<a href="https://www.apartments.com.au/developments/collingwood-vic-3066">Collingwood</a>’s northern edge continues to sharpen its reputation as one of Melbourne’s most compelling cultural precincts, where established creative institutions, leading hospitality, and independent fashion converge within a tightly held inner-city neighbourhood.

Set within this evolving pocket, <a href="https://www.apartments.com.au/new-apartments/derby-street-by-milieu-collingwood-4-derby-street-collingwood-vic-3066">Derby Street by Milieu</a> draws on a location that balances proximity to some of the inner north’s most influential destinations with the quieter, tree-lined character that defines the streets edging East Melbourne. Positioned just moments from both Smith and Gertrude Streets, the address sits on the periphery of Collingwood’s cultural core, offering immediate access without the intensity of its busiest frontages.&nbsp;

[smartcode_project:default project_id=145576 project_image_fid=355945]

Gertrude Street, in particular, anchors the area’s identity as a destination for Melbourne’s leading food, art and fashion. Within a short walk, venues such as Marion, Cutler &amp; Co, IDES and the Builders Arms Hotel define a tightly curated dining scene with enduring citywide appeal, complemented by a strong fashion and retail presence including Havn, Le Labo and a selection of independent boutiques.

Nearby, institutions such as the Australian Print Workshop and Collingwood Yards sustain a constant rhythm of exhibitions, performances and creative output, embedding art and culture into the everyday fabric of the neighbourhood.

Smith Street, running parallel, extends this offering with a broader mix of hospitality and nightlife, maintaining its status as one of Melbourne’s most active inner-urban strips.

Beyond these high-energy streets, the immediate surrounds shift in tone. Derby Street and its neighbouring blocks are defined by low-rise heritage terraces, mature trees and a settled residential character. Fitzroy Gardens and Carlton Gardens are both within walking distance, alongside the Royal Exhibition Building and Melbourne Museum, bringing together green space and cultural landmarks within minutes of home.

[smartcode_project:default project_id=145576 project_image_fid=355985]

Connectivity remains a key advantage. The CBD sits within easy reach, accessible by tram along Smith Street in around 20 minutes, while also remaining close enough to walk or cycle, supported by the inner north’s established bike network.&nbsp;

<a href="https://www.apartments.com.au/developers/milieu-property">Milieu</a>’s long-standing connection to Collingwood underpins the project’s approach. With a portfolio that includes multiple nearby developments across Bedford, Peel and Napier Streets, the developer brings a sustained understanding of the area’s character and evolution. Derby Street continues this trajectory as a collaboration with award-winning Melbourne-based <a href="https://www.apartments.com.au/architects/studio-bright">Studio Bright</a>, marking the practice’s first multi-residential project in the inner north and reflecting a shared focus on design integrity and contextual response.&nbsp;

Balancing connection to the neighbourhood with a sense of seclusion and refuge, Derby Street by Milieu embodies a level of care and craft typically reserved for single residential projects. Comprising 22 residences across six storeys, with two to four-bedroom configurations priced from $1.15 million, the project is currently under construction with completion expected in late 2027.&nbsp;

[smartcode_project_cta:default project_id=145576]

Joel Robinson

Derby Street by Milieu, at the top end of Collingwood

A rare new apartment development in the Blue Mountains is the latest in a string of State Significant Development Applications submitted through the New South Wales Government's Housing Delivery Authority.

A total of 270 apartments are being proposed for the 1.16-hectare site at <a href="https://www.apartments.com.au/new-apartments/blue-mountains-alpine-retreat-142-150-narrow-neck-road-katoomba-nsw-2780">142–150 Narrow Neck Road in Katoomba</a>, a parcel of land adjoining the former Katoomba Golf Course. The site was acquired for $3.85 million in 2021 by private developer VDM Prime.

The apartments, comprising a mix of serviced apartments, affordable housing, and traditional build-to-sell product, will be spread across eight low-rise buildings, along with a separate building for a new restaurant, arranged around a green spine that leads to a central park.

<img alt="Katoomba" data-entity-type="file" data-entity-uuid="ee9a2072-f465-44f1-9076-80c9c8ecca02" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-04-22%20at%209.20.21%E2%80%AFAM.png?VersionId=4bT0vQ7j_syl65wcrJmHGm3m5pTvwrY_" />

The Urban Design Report by Atlas Urban says the vision is to create a "contemporary mountain precinct that is responsive to its escarpment landscape, heritage character, and community context."

"The development responds to the current housing supply and affordability challenges identified under the NSW Housing Delivery Authority (HDA), providing a balanced mix of standard, affordable, and short-stay accommodation," the report noted.

"By introducing a variety of dwelling types and tenures, the proposal supports intergenerational living, local workforce retention, and greater housing choice within an area constrained by topography, heritage, and environmental protections."

Of the 270 units proposed, 52 will be serviced apartments. The remainder will comprise 54 studios, 121 one-bedroom units, 39 two-bedroom apartments, and four three- to four-bedroom residences.

<img alt="Katoomba" data-entity-type="file" data-entity-uuid="f704508d-1bdf-4170-955d-0256652402a7" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-04-22%20at%209.56.49%E2%80%AFAM.png?VersionId=TzarHMO4gTOsblCqsbJQkvMqWj9nu2Au" />

The Design Report, by VDM Prime and appointed architect Antoniades Architects, noted that the design seeks to "provide a built form outcome that is highly considered, respectful and contextually fitting, whilst contributing positively to an evolving precinct."

"The site offers three frontages and the opportunity to provide a meaningful interface with the public domain environment. the design has a sympathetic response to streetscape and the green open space that surrounds the site."

The report states that the buildings are broken up to establish an appropriate bulk and scale, emphasised through height and setback strategies and defined through articulation that supports the transition of precinct granularity. It also notes that a central communal open space is established through the site to enhance the social dynamic and access to amenity, including natural ventilation and light to the apartments. The east and west frontages receive solar access during the morning and afternoon, whilst maximising views to the green open space.

The site adjoins the recently completed Yarrabee Katoomba development, comprising 24 duplexes that were completed last year and sold through McGrath Projects.

The relatively new Housing Delivery Authority pathway established by the NSW Government allows developers to submit State Significant Development Applications through a fast-tracked state process, effectively reducing reliance on local council approval pathways and aiming to accelerate housing delivery across New South Wales.

First look: Nearly 300 apartments pitched on former Katoomba golf course site

In Melbourne’s established inner east, the qualities that define a traditional house, width, height, and access to open ground, are increasingly difficult to replicate in new residential developments. Larger landholdings are scarce, and with them, the ability to create apartments that extend beyond compact, internalised layouts.&nbsp;

In <a href="https://www.apartments.com.au/developments/kew-vic-3101">Kew</a>, where the residential fabric is shaped by generous setbacks and mature tree canopies, that tension is especially visible.

<a href="https://www.apartments.com.au/developers/ricdanic-investments-pty-ltd">Ricdanic</a>&nbsp;is bringing forward a boutique collection of just 13 residences across two buildings at 9–11 Wimba Avenue, Kew. Comprising six homes at No.9 and seven at No.11, the project sits on a quiet, tree-lined street just off Cotham Road.&nbsp;

Each apartment has been planned with a level of independence more commonly associated with standalone dwellings, balancing privacy with the efficiencies of apartment living.

Architect Chris Idle, who has been practising for over two decades, says projects like this don’t come along often.

“There are very few opportunities to do these kinds of developments in leafy, established suburbs,” he explains. “To get this level of amenity, natural light, and architectural freedom in such a setting is extremely rare.”

[smartcode_project:default project_id=140755 project_image_fid=366267]

The internal planning begins with width. Living areas extend beyond five metres, allowing furniture, circulation, and glazing to sit comfortably within the same zone without compression. Ceiling heights shift from three metres through to five metres in select areas, changing the sense of scale as you move through the apartment. These proportions are paired with double-glazed windows and fully electric systems, balancing volume with performance, supported by a 7.2 NatHERS energy rating.&nbsp;

From the main living space, the apartments open directly outward. Large sliding doors connect to private gardens averaging 125 square metres, with some residences also incorporating balconies of around 60 square metres. Rather than acting as secondary outdoor zones, these areas sit flush with the internal floor level, extending the usable footprint of the home and allowing for multiple modes of use, whether for quiet daily routines or larger gatherings.&nbsp;

The landscape, led by <a href="https://www.apartments.com.au/landscape-architect/john-patrick-landscape-architects">John Patrick</a>, reinforces this relationship. Across the site, 23 different plant species have been introduced, including a mix of native and established varieties, arranged to maintain privacy while preserving sightlines and light access. Gardens are not treated as decorative buffers but as functional extensions of the apartments, shaped to accommodate movement, seating, and informal use over time.&nbsp;

[smartcode_project:default project_id=140755 project_image_fid=366265]

Architecturally, the project draws from Kew’s historic residential language. Handmade bricks by Krause define the exterior, grounding the buildings within the material palette of the suburb, while interior finishes, stone, timber flooring, and restrained detailing, continue this approach internally. Architect Chris Idle describes the intent as long-term rather than stylistic: “We wanted it to feel timeless.”&nbsp;

This emphasis on durability extends to how the buildings are accessed and secured. Entry is managed through keyless systems, with a double-gated basement incorporating number plate recognition for vehicle access. Each residence is paired with a private lock-up garage accommodating two to three cars, alongside storage, while all entry points are monitored continuously. These measures sit alongside EV readiness and fully electric infrastructure, aligning the project’s operational systems with its long-term design outlook.&nbsp;

The setting remains central to how the development is experienced. Located within walking distance of Kew Junction and close to established schools including Carey Grammar and Xavier College, the address benefits from existing infrastructure while maintaining a residential quietness that is increasingly difficult to find at this scale.&nbsp;

Construction is being delivered by <a href="https://www.apartments.com.au/builders/sinjen">Sinjen</a>, with a 10-year structural guarantee, with completion targeted for mid-2027.

[smartcode_project_cta:default project_id=140755]

Inside Wimba Ave, Kew’s garden-scale residences designed for space and permanence

High-end Sydney developer&nbsp;<a href="https://www.apartments.com.au/developers/abadeen-group">Abadeen</a> has secured approval for one of its latest Mosman projects, one of the first developments approved by Mosman Council under the NSW Government’s Low and Mid-Rise Housing Policy.

The approval represents an important step in delivering well-considered housing next to established village locations on Sydney’s Lower North Shore, in line with the intent of the Low and Mid-Rise zoning framework. 
&nbsp; 
There are currently 13 other sites lodged within Mosman Council under the policy, with <a href="https://www.apartments.com.au/new-apartments/27-29-heydon-street-mosman-nsw-2088">Heydon Street</a> among the first to receive development consent. 
&nbsp; 
Abadeen Founder and Executive Chairman Justin Brown said the project reflects a considered and appropriate response to its planning context. 
&nbsp; 
“This approval demonstrates how carefully considered, design-led development can align with the objectives of the Low and Mid-Rise Housing Policy," Brown said.

"The scheme has been designed to respond sensitively to its village setting, with a built form, scale and level of amenity appropriate to its local context. The determination reflects a balanced and considered planning outcome, with Council recognising the capacity for this site to accommodate additional housing within a well-located and established precinct.”

<img alt="Abadeen secures first approval under low and mid-rise housing policy for Heydon Street, Mosman" data-entity-type="file" data-entity-uuid="92811ce3-02e8-44fc-996e-c61ae039bd3e" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Heydon%20Street%20Aerial.jpg?VersionId=ZHJVuWQT64QcdrFJx963pFWFzTX7lI2I" />

The Heydon Street approval followed extensive consultation with Mosman Council, with Abadeen working closely with Council throughout the assessment process.

The approved scheme comprises 27 residences, with only four per floor, creating a low-density living environment. The building will include four half-floor penthouses designed to capture views across Middle Harbour, Sydney Harbour and the surrounding district.&nbsp;

The project is expected to appeal to downsizers and owner-occupiers seeking house-like proportions, privacy and local convenience. There will be north-facing Middle Harbour views from the second level upward. It is also just a flat 100-metre walk to Bridgepoint Shopping Centre, which will appeal to owner-occupiers and in particular downsizers.

Two-bedroom residences are expected to be priced from $1.99 million when sales launch later this year. 
&nbsp; 
Joe Tack, CEO at Abadeen, said the outcome reflects both the quality of the site and the broader need for well-located housing. 
&nbsp; 
“This is a highly considered site within a highly established local setting, offering elevated views and strong connectivity. The project has been designed to respond to that context, delivering a scale and quality of housing aligned with both the planning framework and evolving market demand.” 
&nbsp; 
“This approval is particularly significant in the context of Mosman, where new housing supply has historically been limited. While it represents the first approval of this scale in Mosman to be achieved in over 50 years, it is importantly located within a well-established residential location, in close proximity to the established commercial amenity of Spit Road and Mosman Village. It reflects strong confidence in Abadeen’s approach to design, delivery and community integration, while contributing to the delivery of much-needed housing in a highly constrained market.”

Abadeen has an established track record across Sydney’s Lower North Shore, with recent completions including KOYO in Crows Nest and ENSO in Neutral Bay.

In Mosman, Abadeen recently completed The Hampden, with Mosman Residences on the corner of Spit Road and Clifford Street scheduled for completion later this year. Construction has also commenced at Burran Residences, comprising three full-floor ultra-premium homes positioned just 50 metres from Balmoral Beach, with residences expected to achieve prices in excess of $20 million. Two further projects are also progressing through planning within the local government area.

Abadeen secures first approval under low and mid-rise housing policy for Heydon Street, Mosman apartment development

Apartment developer <a href="https://www.apartments.com.au/developers/martello">Martello™</a> is one of the latest entrants to the Gold Coast development market, with its debut project set to be one of the most boutique offerings on Chevron Island in recent years.

Martello has unveiled <a href="https://www.apartments.com.au/new-apartments/aere-chevron-island-18-20-mawarra-street-chevron-island-qld-4217">Aere Chevron Island</a>, a collection of 33 large-scale two-, three-, and four-bedroom apartments across an 18-storey building on Mawarra Street.

[smartcode_project:default project_id=143932 project_image_fid=367517]

The developer has placed a strong emphasis on wellness, briefing architecture firm Raunik Design to embed this philosophy into the project. It is a direction <a href="https://www.apartments.com.au/developers/martello">Martello™</a> plans to carry through its future developments along the coast.

<a href="https://www.apartments.com.au/developers/martello">Martello™</a> has positioned Aere as a continuation of its human-centric development approach, with a focus extending beyond amenity to the fundamentals of layout, natural light, and spatial planning. Promax Construction has already been appointed to deliver the project, with construction expected to commence in the coming months as part of the group’s broader expansion into South East Queensland.

Rising above the low-rise fabric of Chevron Island, Aere’s design emphasises generous internal proportions and uninterrupted outlooks, with residences oriented to capture coastal, skyline, and waterway views. Interiors prioritise open-plan living, with large-format glazing and carefully considered transitions between indoor and outdoor spaces.

[smartcode_project:default project_id=143932 project_image_fid=367508]

The upper levels are dedicated to larger-format homes, including four-bedroom residences designed as half-floor offerings. These layouts prioritise separation between living and sleeping zones, along with increased privacy and storage, features more commonly associated with detached housing than traditional apartment product.

Aere’s private resident amenity spaces centre on wellness. A rooftop level will incorporate a heated swimming pool, sauna and spa, alongside a residents’ lounge, dining areas and barbecue spaces, while additional shared facilities throughout the building include a gym and yoga area.

The inclusion of both social and quieter retreat spaces reflects a broader shift in higher-end apartment design on the Gold Coast, where developers are increasingly responding to owner-occupier demand for buildings that support long-term living rather than short-stay use.

[smartcode_project:default project_id=143932 project_image_fid=367814]

Aere is positioned within walking distance of Chevron Island’s village centre along Thomas Drive, as well as the HOTA cultural precinct via the Green Bridge, connecting residents to parklands, galleries, and event spaces.

For <a href="https://www.apartments.com.au/developers/martello">Martello™</a>, Aere represents the first in a series of planned Gold Coast developments, with the group also exploring opportunities in other coastal precincts, including Kirra and Palm Beach.

The move north comes as sustained population growth and infrastructure investment continue to reshape South East Queensland, with developers increasingly targeting boutique, design-led projects in established lifestyle pockets. Aere’s relatively small scale and emphasis on spatial quality position it within this emerging segment of the market.

[smartcode_project_cta:default project_id=143932]

Martello™ enters Gold Coast market with wellness-led Chevron Island development Aere

Commodity Prices

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EXPERT OBSERVER
The Australian dollar has held within a narrow range of USD0.704 to USD0.716 over the month.
Key commodity prices, particularly iron ore, have been stable over the month with spot at around US$90/t. General expectations have been for this price to adjust downwards. For example the government’s forecast for the iron ore price (fob) by March 2020 is US$55/t (Westpac expects US$74/t spot).
Supporting the iron ore price has been ongoing reports from Vale of likely decommissioning of supply following the collapse of the tailings dam in Brumadinho – general expectation is that Vale will decommission around 40t of production lowering overall annual production from 400Mt to 360Mt.
However markets are expecting even larger production cuts to eventuate. Another major producer, Rio Tinto, has also recently been impacted by a supply shock.
On the demand side, confidence is rising in response to China’s commitment to stabilising growth through lifting credit; easing restrictions on the shadow banking sector; supporting bond issues by local governments to finance new infrastructure investment; tax cuts; and some support to housing in selective regions.
This stability at high levels for key commodity prices is providing solid support to the Australian dollar – indeed the fair value of the AUD as measured by commodity prices, is currently holding well in excess of current spot.
On the other hand, interest rate differentials continue to weigh on the AUD. When on February 21, Westpac moved to forecast the RBA would cut the cash rate by 25bps in August and November this year, markets were not anticipating a cut until April next year.
That pricing has now moved forward to August/September with 75% of a second cut priced by mid next year. (pricing COB Wednesday).
However in a Q&amp;A follow-up to a speech on Wednesday to the American Chamber of Commerce in Australia, Deputy Governor Debelle is reported to have noted “Our expectation is that we will see decent growth in the economy…so we won’t have to get to that point [of cutting rates]”.
A test of that assertion will be when the RBA releases its revised growth; inflation and employment forecasts in the May Statement on Monetary Policy on 10 May. Currently, the RBA is forecasting GDP growth of 3% in 2019 and 2.75% in 2020. The lower growth rate in 2020 is largely explained by a reduced contribution from resource exports – particularly LNG.
Those forecasts were released for the February Statement on Monetary Policy when the RBA was forecasting growth of 2.75% for 2018. Subsequently, growth printed at 2.3% for 2018.
BILL EVANS is the Chief Economist at Westpac
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Australian dollar holds as commodities remain stable: Bill Evans

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Conditions have generally improved over the past six months for businesses in the resource-related sector, according to RBA’s Financial Stability Review 2017.
The rise in commodity prices since the beginning of 2016, particularly for iron ore, and the ongoing efforts of these businesses to cut costs and reduce debt, have led to a substantial increase in the aggregate earnings of listed resource-related corporations (Graph 2.12).
<a href="https://www.propertyobserver.com.au/images/2017/04/19/Graph%202.12.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/04/19/Graph%202.12.jpg" alt="">
Many listed resource-related corporations have used some of their increased profits to pay down debts, resulting in a decline in the sector’s gearing and debt servicing ratios.
In line with these positive developments, resource-related corporations’ distance-to-default measures have increased over the past year (Graph 2.13).
<a href="https://www.propertyobserver.com.au/images/2017/04/19/Graph%202.13.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/04/19/Graph%202.13.jpg" alt="">
Nevertheless, earnings have continued to weaken for mining services corporations as resource producers have focused on cost reduction.
As noted in previous Reviews, banks’ direct exposures to the mining sector have declined in recent years and now constitute only a little over 1 per cent of their total lending, though this figure excludes banks’ exposures to non-resource-related businesses operating in mining regions (Graph 2.14).
<a href="https://www.propertyobserver.com.au/images/2017/04/19/Graph%202.14.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/04/19/Graph%202.14.jpg" alt="">
Conditions remain challenging for these businesses, given mining firms’ continued focus on cost containment, and some indicators of financial distress have picked up.
For instance, unincorporated business failure rates are elevated in Queensland and Western Australia (Graph 2.15).
<a href="https://www.propertyobserver.com.au/images/2017/04/19/Graph%202.15.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/04/19/Graph%202.15.jpg" alt="">
If higher commodity prices were to fall or not translate into improved economic conditions in mining-exposed regions, business failure rates may pick up further.
Outside the mining-exposed states, businesses’ finances generally appear sound and indicators of stress are low.
Survey measures of business conditions are well above their historical averages; listed corporations’ distance-to- default measures have continued their trend improvement and earnings have been in line with previous years; failure rates are low; gearing remains around its historical average; and many businesses continue to benefit from the depreciation of the Australian dollar since 2013 (Graph 2.16).
<a href="https://www.propertyobserver.com.au/images/2017/04/19/Graph%202.16.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/04/19/Graph%202.16.jpg" alt="">
The low interest rate environment has also made it easier for companies to meet their debt obligations by reducing debt-servicing costs (Graph 2.17).
<a href="https://www.propertyobserver.com.au/images/2017/04/19/Graph%202.17.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/04/19/Graph%202.17.jpg" alt="">
Find the RBA's latest Financial Stability Review 2017 <a href="https://www.rba.gov.au" target="_blank">here</a>.
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j.ballantyne1990-6AQqhLzZaK

Conditions have improved mining businesses: RBA

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GUEST OBSERVER
The tailwind is here. Higher commodity prices are boosting national incomes and the numbers are large.
Export values rose by a strong 32% year-on-year in December which drove the largest trade surplus on record. This is driving a strong rise in mining profits and tax revenues. The debate is about whether the lift in mining profits and taxes will boost wages growth, household spending and domestic inflation, as it has done in the past.
Will households feel the tailwind too? Some observers argue that without another mining investment boom or the government delivering personal tax cuts, both of which, we agree, seem unlikely, a rise in domestic wages and inflation will not happen. In our view, scale is important here. Although we agree that the income effect on households is likely to be less potent than in the past, some of the effect should still get through. Plus, this boost is in addition to the services sector growth story which is still humming along. We think this will keep the RBA from cutting further and expect that these same forces could mean rate hikes in 2018.
As we have been pointing out for some time now, we see the recent lift in commodity prices as having changed the economic story for Australia. For the past five years, Australia has sought to pull off a 'great rebalancing act' and this year with think that the rebalancing act is almost done. This is largely because the significant headwind that Australia has faced over the past five years, as a result of falling commodity prices and mining investment, is now becoming a noticeable tailwind. The resources sector is set to become a contributor, rather than a drag, on growth.
The past couple of weeks have revealed more evidence that the boost to incomes from higher commodity prices has already arrived. Export values rose by a strong 32% year-on-year in December, supported by a 127% rise in the value of coal exports. This drove a significant swing in the trade balance, from a deficit in October to the largest trade surplus in the history of the available numbers (since 1971) in December. Although we do not yet have the Q4 GDP figures, as chart 1 below shows, there is a strong positive correlation between commodity prices and Australia's nominal GDP growth. As a result, the RBA has been confident enough to recently state that higher commodity prices 'are providing a boost to Australia's national income'.
<img src="https://www.urban.com.au/images/2017/02/09/blo%20one.gif" alt="">
As the income has already arrived, the question is not whether there will be a pick-up in incomes, but whether it will flow through to the household sector, to wages and domestic inflation, as it has done in the past? On this, some observers argue that without another mining investment boom or boost to household incomes from personal tax cuts, both of which seem unlikely, a rise in domestic wages and inflation is unlikely.
We agree with some of these arguments, but think it is mostly a question of scale.
First, we agree that the pick-up in commodity prices is unlikely to stoke a substantial upswing in mining investment anytime soon. But we are not as convinced that this means you will not see any flow through to households. Keep in mind that mining investment is already set to stop falling from around mid-2017, as the resources sector shifts from new construction to maintenance and repair, which is now a larger spend than it has been in the past. Mining employment has also already started to stabilise and the timely mining sector job vacancy indicators are lifting. Spending on mineral exploration has also levelled out recently, after years of decline. Given the considerable recent boost to mining profits it seems unlikely, in our view, that mining sector wages growth will continue to fall as much it has in recent years.
Second, we agree that the federal government is unlikely to deliver income tax cuts, as it did between 2003 and 2007 when the commodity price super-cycle was first in its upswing. However, the corporate tax take will be boosted, which should take some pressure off the Federal budget. Some of this is likely to show up in the public sector wage bill. State royalties will also be boosted in Western Australia and Queensland and we expect some of this to trickle into state spending and public sector wages.
<img src="https://www.urban.com.au/images/2017/02/09/blo%20two.gif" alt="">
Overall, our strongest argument is that the significant scale of the ramp up in commodity prices, exports and nominal incomes means that at least some of the pick-up is likely to get through to the household sector, wages growth and domestic inflation. Just a levelling out of mining sector activity and incomes, after five years of decline should be expected to help see wages and domestic inflation stabilise. What we have seen is much more than this, with national income significantly boosted (again, see chart 1). Add to this that the non-mining economy has already been growing solidly, supported by low interest rates, the lower AUD and rising demand for services from Asia's growing middle classes.
Finally, it is worth keeping in mind that recent history supports the view that a lift in commodity prices should drive a pick-up in wages growth and inflation. As chart 2 shows, there is strong positive historical correlation between the terms of trade (think commodity prices) and unit labour costs (think wages). Given the scale of the ramp up in the terms of trade it would be surprising if unit labour costs did not lift at all. In turn, rising unit labour costs should be enough to support a modest lift in domestic inflation. In our view, the RBA only needs to be convinced that underlying inflation is past its trough to keep them from cutting. With this, we expect the RBA to be on hold through 2017 and to lift its cash rate in 2018.
Paul Bloxham is chief economist, Australia, New Zealand of HSBC.
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jonathanchancellor-7SQnKwU6yx

Will households feel the tailwind of rising commodity prices?: Paul Bloxham

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GUEST OBSERVER
Growth was considerably weaker in the third quarter of 2016 than was expected, with real GDP falling on the quarter for the first time since Q1 2011. 
However, the fall appears to reflect the coincidence of a number of one-off factors, including a temporary disruption to coal exports and inclement weather affecting construction activity, rather than the beginning of a more significant downturn. Recent numbers for retail sales, business conditions and international trade already suggest a solid pick-up in GDP growth is likely in Q4 2016. 
In addition, there has been a substantial pick-up in coal and iron ore prices recently. Although this rise did not arrive in time to support the Q3 2016 GDP numbers, it should flow through to a significant boost in income growth in Q4 2016 and beyond. Australia’s commodity price index has risen by 20% in AUD terms since Q3 2016. Our estimates suggest that the pick-up in commodity prices should add around 2.0pp to nominal GDP over the coming year.
<a href="https://www.propertyobserver.com.au/images/2017/01/09/Screen%20Shot%202017-01-09%20at%2012.39.47%20PM.png" target="_blank">Click to enlarge</a>
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Overall, the strong rise in commodity prices and end of the mining investment decline are changing the local growth story. For the past five years, the Australian economic story has been about rebalancing growth away from being driven by mining investment at the end of the commodity prices ‘super-cycle’. Lower interest rates and the fall in the AUD over recent years have supported a housing boom and rising services exports, which have rebalanced growth. The mining sector is now stabilising and is no longer set to drag on growth and incomes. 
Given the recent downside surprise to GDP growth, we now expect growth of 2.4 percent in 2016 (previously 2.9 percent), rising to 2.8 percent in 2017 (previously 2.9 percent) and 3.2 percent in 2018 (unchanged). 
Although local inflation is currently below the RBA’s 2-3 percent target and wages growth is sluggish, we expect both to rise gradually through 2017. Supporting this, we see the rise in commodity prices as likely to lift national incomes, tax revenues, corporate profits and wages growth. Non-mining business investment is also already showing signs of rising modestly and, although the labour market has spare capacity, it is worth keeping in mind that job creation tends to lag the cycle, rather than lead it. We retain our view that the RBA is likely to keep its cash rate on hold at 1.50 percent through 2017 and have recently shifted our call for 2018, with 50bp of RBA hikes now pencilled in. 
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The Australian government has passed legislation to re-instate the Australian Building and Construction Commission, which is an indication that there has been some progress on labour market reform. This legislation was difficult to pass and was the trigger for the July 2016 ‘double dissolution’ Federal election. 
The government has also passed a number of fiscal reform measures, including the ‘backpacker tax’, with the measures set to save the government AUD21bn over the next four years. Tax revenues are also expected to get a boost from rising commodity prices. Offsetting these measures, slower-than-expected wages growth has weighed on the personal income tax take. The government’s focus on fiscal reform has become more pressing since one of the major rating agencies, Standard &amp; Poor’s, put the Australian government on ‘negative outlook’ for its triple-A sovereign rating in July 2016. 
Financial stability concerns remain an ongoing issue for the central bank, given a further recent pick-up in housing prices and a modest revival in investment activity in Australia’s housing market. The pick-up in housing market activity has occurred despite local prudential settings having been tightened over the past two years. The pick-up in investor credit growth adds to the case for the RBA to keep its cash rate unchanged over the next few quarters. 
Risks 
We view the risks to growth as evenly balanced. On the upside, the lift in commodity prices and boost to incomes could provide more support for growth than we currently expect. On the downside, slower-than-expected growth in China could weaken demand for Australian commodities or services exports. The risks to our inflation outlook are tilted to the downside. Changing patterns of employment could put more persistent downside pressure on wage growth, and thus local underlying inflation, than we have currently factored into our central case. 
<a href="https://www.propertyobserver.com.au/images/2017/01/09/Screen%20Shot%202017-01-09%20at%2012.41.15%20PM.png" target="_blank">Click to enlarge</a>
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 <a href="https://www.about.hsbc.com.au/hsbc-in-australia/management-team" target="_blank">PAUL BLOXHAM</a> IS CHIEF ECONOMIST (AUSTRALIA AND NEW ZEALAND) FOR HSBC. 
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Commodity price rise to boost incomes: HSBC'S Paul Bloxham

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<img src="https://counter.theconversation.edu.au/content/64542/count.gif" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
Some well known resource stocks in Australia have reported major losses, including US$6.38 billion for BHP Billiton over the past year and US$1.1 billion for Santos over the past six months.
These losses have largely been driven by lower commodity prices, which in turn is the result of a slowing Chinese economy and weak global growth rates. But the bigger question is whether this most recent downturn is heralding a long term decline in mining activities.
Commentators throughout history have predicted that minerals and energy production would eventually decline because of resource depletion and rising costs. One of the most well-known theories is Peak Oil, originally developed by King Hubbert in the 1950s. This theory explained how many oil fields have a bell-shaped production function from discovery through to exhaustion.
This was used to predict the year and level of when the industry would hit maximum supply. Since then this same concept of an inevitable ‘peak’ has been widely applied to other commodities, to describe when global production might reach maximum levels.
However these predictions of maximum production outputs continue to be surpassed. Hubbert’s original projections were that global oil production would peak in 1995 when actual annual production has continued to grow steadily since then to be about 55% higher. In fact the slump in oil prices since 2014 have largely been caused by excess supply (together with the effects of lower growth in China and other economies).
<div id="responsive-iframe-0">Understanding why resource production continues to grow even when depletion must be occurring, provides some hints as to the future of commodities. The first is that mineral commodities tend to be driven by long term cyclical forces, particularly on the supply side.</div>
Higher resource prices, as seen in the 2003-2012 resources boom, drove huge investments into new production, both in Australia and overseas. That growth in supply is now maturing because of the long lead time to get new projects developed, with virtually no new projects approved since 2012.
Oversupply causes lower prices and shuts off new projects; there is often a long hiatus until the next boom because of an expanding supply base and the buffering effects of inventories.
The second pointer is that there are a variety of structural factors that shift both supply and demand. The key factors on the supply side are new discoveries and better technologies; these increase potential supply over time.
On the demand side, increased development of renewables and more efficient energy systems can systematically lower fossil fuel demand, while countries typically have lower metals requirements once industrialisation has been achieved. It was the combination of cyclical forces, such as lower economic growth, and structural changes in both supply and demand factors that led to the post-2012 slowdown in commodity prices.
Some analysts have focused on the structural changes, arguing for example that greater generation of renewable energy and improved productivity will lower fossil fuel demands permanently. However it is unlikely that structural changes have been enough to date to outweigh increases in demand when the economic cycle moves more strongly into a growth phase.
For example the International Energy Agency in 2015 predicted that world energy demand would grow by nearly one-third between 2013 and 2040, and even though renewables will be the fastest growing sector there is still likely to be some growth in coal and oil consumption to meet the balance of needs.
The third pointer is that the major slump in commodity prices over the past three years has focused the minerals sector on cost-cutting and efficiency. This has been more intense than in previous downturns, but the end result is that production costs are much lower than in 2012.
As a result, any rebound in resource prices, as has occurred across some commodities this year, will not have to be as large for operations to be profitable. In essence the cyclical downturn has forced a structural reduction in operating expenses that will make the industry more resilient to future commodity cycles.
This broad summary papers over a number of factors that influence individual commodities; these include government regulation, exploration policies, controls on supply, market access, taxation and support policies, infrastructure access and charges, labour markets and technology drivers. While those factors help to explain movements between sectors, it is the cyclical forces of global demand and global supply that drive prices and returns for Australian companies.
Analysts should also keep in mind that the company accounting systems do not fully reflect all environmental costs; for example responsibilities for mine rehabilitation tends to be underestimated and there is no current system to internalise the spillover costs of greenhouse emissions. Regulatory and accounting systems need to be improved so that all environmental impacts and liabilities are fully recorded, particularly if a cyclical upturn in the future stimulates growth again in the sector.
John Rolfe is professor of Regional Economic Development, School of Business and Law, CQUniversity Australia and author for The Conversation. He can be contacted <a href="https://theconversation.com/profiles/john-rolfe-1894" target="_blank">here</a>.
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