat into spare capacity in the economy.
Hence, extra policy support will be needed. Risks to global growth remain to the downside, while housing market activity and the weakness in the AUD will have a diminishing impact on the domestic economy as they start to slow. 
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For some time we have highlighted the fact that we expected an overshoot in the AUD and that risks remain tilted to the downside. This shift in our RBA call makes those risks more tangible, and as such prompts us to further reduce our forecasts, with the expectation of a move deeper into overshoot territory.
We take a further 3 cents off of our terminal AUD forecast and expect the AUD to be at USD0.64 by the middle of 2016.
This will have more serious consequences for our expectations for the AUD/NZD cross. A large portion of our previous bullishness on the cross was driven by a divergence in the biases of central banks, where we expected the RBNZ to maintain it easing track, while the RBA to have remained cautiously optimistic.
With the RBA’s bias now matching that of the RBNZ, we see some near term downside in this cross. That said, this is not a shift that will justify a large move – we simply expect the cross to trade back down towards the bottom of its recent range at 1.0850.
 
Daniel Been is ‎senior FX strategist, <a href="https://www.anz.com/corporate/research/" target="_blank">ANZ</a>.
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RBA cuts make overshoot more certain: ANZ's Daniel Been

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GUEST OBSERVER
We now expect the RBA to cut the cash rate by a further 50bps next year, taking the cash rate to 1.50%. Pinpointing the timing of the cuts is tricky, but we are pencilling in 25bp cuts in February and May at this stage. 
Since the Bank cut the cash rate by 50bps earlier this year, we have consistently characterised the risks as being towards further monetary policy easing at some stage. We are now making that our central case. 
The change of view has largely been driven by two factors and our judgement that growth will not be sufficient over 2016 and 2017 to eat into spare capacity in the economy. Hence, extra policy support will be needed. 
First, we recently downgraded our global growth forecasts to ‘more of the same’ from previously expecting a modest pick-up. The downgrade reflects a softer profile for EM growth. Gaining traction in global growth has remained difficult despite very accommodative monetary policy globally. The fact that ‘everyone’ has wanted a lower currency is telling in our view. Risks to growth in Australia’s major trading partners in Asia, and Australia’s terms of trade, are skewed to the downside, with China in particular facing several significant challenges. 
Secondly, while current momentum in Australia’s non-mining economy is sufficient to keep the RBA ‘content’ this year, we see waning support to non-mining growth from housing market activity and the sharply lower AUD next year. Governor Stevens has previously noted that growth in the non-mining economy needs to be above average for a couple of years to eat into spare capacity – at best it is currently around average with little prospect of improving much in our view. At the same time, mining investment has much further to fall. 
With this backdrop, it is difficult to see how inroads can be made into an elevated unemployment rate. Even an expected unchanged jobless rate for two years – as currently forecast by the RBA – would ultimately be very uncomfortable for a central bank, especially if asset prices are flat and domestic interest rates are above global levels. The economic backdrop we have outlined above points to greater risk that unemployment worsens rather than improves over the next 12-24 months. Governor Stevens’ ‘path of least regret’ suggests he will need to cut rates again. 
Where could we be wrong? (i) A large China stimulus, but this would represent just a delay and could eventually make things worse if it furthers inflates imbalances in their economy. (ii) Momentum in the non-mining economy persists for longer than we expect. We actually expect most domestic activity indicators to remain relatively solid over the next few months; it’s next year where we see things softening. 
FIGURE 1. MORE CUTS NEEDED TO EAT INTO UNEMPLOYMENT
<a href="/images/2015/09/24/Screen%20Shot%202015-09-24%20at%204.26.16%20PM.png" target="_blank">Click to enlarge</a>
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GLOBAL GROWTH TRACTION REMAINS HARD WON 
For some time we have been expecting global growth to improve. While we remain constructive on the outlook for the US and Europe, we recently revised down the outlook for world GDP growth (see ANZ Live) and view the risks as being tilted to the downside. Emerging market (EM) economies are now half of global economic activity and the lion’s share of economic growth. It is these economies that are slowing. Our still constructive, even optimistic, view of global growth has it steady at around 3.5% for the next two to three years. 
The risks to this view are to the downside and ultimately centre on EM and China where: growth is slowing in a structural sense; there has been a very significant increase in leverage since the GFC and the spectre of rising bad debts lingers, both limiting the prospect of upside surprises to growth; a changing composition of growth – ie less steel intensive – which is less growth-friendly for Australia in the near term; and policymakers face the challenge of keeping reform ticking over given that growth is slowing. 
FIGURE 2. DOWNSIDE RISKS TO AUSTRALIA’S MAJOR TRADING PARTNER GROWTH
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NON-MINING ACTIVITY WILL WANE 
Despite sharp falls in mining investment and the drag on national income from lower commodity prices, overall growth in Australia has been sufficient to keep the unemployment rate broadly unchanged over the past year or so. Heading into 2016, however, we see two key supports to growth so far – housing activity and the lower AUD – waning. 
HOUSING 
Robust housing market activity, largely in Sydney and Melbourne, has supported growth via strong housing construction and positive effects on consumer spending (directly on household goods and indirectly through ‘wealth effects’). While further growth in housing construction is anticipated over the next 6-9 months, there are clear signs that new housing construction will then peak (Figure 3). While we expect dwelling construction to remain at a high level, particularly in Sydney, the impetus to growth will wane. 
At the same time, cooler housing markets in Sydney and Melbourne, particularly investor activity, would remove a clear hurdle for the Bank to cut rates further. Sentiment in auction markets in the major cities has clearly shifted and already suggests that house price momentum is slowing (Figure 4). Signs are also emerging that borrowing by housing investors has started to moderate in-line with regulators’ plans (Figure 5). We expect investor activity to moderate further.
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Combined with the threat of further regulatory action by APRA if needed, our view is that the Bank will become reasonably comfortable that further rate cuts will not pose significant macro or financial stability risks down the track.
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THE CURRENCY
The belated depreciation of the AUD has clearly supported many parts of the economy. Most evidently, the contribution from net services trade has shifted from the largest ever subtraction from GDP growth to the biggest ever contribution to growth (Figure 6). Along with strong support from housing/property markets, the non-mining services part of the economy has strengthened noticeably. Over 90% of jobs growth over the past year came from just three services industries: professional services, health, and hospitality.
The key here is that even with further expected falls in the AUD, the impetus to overall growth from the currency is expected to diminish (Figure 6 highlights this).
While the AUD continues to play its ‘shock absorber’ role (Figure 7), overall GDP growth remains soft at around 2% whichever way one cuts the data. Even if this understates true growth in the economy, it’s clear that growth is not above average which is where it needs to be to eat into economic spare capacity and send the unemployment rate lower. 
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INFLATION NO OBSTACLE TO MONETARY EASING 
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With growth set to be below trend and spare capacity in the labour market, inflation is likely to remain benign over the next year or so. We expect the inflation ‘pulse’ to remain towards the bottom of the RBA’s 2-3% target range for the medium term. The risks to this forecast, as guided by global factors, are to the downside. 
Global disinflationary pressures are also likely to weigh on inflation. Many studies have shown that global factors are increasingly important, if not dominant, in most countries’ inflation outcomes. Spare capacity in the global manufacturing sector, lacklustre wages growth in developed economies, and persistent weakness in commodity prices are all consistent with a subdued global inflation outlook. 
FISCAL POLICY REMAINS CONSTRAINED 
The other main macro policy lever – fiscal policy – remains relatively constrained despite signs of modestly less restraint recently. Government spending is 20% of GDP. 
The prospect of looser fiscal policy to assist growth is negligible, with the new Commonwealth Treasurer Scott Morrison stating this week that expenditure at over 26% of GDP is “not something that we believe is sustainable”. His comments suggest the current trajectory for a tightening in fiscal policy through smaller underlying cash deficits each year for the next three remains firmly in place. Equally, state governments have given no indication that they intend to stray from their policies of keeping a tight rein on expenditure. 
But what about the pick-up in infrastructure spending? Centred on Sydney, this will provide some modest additional support to overall growth in the coming years. Our view has been, and remains, that this support is relatively modest in the face of ongoing weakness in non-residential building and ongoing large falls in mining and related investment.
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CONFIDENCE BOOST FROM NEW LEADERSHIP NOT ENOUGH
While it is encouraging to see a strong lift in consumer confidence following the change in Australia’s political leadership, it may not be enough to move the dial on the economy in the next 12-18 months. Even if the jump in consumer confidence, and what we expect to see as a jump in business confidence, is sustained over the next six months, that needs to be translated into investment spend and employment growth. We doubt it will, or at least not enough to offset the effects of a softening in property markets and weaker EM growth.
The government needs to focus on two key planks to economic policy, both medium to long term in nature. First, they need to get the government’s finances in order. This is well advanced, but more work needs to be done. As noted above, this will be a headwind to the economy, rather than a support. Second, they need to present a vision for Australia’s economy and communicate and legislate the adjustments to how our economy operates to get there. This takes time and may even come at the cost of growth in the short term.
As we move into 2016, sub-par economic growth in the context of weaker property markets will leave the job of supporting activity, once again, to the RBA. In our view, a modest downward adjustment to the cash rate will ensure stable unemployment and support economic activity over the medium term. 
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Warren Hogan is chief economist and Justin Fabo is senior economist, <a href="https://www.anz.com/corporate/research/" target="_blank">ANZ Research</a>.
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