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Melbourne’s apartment market entered 2026 with renewed momentum, but the recovery is uneven, policy-driven, and increasingly shaped by constrained supply.

According to the RPM Apartments &amp; Townhomes Market Report (April 2026), apartments have begun to outperform detached housing on key metrics,yet that performance is occurring against a backdrop of falling approvals and a tightening development pipeline.

At the end of 2025, Melbourne unit values reached a three-year high of $656,500, recording quarterly growth of two per cent. That figure edged ahead of the 1.8 per cent growth recorded in the house market over the same period, marking a notable shift in relative performance. While modest in absolute terms, the outperformance is significant given the sustained dominance of houses through much of the previous cycle.

This shift has been driven in large part by policy. The federal government’s expanded five per cent Deposit Scheme has had a disproportionate impact on apartment demand, particularly in Melbourne where the $950,000 price cap captures a large share of medium- and high-density stock.

As RPM notes, the scheme “heavily favours medium and high-density dwellings,” effectively accelerating demand in the apartment sector.

The impact is most visible in buyer activity. Victoria recorded more than 43,000 new housing loans in Q4 2025, the highest quarterly volume since mid-2022 and one of the strongest results in over a decade. This lift was broad-based across all buyer types, with first home buyers, owner-occupiers and investors all returning to the market with greater confidence.

This surge in demand has flowed directly into apartment pricing, particularly in Melbourne’s middle and outer rings. Middle-ring unit values reached approximately $757,500, a four-year high, while outer-ring units climbed to a record $650,000. Quarterly growth of 2.9 per cent and 2.5 per cent respectively significantly outpaced both the inner ring (0.8 per cent) and the broader house market.

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<img alt="RPM" data-entity-type="file" data-entity-uuid="4628dde5-ad63-4b03-b18e-77d0f750e2aa" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-04-24%20at%209.23.32%E2%80%AFAM.png?VersionId=ig6mqc7Oz7UaszRuzULrGtLPUxGf4NJC" />

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The divergence between apartments and houses is also being shaped by affordability. Detached housing remains out of reach for many buyers, pushing demand toward apartments as a more accessible entry point into well-located suburbs. This is particularly evident among first home buyers and downsizers, both of whom are increasingly prioritising location, amenity and lifestyle over land size.

At the same time, population growth continues to underpin demand. Victoria added more than 122,000 residents in the year to Q3 2025, with Melbourne attracting both overseas migrants and interstate movers, partly due to its relative affordability compared to other capitals.

&nbsp;

<img alt="Population" data-entity-type="file" data-entity-uuid="49e10567-a8b3-47c3-afbd-290f0bb62c49" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-04-24%20at%209.22.25%E2%80%AFAM.png?VersionId=.2Drmko4TPh02X55JdF3mIC1EcG0ZfGl" />

However, the most critical factor shaping the apartment market is not demand, it is supply.

Apartment approvals across Greater Melbourne have fallen sharply, signalling a constrained pipeline of future stock. In Q4 2025, just 2,339 apartments were approved, down 20 per cent on the previous quarter and 47 per cent lower than the same period a year earlier. On an annual basis, 11,066 apartment approvals were recorded, an improvement on the previous year, but still well below medium- and long-term averages.

&nbsp;

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This decline reflects a broader contraction cycle that has been underway since 2020. As RPM notes, “apartment approvals appear to be sliding back into a downward trend,” with developers increasingly focused on launching and completing existing projects rather than initiating new ones.

The reasons are well understood. Construction costs have risen more than 20 per cent since 2021, driven largely by labour shortages and material price escalation. At the same time, financing conditions have tightened, with lenders requiring higher contingencies and taking a more cautious approach to risk. Combined with recent interest rate rises, these factors have made feasibility more challenging, particularly for higher-density projects.

This dynamic is creating a disconnect in the market. Demand for apartments—particularly at the more affordable end—is strengthening, while the pipeline of new supply is weakening. In the short term, this may limit the number of new projects coming to market. Over the medium term, however, it is likely to support price resilience and potentially further outperformance relative to houses.

There are some signs of policy-driven supply response. The introduction of Victoria’s Mid-Rise Code, which streamlines approvals for four- to six-storey developments, is expected to improve delivery in well-serviced middle-ring locations. However, this is unlikely to materially offset the broader decline in apartment approvals in the near term.

Despite the positive momentum at the end of 2025, the outlook for 2026 has become more complex. Two interest rate rises early in the year have already impacted consumer confidence, while broader cost pressures, particularly energy and fuel, are feeding through to construction and development costs.

“Victoria’s built form market ended 2025 on a high, but early 2026 rate rises quickly reversed the momentum,” RPM notes.

The implication is that while apartments are currently outperforming houses, the trajectory of that outperformance will depend on how these competing forces evolve. Policy support and affordability are clearly working in favour of apartments, but constrained supply and rising costs are likely to shape the pace and nature of future growth.

What is increasingly clear is that apartments are playing a more central role in Melbourne’s housing market. As population growth continues and affordability pressures intensify, higher-density housing is becoming not just an alternative to detached homes, but a primary solution to the city’s housing needs.
</section>

Joel Robinson

Units lead Melbourne price growth as apartments outperform houses: RPM

Brunswick is set for some of its largest apartments ever delivered with the upcoming new development Frith &amp; Howarth, where the apartments are around 20 per cent larger than what has come before it in the sought-after suburb.

Developer Young Group focused its design on Frith &amp; Howarth around size and scale, but within a boutique building, to create a mini neighbourhood within the mid-rise development. There are just 24 apartments in the mid-rise building on Victoria Street, a short walk to Brunswick Station and the cafe and dining strip along Sydney Road.

“We spent hours comparing what’s currently on the market so we could offer genuine points of difference,” Young Group says, pointing to room sizing, storage, and functional planning as key drivers behind the design.

All of the two-bedroom apartments in the building have been snapped up, with just the large three- and four-bedroom apartments, with the biggest floorplans and best outlooks, remaining.

[smartcode_project:default project_id=134317 project_image_fid=354139]

Apartments open directly into open-plan living zones where full-height glazing draws light deep into the apartment. Sliding doors extend the space outward to terraces, many oriented toward the adjacent park or back toward the city skyline.

Kitchens sit within this central space, anchored by sculptural island benches that reference the building’s faceted exterior language. Storage is integrated across multiple layers, overhead cabinetry, concealed joinery, and, in larger configurations, dedicated sculleries or butler’s pantries.

[smartcode_project:default project_id=134317 project_image_fid=354137]

The penthouse is the largest ever offered in Brunswick. The penthouse measures nearly 400 sqm all-up, with 242 sqm of internal space complimented by a further 149 sqm of terraces.

It spans the whole top floor and has four bedrooms, four bathrooms, and parking for four cars.

[smartcode_project:default project_id=134317 project_image_fid=354133]

Low maintenance resident amenity has been created in the form of a landscaped rooftop, complete with&nbsp;vegetable plots, outdoor cooking areas, and aflresco dining spaces, designed as a place for neighbours to gather outside of their homes.

“To enable connection with neighbours, generous rooftop gardens with communal spaces and outdoor cooking areas offer a chance to develop a sense of community,” says John Patrick, Principal of <a href="https://www.apartments.com.au/landscape-architect/john-patrick-landscape-architects">John Patrick Landscape Architects</a>.&nbsp;

“Private open spaces with a selection of native and exotic plantings and gorgeous city views on the rooftop create a high-end aesthetic, with a low maintenance lifestyle. The perfect balance, so that residents can enjoy a serene living space.”

[smartcode_project:default project_id=134317 project_image_fid=354134]

Sustainability is embedded at both the building and apartment level. <a href="https://www.apartments.com.au/new-apartments/frith-howarth-288-290-victoria-street-brunswick-vic-3056">Frith &amp; Howarth</a> is one of only a small number of all-electric residential developments in Brunswick, supported by solar infrastructure, EV-ready parking, and high-performance glazing. These measures sit alongside less visible systems such as rainwater reuse and high-grade insulation, reducing long-term operational costs while maintaining consistent internal conditions.

Positioned within walking distance of Brunswick Station, Route 96 trams, and established retail along Sydney Road and Barkly Square, the development balances access to transport with proximity to open space, a combination that has become increasingly difficult to secure in inner-city sites.

“These exquisite homes are nestled in a culturally diverse neighbourhood, with parklands and nature right on your doorstep,” says Young Group.

[smartcode_project_cta:default project_id=134317]

Frith & Howarth to deliver Brunswick’s largest apartments

<a href="https://www.apartments.com.au/new-apartments/prince-parade-by-mirvac-brunswick-701-park-street-brunswick-vic-3056">Prince &amp; Parade</a> in Brunswick is entering its final stages of construction, with the removal of the project’s last tower crane and the unveiling of the building’s full façade marking a significant milestone ahead of completion this coming spring.

The Park Street development, designed by <a href="https://www.apartments.com.au/architects/bates-smart">Bates Smart</a>&nbsp;and Mirvac Design with landscaping by <a href="https://www.apartments.com.au/landscape-architect/jack-merlo">Jack Merlo</a>, is now largely structurally complete, with internal works progressing across the 169-apartment project opposite Princes Park.

<a href="https://www.apartments.com.au/builders/mirvac-construction">Mirvac Construction</a> Project Manager Sam Payne said the latest update reflects a transition from structure to refinement.

“Since our last update, all façade panels have been installed and the scaffolding and gantry has come down, unveiling the building in its full form for the very first time,” Payne said.

“A significant milestone was reached this month with the removal of our final tower crane, signalling the completion of major structural works and a pivotal step forward in the building’s transformation.”

[smartcode_project:default project_id=4802 project_image_fid=366856]

Apartments are now well advanced internally, with joinery completed to level eight and tiling to level six, alongside the delivery of a prototype apartment used to set the benchmark for the remaining residences.

This next phase coincides with the release of a completed furnished residence, styled by MCM House, and the introduction of private buyer tours, giving purchasers a clearer understanding of the finished product ahead of settlement.

<a href="https://www.apartments.com.au/new-apartments/prince-parade-by-mirvac-brunswick-701-park-street-brunswick-vic-3056">Prince &amp; Parade</a> will comprise 169 one to four-bedroom apartments, with completion targeted for early spring. Interiors focus on natural materials and muted tones with two design schemes, while kitchens and bathrooms adopt a restrained palette anchored by stone, timber and textured finishes.

Bates Smart Director Jeffery Copolov said the project reflects a shared design direction centred on liveability and sustainability.

“Blending Mirvac and Bates Smart’s focus on wellness and sustainability, <a href="https://www.apartments.com.au/new-apartments/prince-parade-by-mirvac-brunswick-701-park-street-brunswick-vic-3056">Prince &amp; Parade</a> offers a new kind of conscious, elevated living in Melbourne’s inner north,” Copolov said.

<a href="https://www.urban.com.au/new-apartments/prince-parade-by-mirvac-brunswick-701-park-street-brunswick-vic-3056">Prince &amp; Parade</a> presents Mirvac's third parkside collaboration with&nbsp;<a href="https://www.urban.com.au/architects/bates-smart">Bates Smart</a>&nbsp;in Victoria.&nbsp;Their previous collaborations delivered two of the city’s landmark apartment buildings: The Melburnian opposite Kings Domain and The Eastbourne on Fitzroy Gardens.

[smartcode_project:default project_id=4802 project_image_fid=366857]

A key focus of the development is its landscape-led amenity offering. The central courtyard, spanning around 600 sqm, will feature established trees and planting grown off-site, alongside communal lawns and seating areas designed for everyday use.

Development Manager James Gardner said the outdoor spaces are central to the project’s lifestyle positioning.

“<a href="https://www.apartments.com.au/new-apartments/prince-parade-by-mirvac-brunswick-701-park-street-brunswick-vic-3056">Prince &amp; Parade</a> isn’t just a home, it’s a complete lifestyle offering, and the resident amenity is just one example of the elevated living experience the soon-to-be-complete building will be known for,” Gardner said.

The courtyard connects to a series of shared indoor and outdoor spaces, including a residents’ lounge, dining room, library and secondary west-facing garden area, designed as extensions of the apartments themselves.

Located directly opposite Princes Park and around four kilometres from the CBD, the development places residents within one of Melbourne’s most established inner-north precincts, with access to open space, transport and the retail and hospitality offerings of Brunswick and Carlton.

With façade works complete and landscaping and final finishes now underway, <a href="https://www.apartments.com.au/new-apartments/prince-parade-by-mirvac-brunswick-701-park-street-brunswick-vic-3056">Prince &amp; Parade</a> is moving into its most active construction phase, with permanent services and external works to be finalised in the coming months ahead of completion in spring.

[smartcode_project_cta:default project_id=4802]

Mirvac’s latest landmark, Prince & Parade Brunswick, enters final construction phase

Boutique Perth developer ADC has unveiled its latest project.

The developer, which focuses on bringing apartments to some of Perth's most premium inner-city and riverside suburbs, has launched <a href="https://www.apartments.com.au/new-apartments/mos-lane-mosman-park-46-manning-street-mosman-park-wa-6012">Mos Lane</a>, 68 luxury apartments and townhouses in the heart of <a href="https://www.apartments.com.au/developments/mosman-park-wa-6012">Mosman Park</a>.

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Alongside the one-, two-, three- and four-bedroom apartments, the development will also include five two-level townhomes and two luxe penthouses. ADC is also introducing a significant retail offering for residents through Mos Lane Village, which will feature a wellness studio, fish and chips shop, barber, and florist, adding a layer of amenity not typically found in the predominantly residential Mosman Park area.

Construction has already commenced on the project, which sits just a short walk from the Swan River, Mosman Park Bowls Club, and Mosman Park Golf Course.

House Agency Directors Tom House and Lachlan McDonald say they are fielding the majority of buyer interest from local downsizers, as well as buyers with a long-standing affinity for Mosman Park.
</section>

[smartcode_project:default project_id=148957 project_image_fid=364591]

Mos Lane will comprise two buildings; Samson House and Manning House, which have been designed by&nbsp;<a href="https://www.apartments.com.au/architects/nelson-koo">Nelson + Koo</a>, an emerging design consultancy specialising in the masterplanning and design of mixed use places and spaces.

The two buildings adopt distinct architectural responses to their surroundings. Manning House references the strong roof forms of nearby homes, with floorplates oriented to maximise light and long-range views, while Samson House is organised around a central atrium designed to bring daylight deep into the building and create a greater sense of openness.

At ground level, the inclusion of five townhomes introduces a typology more commonly associated with Mosman Park’s established streets, each with private courtyards and direct frontage, offering a transition between traditional housing and apartment living.

[smartcode_project:default project_id=148957 project_image_fid=364103]

Interiors have been led by Melbourne-based Hecker Guthrie, with an emphasis on practical, long-term liveability. Residences incorporate sculpted joinery, generous storage and flexible multi-purpose rooms that can adapt to changing household needs, whether for working from home, guest accommodation or additional living space.

Material selections draw on a restrained palette of textured stone, timber and neutral tones, with options for lighter or darker schemes. Detailing such as fluted glass, full-height joinery and integrated appliances is intended to balance functionality with a more refined residential finish.

Outdoor spaces are a consistent feature across the development, with balconies and terraces designed for dining and entertaining, and larger apartments incorporating outdoor kitchens. Orientation has been considered to allow residents to choose between morning or afternoon sun, while mature street trees and landscaped communal areas contribute to a softer streetscape.

[smartcode_project:default project_id=148957 project_image_fid=364107]

Shared amenities are positioned to support both day-to-day convenience and occasional use. These include a private dining room with a caterer’s kitchen, alfresco entertaining areas, and a bookable guest suite for visiting friends and family. Additional practical features such as a resident workshop, storage facilities, car and pet wash areas, and concierge-style services for cleaning and dry-cleaning collection reflect a focus on usability.

Positioned between the Swan River and Cottesloe Beach, and within reach of schools such as Iona Presentation College and St Hilda’s Anglican School, the development is aimed at a broad buyer group, from downsizers seeking a lower-maintenance alternative to larger homes, through to local residents looking to remain in the area in a different housing format.

Mos Lane represents one of the more significant additions to Mosman Park’s limited pipeline, combining new housing supply with a village-style retail centre in a suburb where opportunities for large-scale redevelopment are relatively constrained.

[smartcode_project_cta:default project_id=148957]

Living village precinct set for Mosman Park as ADC launches Mos Lane

An entity linked to I&amp;D Group Founder Ivan Filipović has filed plans for a new residential development at 188–202 Swan Street in Cremorne, targeting a prominent site within the tightly held Swan Street activity corridor.

The proposal seeks to redevelop the consolidated Swan Street landholding into a <a href="https://www.apartments.com.au/new-apartments/188-202-swan-street-cremorne-vic-3121">high-density mixed-use project</a>, replacing a series of existing commercial buildings with a significantly scaled residential outcome. The planning submission positions the development as a response to increasing demand for housing in well-connected inner-urban locations, particularly within established activity centres.

Plans outline the construction of a 14-storey building delivering 165 apartments above a four-level basement, alongside a ground-floor retail and commercial offering designed to activate the streetscape. A key feature of the scheme is a new north–south pedestrian link connecting Swan Street to Railway Place, intended to “enhance permeability and provide an active, publicly accessible connection through the site.”

<img alt="First Look: Plans lodged for Ivan Filipović-linked Cremorne apartment project on Swan Street" data-entity-type="file" data-entity-uuid="7332a8f8-dd2b-483d-b86e-320658838c84" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/cremorne.png?VersionId=cXm8vAaRdHh.LpYVbecrRkjckgu9mtAF" />

The development will retain part of the existing built form at 198–200 Swan Street, while the remainder of the site will be cleared to accommodate the new structure. Basement levels will provide 196 car spaces and 113 bicycle spaces, with vehicle access from Railway Place. Communal amenity is distributed across the building, including a shared outdoor area on Level 1 and a rooftop terrace for residents.

Ground level uses include retail tenancies fronting Swan Street and the pedestrian link, a residential lobby, and a flexible commercial space positioned to support community-oriented uses. The planning report notes this space “could be offered as a flexible space within the development for community groups,” supporting short-term or longer-term occupancy arrangements.

<img alt="First Look: Plans lodged for Ivan Filipović-linked Cremorne apartment project on Swan Street" data-entity-type="file" data-entity-uuid="8208bf7b-cc67-485d-ad0f-1d73a74c907f" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/cremorne%20lane.png?VersionId=69ctjC0txXv0zCHy7qQUpJyGwvPAT7gw" />

The site sits within the Swan Street Major Activity Centre, surrounded by a mix of retail, hospitality, and emerging residential development, and directly opposite tram services along Swan Street. East Richmond Station is located to the south, providing strong rail connectivity, while the broader Cremorne precinct continues to evolve as a mixed-use hub.

I&amp;D Group, founded by Ivan Filipović, is regarded as one of Victoria’s largest formwork contractors, partnering with major construction firms across large-scale public and private developments. The Swan Street proposal signals a move into development-backed opportunities tied to strategic inner-city sites.

First Look: Plans lodged for Cremorne apartment project on Swan Street

Business Sentiment

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EXPERT OBSERVER
In Australia we saw the release of consumer and business surveys for August/September. Offshore, the ECB’s well telegraphed announcement of new stimulus largely met expectations.
As we saw in last week’s June quarter GDP report, the Australian economy is navigating a period of cyclical weakness. The question going forward is to what extent recent RBA rate cuts and tax offset receipts support the economy in the second half of 2019 and into 2020. Disappointingly, the private sector surveys released this week are yet to show any response.
Starting with the NAB Business Survey, not only was there an absence of a bounce, both conditions and confidence slipped further in August and remain at below average levels. Conditions declined 2pts to +1 – the softest result since 2014 – and confidence was down 3pts to +1. While employment conditions rose 2pts to +2 in the month, the trend is clearly moving lower. That stands in contrast to ABS employment growth figures which have held robust to July – the August update to be released next week.
Dour business sentiment was also echoed in the Q3 release of our Australian Chamber-Westpac survey of industrial trends. The Westpac–AusChamber Actual Composite index fell sharply to 52.9 in September from 61.5 in June, continuing the weakening trend seen since mid-2018.
Similarly for the household sector, our Westpac-MI Consumer Sentiment survey lapsed back into slight negative territory again, down to 98.2 in September from 100 in August. The survey contained additional questions on the new tax offset payments received from July 1 for the 2018/19 financial year. Just over 16% of consumers reported receiving a payment. Amongst that cohort, 29% planned to spend it all, and a further 16% planned to spend over half. The remainder (53%) planned to spend less than half including around 25% who planned to save the full payment. Yet, perhaps the most telling indicator of the impact of the new stimulus (or lack thereof) is our regular ‘finances vs a year ago’ sub-index which declined 2.5% to a well below average 84.3.
The sombre consumer mood stands in contrast to further affirmation that the residential property market is stabilising. This week’s release of July housing finance approvals showed the total value of finance up 5.1%. That is broadly consistent with the improvement in auction activity and prices seen through June to August.
It therefore appears that concerns about the state of the domestic economy, broader international conditions and employment are having a more dominant effect on the consumer mindset. New stimulus measures may need more time to have an effect, but at this stage, overall data are still painting a soft economic backdrop.
As such, we continue to believe the RBA is set to deliver 25bp cuts in October and February. Our RBA forecast is explained in our September Market Outlook released this week which covers our broader view on Australian and global economies, FX, rates and commodities.
Of note in this month’s edition is an update to our US forecast. As announced last Friday, we now expect in addition to our previous forecast of FOMC cuts in September, October and December, a further two cuts in March and June, taking the federal funds rate to 0.875%.
In that respect, Thursday’s ECB meeting offered an interesting prelude to next week’s FOMC meeting.
The ECB cut the deposit rate 10bps to -0.5%, moved to a tiered reserve system (for each bank, a multiple of six times minimum reserves will be exempt from the deposit rate charge and instead receive a juicy 0.0%), restarted asset purchases (€20bn per month pace and will persist for as long as necessary), repriced TLTRO's (cheap bank loans incentive rate 10bps cheaper at -0.5%), and strengthened forward guidance.
All up, the stimulus package broadly came in line with our own expectation. We did not anticipate the repricing of TLTRO-III but had expected a larger €40bn per month asset purchase program. We continue to believe the program will be lifted to that pace in 2020 and the deposit rate will be reduced to a low of -0.7%.
As we had seen going into the meeting, not all ECB members agree with the new stimulus, with some of the opinion that economic conditions were not weak enough to warrant restarting asset purchases. Draghi’s time as ECB president has faced significant criticism from within the ECB, and more recently, ire from US President Trump (who once again reiterated his belief that the ECB are targeting the exchange rate). But at his last meeting, Draghi did get a unanimous agreement that fiscal policy should be the main instrument going forward.
Finally, to finish on a more upbeat note, we did at least see some tentative positive developments this week in regards to the US-China trade war and, to some extent, Brexit.
The trade situation calmed down a notch after China released a list of goods that will be exempted from the retaliatory tariff on US imports. In return, the US offered a good will gesture by delaying the scheduled 25% to 30% tariff increase on $250bn of imports by two weeks to October 15.
With Brexit, we saw the Benn bill become law. This will effectively force PM Johnson to request a three month extension to the exit deadline unless a deal is found before October 19. Following that, the Government made a second attempt to call a general election, but once again, failed. Parliament is now suspended to October 14.
ELLIOT CLARKE is a senior economist at Westpac.
SIMON MURRAY is an economist at Westpac
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j.ballantyne1990-6AQqhLzZaK

No signs yet of a rebound in consumer or business sentiment: Westpac 

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EXPERT OBSERVER
Business conditions fell 2 pts to +2 index points in July, driven by a decline in the employment sub-index. Trading conditions also edged lower, while reported profitability increased slightly in the month. All three sub-indexes are now again below average, with the decline in business conditions evident across most industries outside of mining over the past year.
Business confidence edged higher in the month to +4 index points, but remains below average. The lift in confidence was broad-based across industries in the month. Overall, in trend terms, business confidence remains highest in mining, as it has for some time. Outside of mining, finance, business &amp; property services remain most optimistic, while confidence is softest in manufacturing and recreation &amp; personal services.
Business conditions declined slightly in the month. As we have noted in previous months, the decline in business conditions since early 2018 has been broad-based and has continued to track at below average levels in recent months. This is concerning, because while conditions remain positive, it points to a significant loss in momentum in the business sector.
Business confidence ticked-up in the month, following an easing last month, but is also below average. While there were some positive signs with a post-election lift in confidence, this bounce now looks to have been short lived with confidence also tracking at below average levels in the two months since the election.
Business confidence in the retail sector saw a reasonable lift, likely related to the government’s tax cuts, but quite worryingly there appears to have been little boost to activity in the sector with conditions weakening further – the sector is currently facing recessionary levels of activity according to our measure.
Forward-looking indicators remain weak. Forward orders edged higher in the month but remain negative and well below average while capacity utilisation unwound its sharp spike last month and is now again just below average.
Looking at the components of the survey that provide an indication of conditions going forward, we see little improvement. With both forward orders weak, and capacity utilisation a bit below average – both capex and employment growth are at risk
With a significant loss of momentum in activity, and inflation indicators remaining weak, the survey points to the need to the need for further stimulus in the economy. Indeed, we expect a further easing in interest rates from the RBA and think that some greater fiscal support will be needed from the government to kickstart growth.
ALAN OSTER is the NAB Group Chief Economist 
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Business confidence and conditions are below average: NAB's Alan Oster

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<img src="https://counter.theconversation.edu.au/content/83211/count.gif?distributor=republish-lightbox-advanced" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
A contradiction is emerging between how consumers should be feeling and what the heads of companies expect them to do.
What we know about low wages growth and underemployment seems to suggest households would be tightening the purse strings but the sentiment of business leaders is very positive in sectors relying on consumer spending.
Wages are struggling to keep pace with the prices of the things we buy and average hours worked (per worker) have also been trending down or flat at best. This is not a picture of robust consumer finances.
On top of this retailers are facing the threat of competition from US giant Amazon. Yet according to our analysis of the outlook of leaders of Australia’s ASX 200 companies, positivity has increased.
<a href="https://www.propertyobserver.com.au/images/2017/09/01/Screen%20Shot%202017-09-01%20at%208.36.49%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/09/01/Screen%20Shot%202017-09-01%20at%208.36.49%20AM.png" alt=""> 
The sentiment of business leaders has remained positive and improved over the past 12 months according to our analysis. The “polarity” score, which measures whether the sentiment is positive or negative, has increased from 0.11 to 0.15 (a statistically significant improvement).
We also looked at how subjective these statements were and found there’s been no significant increase in how opinionated these statements are.
Our findings also mirror other business confidence surveys and even the Reserve Bank of Australia’s own outlook, which also paints a buoyant picture. The RBA expects growth in the economy to strengthen gradually to be around 3% in the first half of 2018. The RBA expects wage growth to gradually pick up over the next year or two and for average hours worked to increase somewhat.
Similarly, the Westpac-AusChamber Actual Composite index strengthened in June 2017, rising 1.8 points to 65.0. This factored in a strengthening in the labour market, as manufacturing firms plan to hire more workers and manufacturing wages rise. And the NAB business confidence survey also reveals that business conditions and confidence are improving.
The positive outlook for economic growth according to the RBA is driven by resource exports notably iron ore and liquid natural gas (LNG) production, household consumption including retail sales, and non-mining business investment. The RBA also expects wage growth to soon pick up.
<a href="https://www.propertyobserver.com.au/images/2017/09/01/Screen%20Shot%202017-09-01%20at%208.37.59%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/09/01/Screen%20Shot%202017-09-01%20at%208.37.59%20AM.png" alt=""> 
<a href="https://www.propertyobserver.com.au/images/2017/09/01/Screen%20Shot%202017-09-01%20at%208.39.08%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/09/01/Screen%20Shot%202017-09-01%20at%208.39.08%20AM.png" alt=""> 
<a href="https://www.propertyobserver.com.au/images/2017/09/01/Screen%20Shot%202017-09-01%20at%208.40.00%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/09/01/Screen%20Shot%202017-09-01%20at%208.40.00%20AM.png" alt="">
These drivers are reflected in our sentiment analysis. Business leaders in ASX categories relying on household spending, have stronger than average positive outlook on the future, with an average score of 0.18.
This was led by businesses like JB HiFi (0.41), TabCorp (0.23) and Flight Centre (0.18); and also consumer staples led by Ardent Leisure (0.50), Treasury Wine Estates (0.38) and Coca-Cola Amatil (0.18).
The outlook for manufacturing is also positive due to a range of factors such as infrastructure spending by governments, stronger world growth, and improved international competitiveness due to a lower currency, commercial construction and home building, according to the Westpac-AusChamber index. This is supported by our analysis which found stronger than average sentiment from business leaders in the materials sector (0.17), through companies such as Amcor (0.26).
But the outlook isn’t all positive among our business leaders. Sentiment was weaker than average in utilities (0.07) led by AGL (-0.03). This is hardly surprising given the high uncertainty around energy policy – AGL for example owns coal-fired power plants. Also sentiment was somewhat weaker (0.13) than average among industrial company leaders, the sentiment in Qantas’ outlook was negative (-0.03) and property/real estate company Lend Lease (0.09) was also weak.
Perhaps the gloomy slow wage growth and underemployment will catch up to the more positive sentiment on consumer goods and services in company reports. Or this contradiction might simply reflect the high uncertainty in the global environment.
Consumers certainly seem a little confused: the weekly ANZ-Roy Morgan Consumer confidence Index ticked up slightly last week but has jumped around in recent months. Certainly the positive sentiment from business leaders about consumer spending we see in company reports seems optimistic.
<a href="https://theconversation.com/profiles/ross-guest-13155" target="_blank">Ross Guest </a>is Professor of Economics and National Senior Teaching Fellow, Griffith University.
<a href="https://theconversation.com/profiles/ben-hachey-337155" target="_blank">Ben Hachey is</a> Honorary Associate, School of Information Technologies, University of Sydney.
Both are authors for <a href="https://theconversation.com/au" target="_blank">The Conversation</a>.
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