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.
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[smartcode_project_cta:default project_id=112661]

SIERA kicks off construction at Northcliffe tower Exhale

Consumer Sentiment

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EXPERT OBSERVER
The ‘cautiously optimistic’ consumer mood that prevailed through 2018 has evaporated with sentiment beginning the new year with a slightly pessimistic view. At 99.6, the Index is below the 100 level, indicating that pessimists outnumber optimists, although only by a slim margin. This is the first time sub-100 reading from the survey since November 2017.
Confidence has come under pressure from a number of fronts including a continued slide in house prices; disappointing updates on Australia’s economic growth; ongoing concerns around global trade wars; and political uncertainty. Indeed, the continued optimism late last year was something of a surprise, implying the consumer mood was still getting considerable support from low interest rates, diminished fears of rate increases, a firm labour market, and at the margin, lower petrol prices. Other factors may also have weighed negative on sentiment in January including the Australian cricket team’s first domestic test series defeat to India.
Click here <a href="https://www.propertyobserver.com.au/images/2019/1/16/sentiment.jpg" target="_blank">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/2019/1/16/sentiment.jpg" alt="">
The January sentiment fall is significant, marking the biggest monthly decline in over three years. January reads should be treated with some caution as the Index is adjusted to remove a regular boost to sentiment over the holiday season. However, even allowing for this, the update clearly marks a poor start to the new year. The Index is down 5.3% compared to this time last year.
All index components recorded declines with the biggest falls around expectations for the economy and assessments of current finances.
On the economy, the ‘economic outlook, next 12mths’ sub-index dropped 7.8%, the biggest fall since September 2015 when sentiment was hit by a sharp sell-off in financial markets and a disappointing update on Australia’s growth. The ‘economic outlook, next 5yrs’ sub-index also showed a sizeable 5.9% decline. Despite the weakening, both of sub-indexes remain comfortably above their long run average levels suggesting the economy is still a support for sentiment overall.
<a href="https://www.propertyobserver.com.au/subscribe" target="_blank"><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/2019/1/Subscriber%20strip%20ad.jpg" alt=""></a>
Consumer views on family finances also recorded a poor start to the year. The ‘finances vs a year ago’ sub-index posted a sharp 5.9% decline taking it back to near 2018 lows. The sub-index tracking expectations for ‘finances, next 12 months’ recorded a milder 3.1% fall. Pressure on family finances remains a key weak spot for sentiment with both sub-indexes well below long run average levels. Slow wages growth and falling house prices remain significant headwinds.
Consumer attitudes towards major purchases were more resilient, the ‘time to buy a major household item’ sub-index dipping just 1.3%. However, this sub-index remains below average with the weak reads around family finances pointing to a continuation of the sluggish consumer spending growth seen through 2018.
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Matthew Hassan is a senior economist with <a href="https://www.westpac.com.au/" target="_blank">Westpac</a>.
 
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Consumer sentiment declines to lowest point since house prices declined: Westpac

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EXPERT OBSERVER
The consumer mood continues to hold at cautiously optimistic levels. With another reading above 100, December now marks a full year in which optimists have outnumbered pessimists, a turnaround on 2017 which saw ten out of twelve sentiment updates below the 100 line. That said, the margin is still fairly small with some of the detail in the December update on the soft side. The component indexes show more downbeat views on family finances and longer term economic prospects offset by a solid rise in buyer sentiment.
Given the negative atmospherics around falling house prices in Sydney and Melbourne; falling share markets (the ASX200 now down around 13% from its recent peak in late August and 4.5% since the last survey); ongoing concerns around global trade wars; and political uncertainty, it is reasonable to question why consumer sentiment has held up so well.
There are several significant positives supporting consumers. Firstly, interest rates remain low and fears about rising rates must be subsiding. To this point, the confidence of respondents who hold a mortgage improved by 2.9% in the month to be up by 8.8% over the year. The labour market also remains a source of comfort with the unemployment rate widely reported at a six and a half year low. Finally, a sharp drop in petrol prices has likely provided some additional support over the last month with the average pump price down around 20% since the November survey.
Click here to enlarge.
<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/2018/12/12/Consumer.jpg" alt="">
Without a doubt our housing-related indexes show considerable unrest, particularly in NSW and Victoria, while our survey also shows that risk aversion continues to rise.
The ‘finances vs a year ago’ sub-index recorded a 1.9% decline, reversing about half of last month’s surprisingly firm 4.9% gain. The ‘finances, next 12 months’ sub-index also posted a small 0.6% decline following a solid 3.2% gain in November. In both cases, the state detail shows more pronounced monthly declines in NSW and Victoria partially offset by strong gains in the mining states. While some of the weakening in the eastern states may be a sign that the housing downturn is starting to undermine consumer views on their finances, these state measures are still comfortably above their earlier 2018 lows.
Consumers were a touch less optimistic around the economy. The ‘economic outlook, next 12mths’ sub-index rose slightly by 0.1% but the ‘economic outlook, next 5yrs’ sub-index retraced 1.5% – giving up some of the 9.7% jump in November. Both sub-indexes remain well above long run averages. The mix suggests relatively little impact from the disappointing September quarter national accounts update.
The ‘time to buy a major household item’ sub-index rose 3.7%, more than reversing a 3.5% decline in November. While this marks a promising lift in buyer sentiment leading into the Christmas retail peak the lead-in is still less upbeat than a year ago, the sub-index down 1.9% on December 2017. Recall that our survey in November signalled that the Christmas selling season would somewhat underperform the disappointing results of last year.
The Westpac Melbourne Institute Unemployment Expectations Index rose 0.5% in December (recall that higher reads mean more consumers expect unemployment to rise in the year ahead). While this still marks a 5.2% improvement on a year ago, expectations are flattening, suggesting labour market momentum is slowing.
Responses to additional questions on news recall emphasise some of the key themes. News on ‘economic conditions’ had the highest cut through with nearly a third of consumers noting news on this topic (up from 20% in September) and the news viewed much more unfavourably. The next highest recall was for news around ‘interest rates’ (21%); ‘Budget and tax’ (20%); and ‘international conditions’ (14%). Assessments of the news on ‘interest rates’ showed some improvement compared to September while ‘Budget and tax’ news was viewed about the same as three months ago but much less negatively than in December last year. Not surprisingly, there was a sharp deterioration in assessments of news around international conditions.
BILL EVANS is chief economist of <a href="https://www.westpac.com.au/" target="_blank">Westpac</a>. 
 
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Consumer sentiment continues at cautiously optimistic levels

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The Westpac Melbourne Institute Index of Consumer Sentiment rose 2.8% to 104.3 in November from 101.5 in October.
That was a surprisingly strong result. In particular, respondents are much more positive about their own finances. That is despite consistent reports around weakness in the housing markets in the major capitals and the sharp falls in the equity market through October.
Low interest rates and their prospect of being sustained for some time are clearly supporting confidence.
For example, the confidence of those respondents with a mortgage increased by 4.3%. However, on a more cautionary note, measures of spending intentions have been weaker.
Consumer views around housing were very interesting. Buyer sentiment improved sharply but price expectations fell to new lows.
The ‘time to buy a dwelling’ index posted a strong 11.8% surge to be up 16.7% on a year ago to the highest level since March 2015.
Consumers in NSW showed a particularly strong gain with a 26% jump taking the state index to a five year high and suggesting the decline in Sydney house prices is starting to generate some interest from buyers.
Because the NSW Index has been so low, this stunning improvement only restores the Index to just below its long term average.
The other state, Victoria, where prices have recently shown significant weakness, improved only modestly with “Time to Buy” up only 3.3%.
Consumer expectations for house prices posted another fall in November.
The Westpac Melbourne Institute Index of House Price Expectations fell 2.3% to 99 – on par with the weakest read we have ever seen on this index, when it was first compiled back in May 2009.
The state detail continues to show particularly weak reads in NSW and Victoria, both hitting new lows in November with Victoria’s index down 25% over the last three months alone.
The house price corrections underway in Sydney and Melbourne now look to be firmly embedded in consumer expectations.
In this cycle, Sydney dwelling prices have already fallen by 8.7% while prices in Melbourne are down by 5.1%.
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New lending for housing is also contracting. New lending for “upgraders” (owner occupiers excluding First Home Buyers) has fallen by 13.2% over the last year (October 2017 to September 2018) but more significantly has fallen by 10.7% in the two months to September.
New lending to investors peaked in December 2016 and has fallen by 25.9% in the year to September 2018 and 4% over the last two months.
These developments have largely reflected stretched affordability (on the demand side) in the two cities and tighter lending policies from the four major banks (on the supply side).
Households now expect house prices to continue to fall. The Westpac Melbourne Institute Index of House Price Expectations has fallen by 39% for NSW and 41.5% for Victoria over the last year. 
Both indexes moved from prints which indicated that optimists strongly outnumbered pessimists (134 for NSW and 144 for Victoria) to positions where pessimists outnumber optimists (82 for NSW and 84 for Victoria). 
Note that any read below 100 indicates a majority of pessimists.
Furthermore these current levels are the lowest we have registered since Westpac and the Melbourne Institute first started this question in the Consumer Sentiment survey in May 2009.
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Westpac also calculates measures of housing affordability. These relate to the proportion of income required to accumulate a deposit and service a loan which is 75% of the median house price. These measures of affordability can vary around assumptions related to the time required to accumulate the deposit and whether the 75% is a reasonable assumption.
Based on the estimates being used we assess that affordability in both NSW and Victoria is more stretched than we saw in the previous periods which preceded falls in house prices – 2008/09 and 2010/11.
Peak to trough in those previous periods were falls of 6.4% (Sydney) and 8.7% (Melbourne) in 2008/2009 and 3.4% (Sydney) and 8.2% (Melbourne) in 2010/2012.
The restoration of affordability in those previous periods came through falls in interest rates and house prices while income growth also contributed. Wages growth was running at around 4% in both periods. That compares with current wages growth of 2.3%.
In the 2008/09 period the RBA cut the cash rate by 425 basis points from 7.25% to 3%; in the 2011/12 period it cut rates.
by 175 basis points from 4.75% to 3.00%. The challenge with this particular cycle is that the RBA appears to be absolutely committed to the next move in rates being up.
So in those previous periods affordability and demand were restored through a combination of income growth; substantial rate cuts; and price adjustments. In this current period the responsibility for a restoration of affordability will fall mainly to price adjustments.
The Consumer Sentiment Report indicated that the “Time to Buy a Dwelling” Index had lifted significantly in the weak NSW market.
That might imply that despite continuing stretched affordability, prospective buyers may be considering re-entering the market. That does seem surprising given the downbeat price expectations and stretched affordability.
However, as discussed, in this cycle there is another complication.
We have a different environment from the perspective of credit supply. Banks have tightened credit conditions such that when demand for credit recovers (as may be implied by the “Time to Buy” index for NSW) it may not be as simply accommodated as was the case in those previous periods.
This will complicate the usual adjustment process. Markets stabilise when prospective buyers feel encouraged to re-enter the market. Affordability returning to equilibrium and price expectations turning positive are generally the triggers for markets to recover.
 The “Time to Buy” index for NSW is sending an encouraging early signal but if prospective buyers are unable to secure adequate funding to enter the market, the move to the new equilibrium may be more extended.
In summary it is apparent that this cycle is quite different to the two previous down cycles for dwelling prices. Affordability is more stretched and sources of adjustment are more restricted.
 Furthermore, credit conditions indicate that a recovery in affordability and demand may not be accommodated through credit supply in the same way we saw in previous cycles.
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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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Mixed signals on housing but adjustment process seems likely to have further to run: Bill Evans

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EXPERT OBSERVATION
Consumer sentiment has continued to recover from the mild setback in the September quarter.
The headline index remains 1.6% below its July peak but is now more comfortably above the 100 line, indicating optimists outnumber pessimists.
Indeed, while confidence may still not be particularly strong, there has been a clear improvement over 2018.
November marks the twelfth successive month that optimists have outnumbered pessimists contrasting with the previous twelve months when pessimism held sway for 11 out of 12 reads.
This is a surprisingly strong result. In particular, respondents are much more positive about their own finances.
That is despite consistent reports around weakness in the housing markets in the major capitals and the sharp falls in the equity market through October.
Low interest rates and their prospect of being sustained for some time are clearly supporting confidence.
For example, the confidence of those respondents with a mortgage increased by 4.3%. However, on a more cautionary note, measures of spending intentions have been weaker.
Four of the five index components recorded gains in November.
Assessments of family finances showed a promising rise, the ‘finances vs a year ago’ sub-index was up 4.9% to its highest level since early 2016.
The ‘finances, next 12 months’ sub-index rose by 3.2%. Consumers in NSW showed particularly strong gains, a somewhat surprising result given the continued correction in Sydney house prices.
Consumer expectations for the economy showed an exceptional rise in longer term expectations. This was supplemented by a positive for shorter term views as well. The ‘economic outlook, next 12 months’ sub-index posted a 1.7% rise, and, at 104.3, remains well above its long run average of 90.7
. The ‘economic outlook, next 5 years’ sub-index jumped 9.7% in November to reverse most of the sharp drop seen over the previous three months.
The wider consumer mood is more buoyant but attitudes towards spending are more downbeat. The ‘time to buy a major household item’ sub-index fell 3.5% in November, to an 18 month low.
Responses to our annual question on Christmas spending plans also point to a subdued near term outlook for demand.
A third of Australians expect to spend less on gifts than they did last year, with 56% expecting to spend about the same and just 10% expecting to spend more.
The net balance of ‘more minus less’ is marginally more negative than last year, and the weakest read since 2014. Despite the higher reads in overall confidence this question suggests that we are unlikely to see any improvement over last year’s lacklustre Xmas spend.
Labour market expectations improved a touch in November.
The Westpac Melbourne Institute Unemployment Expectations Index declined 1.9% (recall that lower reads mean more consumers expect unemployment to fall in the year ahead).
The index continues to show a clear 7.9% improvement on a year ago, led by Victoria where the state index has fallen 16.5%.
Consumer views around housing are very interesting. Buyer sentiment improved sharply but price expectations fell to new lows.
The ‘time to buy a dwelling’ index posted a strong 11.8% surge to be up 16.7% on a year ago to the highest level since March 2015.
Consumers in NSW showed a particularly strong gain with a 26% jump taking the state index to a five year high and suggesting the decline in Sydney house prices is starting to generate some interest from buyers.
Because the NSW Index has been so low this stunning improvement only restores the Index to just below its long term average. The other state, Victoria, where prices have recently shown significant weakness improved only modestly with “Time to Buy” up only 3.3%.
Consumer expectations for house prices posted another fall in November.
The Westpac Melbourne Institute Index of House Price Expectations fell 2.3% to 99 – on a par with the weakest read we have ever seen on this index, when it was first compiled back in May 2009. T
he state detail continues to show particularly weak reads in NSW and Victoria, both hitting new lows in November with Victoria’s index down 25% over the last three months alone.
The house price corrections underway in Sydney and Melbourne now look to be firmly embedded in consumer expectations.
The Reserve Bank Board next meets on December 4. The Reserve Bank recently released its November Statement on Monetary Policy. In the Statement it noted that “the Board does not see a strong case to adjust the cash rate in the near term”. That confirms that no move can be expected at that December meeting.
On the other hand the Bank raised its growth forecast for 2018 and maintained its above trend growth forecast for 2019. Furthermore, it lowered its unemployment forecast and slightly lifted its inflation forecast.
These moves could be interpreted that be Bank is more confident to raise rates during 2019. It is Westpac’s view that growth in 2019 will slow to 2.7% particularly under the weight of a weakening housing market; a contraction in construction; and a slowdown in jobs growth.
Today’s Consumer Sentiment Report portrays a more confident consumer than we had expected although this confidence is not boosting spending intentions.
Westpac continues to expect that the Reserve Bank will keep the cash rate on hold in 2018, 2019 and 2020.
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Solid lift in consumer sentiment: Bill Evans

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EXPERT OBSERVATION
Consumer sentiment has tracked back to neutral as the earlier tax cut boost wanes and a variety of negatives impact. The housing market correction is in the mix but the detail suggests the impact on sentiment has been small so far.
The Westpac Melbourne Institute Index of Consumer Sentiment has weakened over the last 3 months, falling 4.2% and retracing all of the gains seen through the middle of the year.
At 100.5, the Index is now broadly unchanged on a year ago and only just above the 100 line, indicating a near even mix of optimists and pessimists.
A waning boost from the income tax cuts announced in May, renewed political instability, mortgage rate increases, further declines in house prices, rising petrol prices and unsettled financial market conditions all look to have contributed to the softer reads. Indeed, given the range of negatives, the pull back in sentiment has arguably been mild.
There is some evidence that positives around economic growth, the labour market and more balanced conditions across states have provided some underlying supports.
A key area of interest is the extent to which the house price correction is having spillover effects on the consumer. Assessments of family finances remain a notable weak spot.
Concerns around interest rates and house prices are both apparent – sentiment amongst households with a mortgage falling 6.4% over Sep-Oct.
That said, the more pronounced house price corrections in Sydney and Melbourne do not appear to be weighing more heavily on sentiment in these regions, at least not yet.
<img src="https://westpaciq.westpac.com.au/wibiqauthoring/_uploads/image/The_Red_Book/Red_Book_bites/Redbook-bite-20181023-1.jpg" alt=""> 
Matthew Hassan is a Senior Economist for Westpac.
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Housing market correction impact on consumer sentiment small so far: Matthew Hassan

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EXPERT OBSERVER 
The consumer mood deteriorated in August, giving back about half of the surprisingly strong gains seen in June and July. Those gains look to have been partly a positive response to the tax cuts announced in the May Budget, which passed into legislation in June, the first round of cuts coming into effect in July. The June-July gains also came against a backdrop of adverse developments on the global trade front and an emerging price correction in the Sydney and Melbourne housing markets.
Despite the latest decline, the Index is still in positive territory overall, 5.5% above the average in 2014 to 2017. August marks the ninth successive month that the Index has been above the 100 level, indicating optimists outnumber pessimists, a clear turnaround on the twelve months in which 11 out of 12 readings were below 100.
Reduced rate rise fears may also have contributed to the lift in sentiment since earlier in the year. Every six months we gauge respondents’ outlook for interest rates. Back in February, 58% of respondents expected rates to rise over the next year down slightly from 61% in August 2017. The proportion fell further to just below 50% in August 2018.
All index components recorded declines in August, but the biggest falls were around expectations for the economy: the ‘economic outlook, next 12 months’ sub-index down 4.9% and the ‘economic outlook, next 5yrs’ sub-index down 3.1%. Both sub-indexes recorded strong gains last month. Despite the August pull-back, both ‘economic outlook’ sub-indexes remain well above their levels a year ago and 9-10pts above their long run averages.
Consumer views around family finances showed a milder pull back in August but remain weaker overall. The ‘finances vs a year ago’ sub-index dipped 0.5% and the ‘finances, next 12 months’ sub-index declined 1.1%. Both remain 1-2pts below their long run averages. Household budgets have come under persistent pressure from a range of factors, including: slow growth in wages, rising electricity and petrol costs, and declining house prices.
Consumers remain relatively downbeat on spending. The ‘time to buy a major household item’ sub-index declined 1.7%, giving up all of last month’s firming. At 122.4, the sub-index is 5ppts below its long run average and well below the levels associated with buoyant spending conditions.
Consumer views on unemployment continue to soften, pointing to a shift in labour market conditions. The Westpac Melbourne Institute Unemployment Expectations Index rose 2.8% to 129.3 and has now risen 7.2% from its February low (recall that higher reads mean more consumers expect unemployment to rise in the year ahead). The Index, which can also be viewed as a measure of consumers’ sense of job security, is now back near its long run average levels, suggesting consumers expect little change in the unemployment rate over the next 12mths. That would in turn imply a continuation of the slower employment gains seen since the start of the year with employment growth over the first half of 2018 more in line with growth in the working age population. Whether the shift marks a more sustained turning point in the labour market – something that has been seen during the lead in to the last two Federal elections – remains to be seen.
Consumer views around housing improved in August. The ‘time to buy a dwelling’ index posted a solid 5.5% gain and is now up 15.1% on a year ago and over 20% from its mid-2017 low. At 108.8, the index is at its highest level since September 2016. However, it remains well below the long run average of 120. The biggest lifts over the past year have been in Sydney and Melbourne where markets have seen significant price declines. Despite this, the average ‘time to buy a dwelling’ sub-indexes for these cities over the last three months has still been more subdued (102 and 101 respectively compared to 105.8 nationally). The easing rate rise fears evident in consumers’ mortgage rate expectations would have undoubtedly contributed to this lift in housing sentiment.
Consumer expectations for house prices stabilised in August. The Westpac Melbourne Institute Index of House Price Expectations edged 0.3% higher to 112.8 in August. That followed a sharp 13.1% drop over the previous two months. Expectations showed solid gains in NSW and Vic (both up 4.8%), the states that had led the declines in June-July (down 22% and 23% respectively).
The Reserve Bank Board next meets on September 4. Last week the Bank released its latest Statement on Monetary Policy which provided an update on its forecasts. Of most interest was a downward revision to the Bank’s inflation forecast for 2018 from 2.25% to 1.75%. If correct that would mark five consecutive years when headline inflation has printed below the bottom of the Bank’s 2-3% target band.
The Reserve Bank still expects inflation to lift to 2.25% by 2020 and anticipates that the next move in the cash rate will be up. An obvious headwind to the Bank’s plan to move inflation back into the target zone is the impact that five years of underperformance in inflation will have on households’ and firms’ expectations. Lower expectations will make it that much more difficult to lift inflation back into the band. Price expectations impact households’ wage expectations and claims, while firms’ pricing decisions are also influenced by expectations.
Certainly it will be quite some time before the Bank has a case to adjust the cash rate.
Westpac reaffirms its view that rates will remain on hold in both 2018 and 2019.
Bill Evans is the Chief Economist for Westpac
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Consumer optimism fades, but housing sentiment rises: Bill Evans

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EXPERT OBSERVATION
The ANZ/Roy Morgan weekly consumer sentiment jumped 6.5 points (5.6%) to 21-week high of 123.0 points.
The Westpac/Melbourne Institute survey of consumer sentiment index rose by 0.3% to 102.1 in June. The index is above its long-term average of 101.5. A reading above 100 denotes optimism.
In the latest quarterly survey 22.5% of respondents thought the ‘wisest use of savings’ was to pay down debt.
In the Reserve Bank Governor speech entitled “Productivity, wages and prosperity” the Governor highlighted evidence of a growing “skills shortage” in Australia.
The consumer confidence figures have implications for retailers, and other consumer-focussed businesses.
What does it all mean?
When you weigh all the ‘big picture’ influences, Aussie consumers have little to be despondent about. The economy has completed 26 years of uninterrupted economic growth and the pace of annual growth now tops 3%. But inflation is contained, interest rates are at generational lows, unemployment is below the long-term average and sharemarket returns are up more than 10% on a year ago. The main worry is the high price of petrol and the fact that Aussie consumers and travellers would probably like the Aussie dollar a little higher than where it is currently.
Rising home prices didn’t drive consumer sentiment higher in the past few years and the rebalancing probably won’t lead to weaker consumer confidence. Overall, consumers tend to keep everything in perspective. In most capital cities, home prices have posted solid gains over the past five years.
Roy Morgan believes that the early start to winter clearance sales by department stores and chains may have also been a factor in lifting confidence last week.
While consumers are confident, they also remain conservative. Almost a quarter of consumers surveyed thought the wisest use of new savings was to pay down debt – the second highest response behind leaving the money in the bank. Almost 12% thought real estate was the best investment with around 9% opting for shares.
The Reserve Bank Governor has continued to indicate that the next move in interest rates will be up, but the move is “still looks to be some time away”. There needs to be a lift in inflation and wages before the Board is confident to lift rates.
The Reserve Bank Governor has highlighted growing evidence of a “skills shortage” in Australia. Governor Lowe believes this adds to the case that higher wages and prices are in prospect. However he stresses that this will be a gradual process.
The Reserve Bank Governor said the design of the tax system was important for future productivity. He didn’t elaborate on the point – perhaps he should have.
What do the figures show?
Weekly consumer confidence
The ANZ/Roy Morgan weekly consumer sentiment jumped 6.5 points (5.6%) to 21-week high of 123.0 points. All five components rose in the latest week.
<a href="https://www.propertyobserver.com.au/images/2018/6/13/consumer1.jpg" target="_blank">Click here to enlarge.</a>
<a href="https://www.propertyobserver.com.au/images/2018/6/13/consumer1.jpg" target="_blank"><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/2018/6/13/consumer1.jpg" alt=""> </a>
Monthly consumer confidence
The Westpac/Melbourne Institute survey of consumer sentiment index rose by 0.3% to 102.1 in June. The index is above its long-term average of 101.5. A reading above 100 denotes optimism. The survey was conducted from June 4-10.
The current conditions index rose by 2.4%, but the expectations index fell by 1.0%.
Three of the five the components of the index increased in March:
- The estimate of family finances compared with a year ago rose by 4.5%;
- The estimate of family finances over the next year rose by 2.8%;
- Economic conditions over the next 12 months fell by 1.0%;
- Economic conditions over the next 5 years fell by 3.1%;
- The measure on whether it was a good time to buy a major household item rose by 1.0%.
Housing outlook: A good time to buy a dwelling? The index rose by 4.5% in June is up by 16.3% from a year ago. And house price expectations fell by 7.3% and is down by 10.2% on a year ago.
Unemployment expectations: Unemployment expectations rose by 5.7% in June, but are down by 9.6% over the year.
Wisest place for savings: On the question of the ‘wisest place for savings’, banks (27.7%) led the way from paying down debt (22.5%). Only 11.6% of respondents selected real estate and 8.6% nominated shares. The proportion of consumers opting to put money in superannuation (6.8%) was the second highest in a decade. Only 4.6% of people said they would prefer to spend any extra savings. Interestingly the proportion of consumers favouring cash management trusts (3.3%) was at a 12-year high.
<a href="https://www.propertyobserver.com.au/images/2018/6/13/debt3.jpg" target="_blank">Click here 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/2018/6/13/debt3.jpg" alt=""> 
Reserve Bank Governor Speech
“The national accounts provided confirmation that the Australian economy is moving in the right direction. If this continues to be the case, it is likely that the next move in interest rates will be up, not down. It is, however, important to remember that the environment in which interest rates are increasing is also likely to be one in which people's incomes are growing more quickly than they are now. This will help.”
“One area that we continue to watch carefully is consumption growth. Over the year, household consumption rose by 2.9%. This is a reasonable outcome, although growth in the March quarter was on the soft side.”....”we are paying close attention to household finances.”
“While we can't be definitive about what constitutes full employment, most conventional estimates for Australia are that it means an unemployment rate of around 5%....It is possible, though, that we could do better than this, especially if we approach the 5% mark at a steady pace, rather than too quickly.”
The Governor has identified lower wage growth in the mining sector, increase in labour force participation, labour force underutilisation, and the fact that benefits of new technologies are accruing unevenly across the community as some of the factors explaining lower growth of wages.
<a href="https://www.propertyobserver.com.au/images/2018/6/13/wage-growth.jpg" target="_blank">Click here 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/2018/6/13/wage-growth.jpg" alt="">
“some pick-up in wages growth would be a welcome development. It would help deliver a rate of inflation consistent with the target, it would help with the debt situation and it would add to our sense of shared prosperity.... In my judgement, a return, over time, to a world where wage increases started with a 3 rather than a 2 is both possible and desirable.”
What is the importance of the economic data?
Westpac and the Melbourne Institute release the Index of Consumer Sentiment each month. According to Melbourne Institute: “The survey of consumer sentiment was first undertaken in 1973 and was conducted on a quarterly basis until 1976, a six-weekly basis from 1976 to 1986, and has been conducted monthly ever since.” Confident consumers may be more inclined to spend, especially on major items.
What are the implications for interest rates and investors?
Aussies remain optimistic. When you weigh up all the influences, it is easy to see why. More confident consumers are more likely to spend – positive for retailers. Rising employment, improved job security and stable interest rates represent a heady mix, giving shoppers the ammunition to embrace the mid-year sales.
CommSec doesn’t expect a change in official interest rates until early 2019. But the area to watch is the job market and especially survey evidence of skills shortages, leading to higher wages.
Craig James is the chief economist at <a href="https://www.comsec.com.au/default.aspx" target="_blank">CommSec</a>. 
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Confident consumers still keen to pay down debt: CommSec

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<div class="column">EXPERT OBSERVATION</div>
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<div class="column">The weekly ANZ/Roy Morgan consumer confidence rating rose by 0.7 per cent to a 15-week high of 121.6. Confidence is up by 8.4 per cent over the year and above the average of 113.8 since 2014.</div>
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<div class="column">Sentiment towards family finances over the past year rose by 2 per cent to a 3-month high of 110.1. And views on whether it is a ‘good time to buy’ a major household item rose by 2.6 per cent to 141.7 over the week.</div>
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<div class="column">Consumer confidence figures have implications for retailers, and other consumer-focussed businesses.</div>
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<div class="column">Click here <a href="https://www.propertyobserver.com.au/images/2018/5/23/sentiment.jpg" target="_blank">to enlarge.</a>
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<div class="column"><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/2018/5/23/sentiment.jpg" alt=""></div>
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<div class="column">What does it all mean?</div>
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<div class="column">Aussie consumers are feeling pretty good about things. Sentiment has increased for six straight weeks. If this momentum continues we’ll be back at the best levels in four years in no time.</div>
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<div class="column">But the pessimists are telling us that we aren’t going to get pay rises any time soon, job creation is slowing and that we are all mired in mortgage debt.</div>
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<div class="column">So why are Aussies more optimistic? Job security is improving. 332,200 Aussies have been gainfully employed over the past year. Unemployment expectations are at the best levels in seven years. Real wages are still positive with annual wages growth including bonuses at 3-year highs (data released last week).</div>
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<div class="column">And there is the small matter of the ‘wealth effect’. The housing market is rebalancing on the east coast of the country. Dwelling prices were down by 3.4 per cent in Sydney over the 12 months to April. But are still up by 87.1 per cent since April 2009. Hobart is going gangbusters and Perth home prices are stabilising.</div>
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<div class="column">The Aussie share market (ASX200 index) is up by 1.3 per cent so far this month and 3.3 per cent over the past four weeks (both to May 21). Energy, materials and health care shares collectively have performed well.</div>
<div class="column"> </div>
<div class="column">Aussie consumers have also reacted positively to the Federal Budget. Tax cuts, albeit modest, may encourage increased spending on household goods, as evidenced by the rebound in sentiment around the question ‘is it a good time to buy a household item?’</div>
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<div class="column">Click here <a href="https://www.propertyobserver.com.au/images/2018/5/23/aussie-finances.jpg" target="_blank">to enlarge.</a>
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<div class="column">What do the figures show?</div>
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<div class="column">Consumer Sentiment</div>
<div class="column"> </div>
<div class="column">The weekly ANZ/Roy Morgan consumer confidence rating rose for the sixth consecutive week, up by 0.7 per cent to a 15- week high of 121.6. Confidence is up by 8.4 per cent over the year and above the average of 113.8 since 2014.
Four of the five components of the index increased in the latest week:
The estimate of family finances compared with a year ago was up from +7.9 to +10.1;
The estimate of family finances over the next year was up from +27.1 to +27.8;
Economic conditions over the next 12 months was unchanged at +13.2;
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Economic conditions over the next 5 years was down from +17.5 to +15.3; 
The measure of whether it was a good time to buy a major household item was up from +38.1 to +41.7.  The measure of inflation expectations 2 years ahead rose from 4.1 per cent to 4.2 per cent.
Click here <a href="https://www.propertyobserver.com.au/images/2018/5/23/tax-cuts.jpg" target="_blank">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/2018/5/23/tax-cuts.jpg" alt="">
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What is the importance of the economic data? 
The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.
What are the implications for interest rates and investors?
Aussies are a resilient bunch. The number of optimists still outweigh the number of pessimists.
Rising petrol prices, anaemic income growth, elevated household debt and a weaker currency are a combined weight on household budgets. However, this is counterbalanced by improving job security, better bonuses and tax relief for some. Households are still spending.
And according to CoreLogic, Aussie home prices held steady last week. Sydney and Melbourne home prices, especially at the top end of the market, continue to decline. But what about the rest of the country?
Prices in Adelaide and Brisbane have risen modestly over the past year. Hobart continues to benefit from its improving economy and better relative affordability.
Perth home prices are declining, but at a slower pace, signalling a potential bottoming. According to the WA Chamber of Commerce, business confidence is the best in seven years. Profits in the mining sector are rising and job ads are increasing.
And when it comes to share markets, so much for the ‘sell in May and go away’ cliché! While some well-known blue chip companies have underperformed recently, savvy Aussie investors have positioned themselves in stocks with specific positive catalysts, paying decent dividend yields. Corporate profits are at record highs and the Aussie economy is improving.
However, broader inflationary pressures remain fairly benign. Therefore, CommSec expects official interest rates to be stable for the foreseeable future.
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Ryan Felsman is a senior economist at CommSec.
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The wealth effect: rising sharemarket, steady home prices and bonuses boost consumer sentiment: CommSec

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GUEST OBSERVATION
Business leaders in health and consumer discretionary sectors are feeling less positive about the year ahead because consumers are feeling the pain in the hip pocket, according to our analysis of the outlook of leaders of Australia’s ASX 200 companies. The threat of changes in regulation also features in business leaders’ fears.
Roughly four out of five Australian workers earn their living from private businesses. So we should care about how Australian business leaders are feeling about the future of their businesses, because it’s our future.
The consumer discretionary sector encompasses industries that tend to be the most sensitive to economic cycles. They include businesses that produce goods like cars, clothes and leisure equipment but also services like hotels, restaurants and media.
Business sentiment in the consumer discretionary sector fell in March 2018 relative to the 2017 September business reporting season - from 0.19 to 0.13; and also compared with March 2017 but by a smaller magnitude.
Companies with lower than average sentiment for the year ahead included retailer Myer (0.05) – no surprise given the ongoing weak performance and takeover speculation; and Nine Entertainment (-0.03), facing ongoing cost pressures from digital media competition. Also less positive were Skycity Entertainment Group (0.01) and Webjet (-0.02).
<a href="https://images.theconversation.com/files/208860/original/file-20180305-65541-t4bhgu.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/208860/original/file-20180305-65541-t4bhgu.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></a>
The Conversation, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/" target="_blank">CC BY-ND</a>
Tighter household budgets bad for business
The glum business sentiment is in sectors related to consumer spending. A decline in consumer spending could be because household finances are under pressure from slow income growth and wealth.
Slow household income growth is driven by slow wage growth. The wage price index grew by 2% over the past year, and less on a per hour basis, which means it is barely keeping up with consumer prices. The second factor is the slowing growth in household net wealth due to a slow down in house prices and financial assets.
Similarly, another consumer sentiment index in Australia declined 2.3% from January to February – the first decline in three months. Part of this may be due to the volatility in global share markets that occurred in the survey week in early February.
This volatility is widely expected to continue and weakening sentiment in the consumer discretionary sector may reflect ongoing uncertainty in household financial wealth.
Health and consumer spending sectors wary of regulation
Our analysis shows business sentiment in the health care sector dropped from 0.18 to 0.07 September 2017 to March 2018 and by a smaller magnitude since March 2017. This could reflect business leaders’ ongoing concern about the sustainability of the current health system.
Health business with lower than average sentiment for the year ahead include generic drugs supplier Mayne Pharma (0.01), infection control company Nanosonics (-0.03) and private hospital group Healthscope (0.04).
Private health insurance premiums have increased at nearly twice the growth rate of wages over the past. According to a recent survey, 44% of Australians believe the current mix of public and private health systems will not be around in 15 years, and 52% lack confidence that the current public hospital system will still be around in 15 years.
Government regulation is a recurrent theme in business leaders’ statements. For example, diagnostic imaging company Primary Health Care notes in its report: “…funding pressures will remain for the industry…Australia is at an important juncture in the delivery of health-care services.”
The private health care funding system is regulated to within an inch of its life in the desperate attempt to shore up its viability. For example, the Private Health Insurance Rebate, Lifetime Health Cover and the Medicare Levy Surcharge are all measures designed to force healthy young people and high income earners to subsidise the health care of others.
But this regulation is not working, judging by declining proportion of young people with private health insurance and the need to increase premiums so dramatically.
We also see regulation mentioned in the reports for the consumer discretionary sector. For example David Attenborough, the managing director and CEO of gambling entertainment giant Tabcorp said:
“Tabcorp is well placed to compete in the evolving regulatory landscape. This includes the introduction of point of consumption taxes, and restrictions on credit betting, advertising, inducements and live betting.”
The placement Attenborough refers to may have something to do with the proposed merger with lottery retailer Tatts Group, after shareholders and the Australian Competition Tribunal approved the move.
However gambling regulation continues to be politically charged as we saw in the fight over pokies in pubs and clubs during the Tasmanian state election and are seeing in South Australian state election race.
Overall business sentiment not looking bad
Overall business sentiment is roughly the same as at March 2017 and 2016. Some sectors are higher, such as telecommunication services (up from 0.05 to 0.08), materials (up from 0.07 to 0.11) and information technology (up from 0.13 to 0.23). This is offsetting the weaker sentiment about the year ahead in consumer discretionary, health care and energy.
The overall sentiment level continues to be positive at 0.08.
Ongoing strong employment growth over the past two years is a likely indicator of this positive sentiment. Overall employment growth of 3.3% in the past 12 months is about double the growth in the working age population, and the Reserve Bank expects it to continue to grow faster than the working age population to the end of 2019.
Our analysis also looks at the subjectivity in the statements these businesses make. There’s no significant change in the subjectivity scores compared with last year. This means no increase or decrease in confidence or uncertainty around the sentiment levels.
<img src="https://counter.theconversation.com/content/92737/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">It will be interesting to see whether sentiment changes over the next six months to the September business results, given the destabilising effects of a range of factors just starting to play out. These factors include stock market volatility, the announcement of US tariff increases, company tax cuts and the probably interest rate rises.
Ross Guest, Professor of Economics and National Senior Teaching Fellow, Griffith University
Ben Hachey, Honorary Associate, School of Information Technologies, University of Sydney
Leonardo dos Santos Pinheiro, PhD candidate, Artificial Intelligence, Macquarie University
This article was originally published on <a href="http://theconversation.com" target="_blank">The Conversation</a>. Read the <a href="https://theconversation.com/face-value-business-leaders-nervous-about-consumers-spending-less-and-regulation-92737" target="_blank">original article</a>.
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j.ballantyne1990-6AQqhLzZaK

Business leaders nervous about consumers spending less and regulation

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GUEST OBSERVER
The Westpac Melbourne Institute Index of Consumer Sentiment fell by 2.3% to 102.7 in February from 105.1 in January.
The survey was conducted over the week of February 5 – February 11. That week was marked by a wave of volatility in global share markets.
The Australian market, which was more stable than most, still experienced some significant swings, being down a net 4.6% for the week while the US market (S&amp;P 500) was down by a net 7.2%.
Extensive media coverage of these developments would have unnerved respondents on two fronts – the impact on their own financial position and concerns for general global stability.
These concerns appear to have been acutely felt by retirees whose confidence fell by 13.5%.
In those circumstances the 2.3% fall in the Index is a decent result and is now registering a fourth consecutive month where optimists outnumber pessimists. Recall that this sequence follows 12 consecutive months where pessimists were in the ascendency for all but one month.
Having said that the level of the Index is still well below levels typically associated with a robust consumer.
Every six months we gauge respondents’ outlook for interest rates. In August last year 61% of respondents expected interest rates to rise over the next year. That was an uplift from 54% in February 2017. The proportion has fallen back to 58%, partly explaining the boost to confidence since the middle of last year.
Developments in the components of the Index are consistent with the likely impact from last week’s market volatility. In particular respondents’ assessments of their own finances suffered, the ‘finances vs a year ago’ sub-index fell by 4.5%; and the ‘finances, next 12 months’ sub-index fell by 3.1%. We assume that these components have suffered temporary set- backs associated with market volatility. On face value the ‘year ago’ component is sending a very weak signal about likely spending prospects.
Not surprisingly the ‘economic conditions, next 12 months’ component fell sharply by 4.7% while the ‘economic conditions, next 5 years’ component was stable.
The ‘time to buy a major Item’ sub-index increased by a modest 0.9%. Despite the overall Index still being 3.1% higher than a year ago this component is only up by 0.6% over the year – signalling ongoing reluctance from households to commit to large purchases”.
<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/2018/2/14/consumer.jpg" alt="">
Consumers continue to become more comfortable about the outlook for jobs. The Westpac Melbourne Institute Unemployment Expectations Index declined 1.8% to 120.6 in February to a new cycle low (recall that lower reads mean more consumers expect unemployment to fall in the year ahead).
The Index, which can be viewed as a measure of consumers’ sense of job security, is down 15.2% on this time last year and well below its long run average of 130. The state detail shows the improvement has become more broadly based as well with all state indexes now comfortably below their long run averages.
Consumer views around housing showed mixed moves with buyer sentiment softening but price expectations improving.
The ‘time to buy a dwelling’ index declined 2.7% to 103.8 in February but was coming off an 18 month high in January. The index is still showing a clear improvement on last year’s very weak reads (an average of 95.7 for 2017) but is well below the positive long run average of 120.
The state detail shows a significant pull-back in Victoria (down 12.7% to 93). In contrast, there was a notable lift in NSW buyer sentiment (up 7% to 96) having been at much weaker levels through 2017 (an average of 82).
The Westpac Melbourne Institute Index of House Price Expectations rose 4.8% to 135.3, reversing all of last month’s decline to be back comfortably above its long run average. The biggest gain in February was in NSW although price expectations in the state are coming from a weaker starting point and still show the biggest pull back on this time last year.
The Reserve Bank Board next meets on March 6. In a speech on February 8 the Governor concluded, “the Reserve Bank Board does not see a strong case for a near-term adjustment in monetary policy”.
Clearly there will be no policy change at the March meeting.
<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/2018/2/14/consumer%202.jpg" alt="">
Through 2017 Westpac has argued for rates to remain steady in 2017–2019. The Bank expects to make some progress in reducing unemployment and having inflation return to the midpoint of the target range. However, based on its recent forecasts that were released on February 9 that progress is expected to be painfully slow. Underlying inflation is expected to reach only 2%, the bottom of target range, through 2019 and the unemployment rate is expected to fall from 5.5% to 5.25% (compared to an estimated full employment rate of 5.0%) by end 2019.
While we are less optimistic about the unemployment rate and the growth outlook the Bank’s forecasts are not entirely out of line with our own view and, arguably, consistent with steady rates over the next few years.
BILL EVANS is chief economist of <a href="https://www.westpac.com.au/" target="_blank">Westpac</a>.
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