<section data-scroll-anchor="false" data-testid="conversation-turn-48" data-turn="assistant" data-turn-id="request-WEB:55d7c6ac-8e6d-4881-ad49-0ed9bf66d1cc-23" dir="auto">
Melbourne’s apartment market entered 2026 with renewed momentum, but the recovery is uneven, policy-driven, and increasingly shaped by constrained supply.

According to the RPM Apartments &amp; Townhomes Market Report (April 2026), apartments have begun to outperform detached housing on key metrics,yet that performance is occurring against a backdrop of falling approvals and a tightening development pipeline.

At the end of 2025, Melbourne unit values reached a three-year high of $656,500, recording quarterly growth of two per cent. That figure edged ahead of the 1.8 per cent growth recorded in the house market over the same period, marking a notable shift in relative performance. While modest in absolute terms, the outperformance is significant given the sustained dominance of houses through much of the previous cycle.

This shift has been driven in large part by policy. The federal government’s expanded five per cent Deposit Scheme has had a disproportionate impact on apartment demand, particularly in Melbourne where the $950,000 price cap captures a large share of medium- and high-density stock.

As RPM notes, the scheme “heavily favours medium and high-density dwellings,” effectively accelerating demand in the apartment sector.

The impact is most visible in buyer activity. Victoria recorded more than 43,000 new housing loans in Q4 2025, the highest quarterly volume since mid-2022 and one of the strongest results in over a decade. This lift was broad-based across all buyer types, with first home buyers, owner-occupiers and investors all returning to the market with greater confidence.

This surge in demand has flowed directly into apartment pricing, particularly in Melbourne’s middle and outer rings. Middle-ring unit values reached approximately $757,500, a four-year high, while outer-ring units climbed to a record $650,000. Quarterly growth of 2.9 per cent and 2.5 per cent respectively significantly outpaced both the inner ring (0.8 per cent) and the broader house market.

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<img alt="RPM" data-entity-type="file" data-entity-uuid="4628dde5-ad63-4b03-b18e-77d0f750e2aa" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-04-24%20at%209.23.32%E2%80%AFAM.png?VersionId=ig6mqc7Oz7UaszRuzULrGtLPUxGf4NJC" />

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The divergence between apartments and houses is also being shaped by affordability. Detached housing remains out of reach for many buyers, pushing demand toward apartments as a more accessible entry point into well-located suburbs. This is particularly evident among first home buyers and downsizers, both of whom are increasingly prioritising location, amenity and lifestyle over land size.

At the same time, population growth continues to underpin demand. Victoria added more than 122,000 residents in the year to Q3 2025, with Melbourne attracting both overseas migrants and interstate movers, partly due to its relative affordability compared to other capitals.

&nbsp;

<img alt="Population" data-entity-type="file" data-entity-uuid="49e10567-a8b3-47c3-afbd-290f0bb62c49" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-04-24%20at%209.22.25%E2%80%AFAM.png?VersionId=.2Drmko4TPh02X55JdF3mIC1EcG0ZfGl" />

However, the most critical factor shaping the apartment market is not demand, it is supply.

Apartment approvals across Greater Melbourne have fallen sharply, signalling a constrained pipeline of future stock. In Q4 2025, just 2,339 apartments were approved, down 20 per cent on the previous quarter and 47 per cent lower than the same period a year earlier. On an annual basis, 11,066 apartment approvals were recorded, an improvement on the previous year, but still well below medium- and long-term averages.

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<img alt="Apartment approvals" data-entity-type="file" data-entity-uuid="12f2e7bc-fe01-40c0-80b5-9e829b279d98" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-04-24%20at%209.21.56%E2%80%AFAM.png?VersionId=5mnIXkXGoDgIJdAFhA0alm0cSKzEytqZ" />

This decline reflects a broader contraction cycle that has been underway since 2020. As RPM notes, “apartment approvals appear to be sliding back into a downward trend,” with developers increasingly focused on launching and completing existing projects rather than initiating new ones.

The reasons are well understood. Construction costs have risen more than 20 per cent since 2021, driven largely by labour shortages and material price escalation. At the same time, financing conditions have tightened, with lenders requiring higher contingencies and taking a more cautious approach to risk. Combined with recent interest rate rises, these factors have made feasibility more challenging, particularly for higher-density projects.

This dynamic is creating a disconnect in the market. Demand for apartments—particularly at the more affordable end—is strengthening, while the pipeline of new supply is weakening. In the short term, this may limit the number of new projects coming to market. Over the medium term, however, it is likely to support price resilience and potentially further outperformance relative to houses.

There are some signs of policy-driven supply response. The introduction of Victoria’s Mid-Rise Code, which streamlines approvals for four- to six-storey developments, is expected to improve delivery in well-serviced middle-ring locations. However, this is unlikely to materially offset the broader decline in apartment approvals in the near term.

Despite the positive momentum at the end of 2025, the outlook for 2026 has become more complex. Two interest rate rises early in the year have already impacted consumer confidence, while broader cost pressures, particularly energy and fuel, are feeding through to construction and development costs.

“Victoria’s built form market ended 2025 on a high, but early 2026 rate rises quickly reversed the momentum,” RPM notes.

The implication is that while apartments are currently outperforming houses, the trajectory of that outperformance will depend on how these competing forces evolve. Policy support and affordability are clearly working in favour of apartments, but constrained supply and rising costs are likely to shape the pace and nature of future growth.

What is increasingly clear is that apartments are playing a more central role in Melbourne’s housing market. As population growth continues and affordability pressures intensify, higher-density housing is becoming not just an alternative to detached homes, but a primary solution to the city’s housing needs.
</section>

Joel Robinson

Units lead Melbourne price growth as apartments outperform houses: RPM

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

Frith & Howarth to deliver Brunswick’s largest apartments

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

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

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

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

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

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

Consumer Spending

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GUEST OBSERVATION
Our economy has <a href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release">grown</a> in the September quarter (the three months to September) after two quarters of going backwards.
Using the literal meaning of <a href="https://www.dictionary.com/browse/recession">recession</a>, we are no longer in one – economic output (the things we produce and consume) is no longer be going backwards.
But things won’t be like they were. Even a rebound in gross domestic product of <a href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/sep-2020">3.3%</a> (the biggest in 40 years) doesn’t make up for the 7% we lost in the previous quarter, meaning we’ll remain worse off than we were at the start of the year and much worse off than we would have been had the pandemic not happened.
Here are six things to expect as the economy recovers:
1. Consumer spending will recover first, but might need help
Consumer spending will to return to normal first, as <a href="https://budget.gov.au/2020-21/content/bp1/download/bp1_bs2.pdf">forecast in the budget</a>.
(Don’t be fooled by the forecast decline of 1.5% for 2020-21 compared to 2019-20. From where we stood in the June quarter 2020 – an enormous decline of 12% on the March quarter – this is a massive recovery.)
So far the signs are promising, but in part this might be because the stimulus payments are still flowing, keeping household disposable income above pre-COVID levels.
The coronavirus supplement that tops up JobKeeper and other benefits (originally A$225 per week) winds down to $75 per week after Christmas and <a href="https://theconversation.com/top-economists-want-jobseeker-boosted-by-100-per-week-and-tied-to-wages-150364">expires on March 31</a>.
<a href="https://treasury.gov.au/coronavirus/jobkeeper/extension">JobKeeper</a>, originally $1,500 per fortnight, became harder to get in October and will wind down to $1,000 per fortnight in January and $650 for part-time workers, before expiring on March 31.
Treasury expects wage growth to be slower than price growth for the next two years, so a household-led recovery is by no means guaranteed.
If the recovery stalls in the household sector, activities such as hospitality, retail and arts and entertainment will suffer a second blow and unemployment will remain high.
After the year we’ve had, the household sector could be forgiven for losing confidence.
The government should consider extending the coronavirus supplement payments, and be ready for further one-off stimulus payments if required.
Unlike the imminent income tax cuts, these measures are temporary and can be discontinued as soon as they are no longer required.
Governments can also stimulate demand directly. Victoria has announced an additional <a href="https://education.vic.gov.au/about/careers/teacher/Pages/tutors.aspx">4000 tutors</a> to assist school students left behind after an interrupted year. Other areas in which governments could usefully create meaningful jobs include the care sector and the arts.
2. Overseas demand won’t assist in the recovery
Exports face headwinds and are unlikely to recover over the next 18 months.
The International Monetary Fund expects the global economy to shrink by <a href="https://www.imf.org/en/Publications/WEO/Issues/2020/09/30/world-economic-outlook-october-2020">4.4%</a> in 2020 after growing 2.8% in 2019, a turnaround of more than 7%.
This will be apparent in all of Australia’s major customers including China and will depress demand for exports.
More importantly, travel bans have come close to eliminating “exports” of tourism and education, which together account for almost one fifth of Australian export income.
This income will remain weak until international travel properly restarts.
3. We will lose four years population growth
Before the crisis, the 2019 mid-year budget update predicted Australia’s population would grow from 25.6 million to <a href="https://budget.gov.au/2019-20/content/myefo/download/02_Part_2.pdf">28.4 million</a> by June 2026.
This year’s budget says we won’t get there until June 2030, a full four years later.
Even after travel resumes, net overseas migration is expected to remain lower than before due to economic uncertainty and weak labour market conditions.
Businesses will find it more difficult to get the staff they need through skilled migration, crating a greater role for higher education and vocational education.
By 2024 migration is assumed to return to normal, yet population growth will continue to be slow. This is because the birth rate is <a href="https://population.gov.au/docs/recent_impacts_on_australias_population_quick%20guide.pdf">projected</a> to be lower than usual for the remainder of the decade.
4. Business investment will be weaker, and different
2020 has been a difficult year, but it’s also been the year we’ve learnt to do things differently.
We have learnt about on-line shopping, working from home, telehealth and on-line entertainment, and we will continue to make use of what we have learnt after the pandemic is over.
These changes could drive the next genuine wave of productivity growth.
Bricks-and-mortar retail, commercial office space, roads, bridges and railways are all investments that facilitate the meeting and movement of people.
With new technologies and a smaller population that is learning to keep things local, these old-world investments won’t be as generate the same returns as they once might have.
Where we might see the investment dollars being spent is on home improvements, while government investment dollars could be spent on improving local amenities such as parks and community centres.
5. We’ll need to get more people into paid work
A year ago, 66% of Australia’s adult population was participating in the labour market, either by being employed or looking for work.
During the crisis the participation rate dipped below 63%.
It has since returned to 65.8%, a touch above where the budget expects it will stay. Other countries including <a href="https://data.oecd.org/emp/labour-force-participation-rate.htm">Canada, Britain, New Zealand and Germany</a> do better than us.
There’s room to get more unpaid carers (many of them women) into the paid workforce.
More than <a href="https://www.abs.gov.au/statistics/labour/employment-and-unemployment/barriers-and-incentives-labour-force-participation-australia/latest-release">900,000</a> people who perform significant unpaid caring work say they would like more paid employment.
In my work for the National Foundation for Australian Women, I found the net budgetary cost of increasing caring services was <a href="https://nfaw.org/wp-content/uploads/2020/10/Appendix-A.pdf">modest</a>, mainly because it brought about a strong increase in the tax-paying workforce.
6. One last dark cloud: the terms of trade
The terms of trade measure what we can buy for each unit of what we sell; how many imports we can buy for each unit we export.
The budget forecasts a fall of almost 11% in 2021-22 as a result of lower prices for iron ore.
Taking a long view, this may be nothing more than a correction, but it is as big a fall in a single year as we experienced in the <a href="https://www.blackincbooks.com.au/books/dog-days">dog days</a> after the end of mining boom when the terms of trade declined for four consecutive years, and we experienced four years without real growth in income growth per capita.
Population, participation and productivity are the “three P’s” that drive economic growth in the long run, but in the short run a big decline in the terms of trade poses a <a href="https://theconversation.com/myefo-projections-signal-a-deepening-income-recession-35539">real risk</a> to a household-led economic recovery.
Where to from here
In an effort to avoid more economic pain, the government has rightly abandoned fiscal restraint in the most recent budget.
Much of its recovery strategy (perhaps too much) is built around income tax cuts and investment incentives.
I see a need for a greater emphasis on temporary measures aimed at supporting household spending, given the role it will have to play in unwinding the recession.
<hr>
 Read more: <a href="https://theconversation.com/modelling-finds-investing-in-childcare-and-aged-care-almost-pays-for-itself-148097">Modelling finds investing in childcare and aged care almost pays for itself</a> 
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In the longer term, there is a case for paring back some of the larger income tax cuts to expand child care, aged care and disability care; measures that would support low-paid workers, boost labour force participation, and improve the standard of living for many Australians.<img src="https://counter.theconversation.com/content/148797/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;">
<a href="https://theconversation.com/profiles/janine-dixon-11006">Janine Dixon</a>, Economist at Centre of Policy Studies, <a href="https://theconversation.com/institutions/victoria-university-1175">Victoria University</a>
This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/6-things-to-watch-for-as-australia-crawls-out-of-recession-148797">original article</a>.
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j.ballantyne1990-6AQqhLzZaK

Six things to watch for as Australia crawls out of recession

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EXPERT OBSERVER
The last time consumer prices fell by 1.9 per cent over a quarter – that is, over a three month period – was in 1931.
Back then it was the ‘C series index’ rather than the ‘consumer price index’. Just like today, those times – back in the late 1920s and early 1930s – were remarkable, being the time of a global depression. But fortunately policymakers today have responded differently to back then, applying significant fiscal and monetary stimulus to limit the length and severity of the economic downturn.
So prices are tipped to rebound in the current quarter. The last thing anyone wants to see is deflation – a sustained period of falling prices – because that could see the current economic downturn being extended.
Prices fell sharply in the June quarter for a number of reasons – principally, low rents, subsidised child care, free preschool and lower petrol prices. The best guide to underlying prices is the ‘trimmed mean’. This measure shows prices down 0.1 per cent in the quarter to be up 1.2 per cent over the year. So low annual inflation, not deflation.
In the current quarter – the September quarter – consumer prices are expected to lift from the lows. The headline rate of inflation is tipped to lift 1.4 per cent, pushing the annual growth rate up to 0.4 per cent. The annual trimmed mean is expected near 1.4 per cent.
While deflation is not expected to take hold, there is no room for complacency. Consumers should be given every encouragement to keep spending. If consumers start holding off on purchases on the hope of cheaper prices, then we will have a problem – a problem that would require more fiscal and monetary stimulus being applied.
The Reserve Bank has a long-run series on inflation back to 1922. Data can be found here:
<a href="https://www.rba.gov.au/inflation/measures-cpi" target="_blank">https://www.rba.gov.au/inflation/measures-cpi.html</a>
What do the figures show?
Overall result: The Consumer Price Index – the main measure of inflation in Australia – fell by 1.9 per cent in the June quarter (consensus: -2.0 per cent). It was the biggest ever quarterly fall for the CPI (since 1948). The last time consumer prices fell as much (C series index) was in September quarter 1931. In seasonally adjusted terms the CPI fell by 2.0 per cent in the June quarter. The annual rate of headline eased from a 5½-year high of 2.2 per cent to -0.3 per cent – the lowest result since September quarter 1997.
Underlying measures: The Reserve Bank monitors three measures to derive the underlying inflation rate. The trimmed mean fell by 0.1 per cent in the June quarter (1.2 per cent annual); the weighted median rose by 0.1 per cent (1.3 per cent annual) and the CPI less volatile items fell by 1.3 per cent (0.4 per cent annual). Overall, underlying inflation was flat in the quarter and rose by around 1.25 per cent over the year. Market goods and services less volatile items rose by 0.3 per cent in the quarter to be up 2.0 per cent on the year.
Capital cities: Sydney -2.3 per cent in the quarter (annual -1.0 per cent); Melbourne -0.8 per cent (+0.3 per cent); Brisbane -2.2 per cent (-1.0 per cent); Adelaide -1.0 per cent (+0.8 per cent); Perth -1.2 per cent (+0.1 per cent); Hobart -1.4 per cent (+1.3 per cent); Darwin -2.5 per cent (-1.8 per cent); Canberra -2.3 per cent (-0.6 per cent).
Main Negative Contributors:
The most significant price falls in the June quarter were child care (-95.0 per cent), automotive fuel (-19.3 per cent), preschool and primary education (-16.2 per cent) and rents (-1.3 per cent).
Child care: The ABS reported, “A fall of 95.0 per cent in child care was the main contributor due to free child care during the quarter. Excluding the impact of child care, this group would have risen 2.3 per cent.”
Housing: The ABS said, “Rents recorded the first quarterly fall since the series commenced in 1972. Weak rental market conditions as a result of COVID-19 lockdown restrictions and rising vacancy rates saw rents fall in most capital cities in the June quarter.”
The 2.5 per cent “fall in electricity was mainly driven by utility rebates in some capital cities to support households from the impacts of COVID-19.”
Automotive fuel: The ABS said, the “19.3 per cent fall in automotive fuel (was) due to low global demand resulting from COVID-19 restrictions. Automotive fuel fell in April (-15.9 per cent), and rose in May (+0.9 per cent) and June (+9.2 per cent)”
Education: The ABS said, “A fall of 16.2 per cent in preschool and primary education was the main contributor driven by free before and after school care and free preschool for term 2 in NSW, Victoria and Queensland.”
Food: the ABS said, “Falls of 1.4 per cent in vegetables and 1.1 per cent in beef and veal partially offset the rise this quarter. Improved weather conditions saw a range of fresh produce return to typical seasonal prices, while mince meat saw temporary discounts.”
Main Positive Contributors:
The most significant offsetting price falls June quarter were tobacco (+2.7 per cent), other non-durable household products (+4.5 per cent) and furniture (+3.8 per cent).
Furnishings, household equipment and services: the ABS said, “Rises of 3.8 per cent in furniture and 3.0 per cent in major household appliances partially offset the fall, due to strong demand for products such as home office furniture and fridges and freezers.”
Rises of 4.5 per cent in other non-durable household products and 6.2 per cent in cleaning and maintenance products were seen due to a reduction in specials and genuine price increases for toilet paper and cleaning products.
Recreation and culture: the ABS said, “A rise of 1.8 per cent in Audio, visual and computing equipment was due to strong demand for products such as TVs. This was the first quarterly rise in this series since 2015.”
Health: the ABS said, “falls of 0.5 per cent in pharmaceutical products and 0.2 per cent in medical and hospital services were the main contributors. The fall in pharmaceutical products was due to increases in the proportion of consumers who qualify for subsidies under the Pharmaceutical Benefits Scheme (PBS). The fall in medical and hospital services was due to a combination of increased bulk billing as well as a freeze on private health insurance premiums, which typically rise on 1 April each year.”
Food: the ABS said, “Rises of 0.8 per cent in take-away and fast foods, 3.8 per cent in fish and other seafood, 2.0 per cent in water, soft drinks and juices, and 6.1 per cent in other cereal products, were the main contributors this quarter. High demand saw a reduction in specials and genuine price increases on a range of long-life products such as canned tuna and canned meat, rice and pasta.” 
Prices of tradables: The tradables component of the ‘All groups CPI’ fell by 1.3 per cent in the June quarter to be down 0.5 per cent over the year.
Tradable goods component fell 1.3 per cent mainly due to automotive fuel (-19.3 per cent).
Tradable services component fell 1.9 per cent due to international holiday travel and accommodation (-2.0 per cent).
Prices of non-tradables: The non-tradables component of the ‘All groups CPI’ fell by 2.3 per cent in the June quarter to be down 0.2 per cent over the year.
Non-tradable goods component rose 0.2 per cent, due to tobacco products (+2.7 per cent).
Non-tradable services component fell 3.6 per cent, due to child care (-95.0 per cent).
In seasonally adjusted terms, the tradables component of the ‘All groups CPI’ fell 1.3 per cent and the non-tradables component fell 2.2 per cent.
Tradable goods are those items whose prices are largely determined on the world market. Non-tradable prices are more affected by domestic economic conditions.
What are the implications for interest rates and investors?
The Reserve Bank sets interest rates with a view of keeping inflation between 2-3 per cent over an economic cycle. Inflation is well below the lower bound of the range at present. And the expectation is that inflation will remain contained for some time. As a result, interest rates will spend an extended period at generational lows.
Super-low rates is a great result for borrowers. But it represents on-going challenges for savers. The added complication that listed companies are expected to slash dividends when they report over the next month.
Businesses that want an inflation guide for setting selling prices or rents are best advised to use the ‘trimmed mean’. The Reserve Bank expects annual trimmed inflation to be 1.25-1.50 per cent through to mid-2022.
Does it feel like deflation? Does it feel like the biggest quarterly fall in prices in 89 years? If you were outfitting your home office with furniture and computers, probably not. If you are renting, with children in child care, and paid electricity bills and health insurance premiums in the past quarter, then you probably noticed a big drop in outlays. Similarly if you drive a fair bit – petrol prices slumped in the quarter.
But apart from Victoria, expect more ‘normal’ growth of consumer prices in the months ahead. Petrol prices have certainly lifted and the period of free child care has come to an end.
The inflation measure ‘market goods and services, excluding volatile items’, rose 0.3 per cent in the quarter and 2 per cent over the year. This measure gives a better sense of ‘normal’.
CRAIG JAMES is the Chief Economist at CommSec
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CPI fell for the first time since 1931: CommSec's Craig James

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Remember when our retail spend was shifting from buying things to buying experiences? That was only four months ago.
Since then, Australians have been spending more at supermarkets and on consumer electronics than on apparel and at department stores. Our expenditure on experiences, in particular travel, has been almost non-existent. It was therefore interesting to hear that in China there has been a rebound in luxury spending post COVID-19 lockdowns.
(Spending excessively after a period when one has had limited opportunities to spend has emerged after the lockdown, where in several Chinese cities, consumers flocked the various brand outlets to beat the lockdown blues.)
The most recent retail trade data for May did show an element of ‘revenge spending’ by Australian consumers. After plunging 17.7% in April, spending bounced back 16.3% in May. June is likely to look similarly positive, although, the Melbourne lockdowns are likely to start to drag it back again in July.
At the beginning of the first lockdown in mid-March, I thought that the most impacted property sector would be shopping centres, but it has remained surprisingly resilient despite the enormous challenges for retailers.
While the sector has remained somewhat resilient, the vacancy rate has risen. According to JLL, the national average shopping centre vacancy rate rose to 5.1% in June from 3.8% six months earlier. This rate excluded temporary closures.
By far the most impacted precincts have been CBDs where the vacancy rate has now hit 10%. Working from home has been disastrous for CBD retailing. The other big shift has been the acceleration of online retailing. In a three-month time period, it has gone from 9% of retail sales to 10.5%. Not exactly a runaway pace but a sharp increase over a short time period.
For now, our expenditure on travel, eating out and entertainment outside the home is likely to remain far more muted. Meanwhile expenditure at supermarkets and on takeaway food is likely to be far more positive. While I can’t see myself rushing out to buy luxury brands any time soon, the rush to the shops in China is hopefully a good news story for shopping centres over the next 12 months.
NERIDA CONISBEE is the Chief Economist at REA
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nconisbee-4KnoX9XmtH

Can revenge spending help save retail property? REA's Nerida Conisbee

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NAB data shows dramatic falls in consumption-based spending and business payment inflows post COVID-19 containment measures, with the pace of decline continuing to accelerate quite rapidly across many industries.
Spending in the year to date has fallen heavily in all states and territories, with Victoria leading the way.
By industry sector, spending is down most in Administration &amp; Support Services, Accommodation &amp; Food Services and Transport, Postal &amp; Warehousing, with Construction the only sector recording growth.
A handful of sub-industries have seen spending growth including - Internet Publishing &amp; Broadcasting, Construction Services, Gambling Activities, Food Retailing and Building Cleaning &amp; Pest Control. Business payment inflows into NAB merchants have also fallen sharply.
Corporates continue to outperform (particularly compared to medium and small business) and inflows remain positive, but have fallen steeply in April.
By industry, the hit to inflows has been most apparent in the Accommodation &amp; Food Services (particularly Clubs, Pubs, Cafes, Restaurants &amp; Takeaway Food) and Arts &amp; Recreation Services (particularly Amusement &amp; Other Activities and Sports &amp; Physical Recreation) - sectors that have borne the brunt of forced business closures and social isolation measures.
Inflows are also down heavily in Mining.
Inflows are holding up best in Wholesale Trade - the only sector recording growth in inflows.
Other industries holding up comparatively well include Health Care &amp; Social Assistance and Professional, Scientific &amp; Technical Services, although payment incomes are well down on the previous month.
Big falls have also been recorded in parts of Retail including Clothing, Footwear &amp; Personal Accessories, Department Stores and Motor Vehicles. Only two sub-sectors reported positive gains in payment inflows - Specialised Food Retailing &amp; and Hardware, Building &amp; Garden Supplies.
 Overall, consumption spending has fallen 19.5% (not seasonally adjusted) since the start of the year. Spending over the year to date has fallen heavily in all states and territories. The steepest falls over the year to date are in VIC (-23.0%), followed by the ACT (-20.7%), WA (-20.5%) and NSW (-20.4%). Spending is currently holding up best in TAS (-14.9%) and the NT (-15.0%).
 During these extraordinary times we have taken the decision to publish aggregated customer datacategorised by industry segment with the view of helping to provide clarity around which segments of theeconomy have been most affected by the broader macroeconomic trends at play. NAB takes data privacy veryseriously. All customer transaction data has been aggregated and no individual’s data is specificallyidentified or analysed as part of this process. The data used in this report will not be sold or made publiclyavailable, but insights from the data will be shared with the Australian people.NAB data shows dramatic falls in consumption-based spending and business payment inflows post COVID-19containment measures, with the pace of decline continuing to accelerate quite rapidly across manyindustries.Spending in the year to date has fallen heavily in all states and territories, with Victoria leading the way. Byindustry sector, spending is down most in Administration &amp; Support Services, Accommodation &amp; FoodServices and Transport, Postal &amp; Warehousing, with Construction the only sector recording growth. Ahandful of sub-industries have seen spending growth including - Internet Publishing &amp; Broadcasting,Construction Services, Gambling Activities, Food Retailing and Building Cleaning &amp; Pest Control.Business payment inflows into NAB merchants have also fallen sharply. Corporates continue to outperform(particularly compared to medium and small business) and inflows remain positive, but have fallen steeply inApril. By industry, the hit to inflows has been most apparent in the Accommodation &amp; Food Services(particularly Clubs, Pubs, Cafes, Restaurants &amp; Takeaway Food) and Arts &amp; Recreation Services (particularlyAmusement &amp; Other Activities and Sports &amp; Physical Recreation) - sectors that have borne the brunt offorced business closures and social isolation measures. Inflows are also down heavily in Mining.Inflows are holding up best in Wholesale Trade - the only sector recording growth in inflows. Otherindustries holding up comparatively well include Health Care &amp; Social Assistance and Professional, Scientific&amp; Technical Services, although payment incomes are well down on the previous month.Big falls have also been recorded in parts of Retail including Clothing, Footwear &amp; Personal Accessories,Department Stores and Motor Vehicles. Only two sub-sectors reported positive gains in payment inflows -Specialised Food Retailing &amp; and Hardware, Building &amp; Garden Supplies
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Consumption spending down 20% due to COVID-19 measures: NAB

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EXPERT OBSERVER
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As Christmas fast approaches, it will be great to see some signs of growing consumer confidence and Australians breaking the spending shackles for the festive season. 
Recently there have been some positive signs for the economy and a push by the federal government for banks to relax lending standards for small business. 
With official interest rates below one per cent for the first time in our history, the RBA can take a well-earned summer holiday as the rate cuts it has delivered this year have made an important contribution to boosting consumer confidence. 
Having upbeat consumers is the key to an economic turnaround and the domestic economy is still showing signs of improvement. It is good to see the government talking to the banks about the way they have been applying the responsible lending guidelines to small and medium-sized enterprises. By supporting more lending and our SMEs we should see positive signs of further economic improvement.
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In this environment there is no real need for the RBA to do much more until they get a better view of the economy in the first quarter of next year. 
In the lead up to the summer break, I again urge mortgage holders to regularly review their home loans to ensure they are getting the best possible deal. Mortgage holders should never be complacent about their home loan. With interest rates at record lows, lenders are willing to battle for your business. Contact a mortgage broker to make sure you are getting the best terms and, most importantly, saving money.
John Kolenda is the chief executive of mortgage broking giant Finsure and is the top shareholder in the listed real estate group The Agency.
 
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jrobinson-rf4aSBido9

Upbeat consumers are the key to an economic turnaround: John Kolenda

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EXPERT OBSERVER
Do you distrust the companies that profit from the goods and services you buy? Research suggests most of us do.
Justin Welby, the archbishop of Canterbury, made headlines in the U.K. recently for <a href="https://www.archbishopofcanterbury.org/speaking-and-writing/speeches/archbishop-canterburys-speech-tuc" target="_blank">his speech</a> at the Trades Union Congress conference in Manchester, England.
His remarks were forcefully pro-union and strongly disapproving of corporations, the profit motive and the wealthy.
He singled out Amazon for not paying their fair share of taxes in the U.K. and the gig economy as a “reincarnation of an ancient evil.”
To the archbishop, capitalism, with its pursuit of profit and inequality of outcomes, is inherently immoral.
Other religious leaders have, over the years, made similar points. In 2015, Pope Francis <a href="https://nationalpost.com/news/world/dung-of-the-devil-pope-francis-denounces-capitalism-greed-and-the-pursuit-of-money" target="_blank">denounced capitalism</a> and the pursuit of money and, in 2008, the then-archbishop of Canterbury, Rowan Williams, wrote an article for a British magazine <a href="https://blogs.spectator.co.uk/2012/03/from-the-archives-rowan-williams-on-capitalism-and-idolatry/" target="_blank">criticizing capitalism</a> in the wake of the financial crisis.
Such negative views of business and profit are hardly uncommon.
A recent article in the Journal of Personality and Social Psychology documented widespread <a href="http://psycnet.apa.org/fulltext/2017-31434-001" target="_blank">anti-profit beliefs</a>.
In my research with some of my graduate students, I have found that people often take a dim view of businesses, interpreting many different actions —such as a <a href="http://acrwebsite.org/volumes/1010014/volumes/v39/NA-39" target="_blank">small price increase</a> or a <a href="http://tinyurl.com/ybptgtra" target="_blank">product recommendation</a> — as an attempt to take advantage of consumers.
<h2>Viewed as conscious entities</h2>
But what underlies these views? Why is business and the pursuit of profit so maligned?
We think the answer lies, in part, in how people view firms and the resulting inferences they draw from the attempts of these firms to make a profit. To the first point, people seem to view companies as conscious entities — as living, breathing organisms with thoughts, feelings, intentions and motives.
<a href="https://opinionator.blogs.nytimes.com/2015/06/15/do-corporations-have-minds/" target="_blank">Research using functional magnetic resonance imaging (fMRI) scanners</a> has found that patterns of neural responses when considering other people’s mental states (<a href="https://www.psychologytoday.com/ca/blog/socioemotional-success/201707/theory-mind-understanding-others-in-social-world" target="_blank">the parts of the brain involved in “theory of mind”</a>) are indistinguishable from the pattern of responses when considering the behaviour of organizations.
What this means is that people are likely to attribute distinctly human motives to business actions that are the product of entirely different processes.
In addition to viewing companies as people, consumers often view their transactions with firms as zero-sum — like sharing a pie, where more for one person means less for the other. This means that when companies are perceived to be making a profit, that profit is viewed as coming at the expense of customers.
<h2>Distrust of profitable firms</h2>
This is where profiting becomes problematic. Because we mentally view firms as people, this is seen as a wilful act — a deliberate attempt to take advantage of customers — and it violates an important norm of interpersonal conduct, a moral norm even, that forbids benefiting at another’s expense.
We have found that a wide range of actions by businesses appears to be interpreted in this light: price increases, <a href="https://www.sciencedirect.com/science/article/pii/S002243591100090X" target="_blank">discounts for other people</a>, product recommendations and even advertisements.
Even when people don’t buy goods or services from a company, and therefore no profit is made, perceptions that a firm tried to profit lead to negative responses.
<h2>Even sales clerks are suspect</h2>
In one extreme example, we found that even when a salesperson recommended the cheaper of two alternatives, customers still assumed it was to benefit at their expense.
Our research has not yet investigated how firms can mitigate such reactions or whether they even can. If our results are anything to go by, some readers may think that these are legitimate reactions that should not be curtailed.
However, we would point out that a purchase is a consumer decision. No company is forcing consumers to buy their products against their will.
What’s more, businesses bear the burden of the risk in offering products for consumers’ consideration; the products that they make available to us are often a tremendous source of value in our lives; and, ultimately, the only reason companies develop and offer such products is to make a profit. Otherwise, what would be the point of going into business?<img src="https://counter.theconversation.com/content/103977/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;">
<a href="https://theconversation.com/profiles/laurence-ashworth-559676" target="_blank">Laurence Ashworth</a>, Associate Professor, Marketing, <a href="http://theconversation.com/institutions/queens-university-ontario-1154" target="_blank">Queen's University, Ontario</a>.
This article is republished from <a href="http://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/why-we-think-businesses-are-out-to-get-us-103977" target="_blank">original article</a>.
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Most of us dislike companies making a profit from us: Laurence Ashworth

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Arts, music and eating out have emerged as the favourite spends for Australians looking for experiences to spend their disposable dollars on, according to new data released by NAB. 
The Customer Spending Behaviours report, based on around 2.7 million daily consumer transactions, found creative services such as performing arts and music had the fastest growth at 35.3 per cent followed by accommodation and food at 26.7 per cent. Experiences include buying theatre and concert tickets, eating at cafes and restaurants and staying at hotels.
NAB chief economist Alan Oster said the report gave an important insight into household budgets across the country. The report analysed the spending behaviours of its customers, excluding things such as mortgages, other credit repayments and government services.
“By examining such a large number of daily transactions, we can show where spending is growing fastest, even down to a postcode, and what our customers are spending it on,” Oster said. 
<a href="https://www.propertyobserver.com.au/images/2017/09/26/NABSpending1.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/09/26/NABSpending1.png" alt="">
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<img src="https://www.urban.com.au/images/2017/09/26/NABSpending2.png" alt="">
The report also found consumers had boosted their average monthly spending during the quarter to $2,064 in metropolitan areas ($1,997 in Q1 2017) and $1,918 in regional areas ($1,866 in Q1 2017). 
In addition, it showed spending on consumption-based goods and services by NAB customers grew by 3.9 per cent over the year to Q2 2017, accelerating from 2.0 per cent over the year to Q1 2017. 
“Customer spending growth improved in all metropolitan and regional areas (except Tasmania), with overall spending growth in regional areas continuing to outpace cities,” Oster said. 
“Perhaps lower mortgage debt in regional areas is freeing up more disposable income for these consumers resulting in faster growth.” 
<a href="https://www.propertyobserver.com.au/images/2017/09/26/NABSpending3.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/09/26/NABSpending3.png" alt="">
Oster said retail trade is still a key part of the spending patterns but growth is increasingly coming from consumers wanting to head out to have meaningful experiences. 
“We can see consumers are getting out of the house, spending their disposable income on eating out, staying at hotels and enjoying music and the performing arts,” Mr Oster said. 
“This was particularly seen in Victoria, where growth was fastest in the suburbs of Hurstbridge and Garfield, followed by Quakers Hill in NSW.” 
Customer spending growth improved in Q2 2017 in all metropolitan and regional areas (except TAS). By state, VIC, NSW and QLD contributed around 98% of total growth in customer spending in Q2. Growth was fastest for Arts &amp; Recreation and Accommodation &amp; Food. 
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Consumers spending their disposable dollars on experiences: NAB 

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GUEST OBSERVER
The Westpac Melbourne Institute Index of Consumer Sentiment rose 2.5% to 97.9 in September from 95.5 in August. 
The consumer mood remains downbeat with September marking the tenth consecutive month that pessimists have outnumbered optimists.
Pressures on family finances, concerns around interest rates, deteriorating housing affordability and rising energy prices have all weighed on confidence in 2017. These factors are more than offsetting the boost from an improved outlook for jobs particularly when a stronger labour market has not been associated with increased wages growth.
The survey detail shows family finances remain a key area of concern. The ‘finances vs a year ago’ sub-index rose 6.1% but was coming from a very weak read in August (a three year low). Meanwhile the sub-index tracking expectations for ‘finances over the next 12 months’ fell 2.1%, reversing all of last month’s gain.
<a href="https://www.propertyobserver.com.au/images/2017/09/13/Screen%20Shot%202017-09-13%20at%2011.02.45%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/09/13/Screen%20Shot%202017-09-13%20at%2011.02.45%20AM.png" alt="">
Consumer expectations for the economy showed more consistent gains. The ‘economic conditions, next 12 months’ sub-index rose 2.7% and the ‘economic conditions, next 5 years’ sub-index posted a robust 5.1% gain.
While both are still in pessimistic territory below 100 they are now marginally above long run average levels. The improved but still ‘lukewarm’ sentiment towards the economy likely reflects the somewhat mixed picture from recent data including the June quarter national accounts which showed a reasonably solid 0.8% gain in GDP but subdued annual growth and notable areas of weakness around household incomes and consumer spending.
Consumers were slightly more positive towards major purchases, the ‘time to buy major a household item’ sub-index rising 2.1% in September. However again the rise was small and, coming off a weak August read, the sub-index remains well below its long run average.
The September survey included additional questions on news recall that provide further insight into the factors shaping sentiment. Interestingly, recall levels have fallen significantly over the last three years suggesting consumers may be getting less exposure to news in general.
In September the topic areas with the highest recall were ‘economic conditions’ (21%); ‘budget and taxation’ (17%); interest rates (16%); inflation (16%); jobs (15%); and international conditions (12%). While news on all fronts was viewed as unfavourable, consumers rated news on inflation and international conditions as much more negative than three months ago – likely reflecting sharp increases in energy costs and developments around North Korea. The only material improvement was around jobs where news was viewed much less negatively than in June.
The improved labour market situation was also broadly apparent in the Westpac Melbourne Institute Unemployment Expectations Index. Although the index edged up 0.9% in the month, at 133.6 it is still down 4.8% from its June level and the second lowest reading since 2011 (recall that lower reads mean more consumers expect unemployment to fall in the year ahead).
Consumer views around housing were mixed in September. The ‘time to buy a dwelling’ index rose 0.8% but at 95.2 remains at very low levels by historical standards. State indexes continue to vary widely, ranging from a very weak read in NSW (81.3) to a strongly positive result in WA (130.4). Consistent falls in prices in WA over recent years may be finally restoring affordability to attractive levels.
The Westpac Melbourne Institute Index of House Price Expectations dipped 2.8% but at 141.5 remains high overall. Of those consumers with a view, 57% expect prices to rise in the year ahead, 31% expect no change and 12% expect prices to decline.
Responses to additional questions on the ‘wisest place for savings’ continued to indicate risk aversion. Nearly two thirds of consumers still favour safe options – deposits, superannuation or paying down debt – with only 10.5% nominating real estate, a new 40 year low, and 9% nominating shares. More consumers favour ‘pay down debt’ (23.5%) than real estate and shares combined.
<a href="https://www.propertyobserver.com.au/images/2017/09/13/Screen%20Shot%202017-09-13%20at%2011.18.40%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/09/13/Screen%20Shot%202017-09-13%20at%2011.18.40%20AM.png" alt="">
The Reserve Bank Board next meets on October 3. There is no doubt that the Board will continue to leave the cash rate on hold.
Of more interest is the medium term outlook for interest rates. While those commentators favouring rate hikes next year point to record business conditions we are starting to see a considerable gap open up between business conditions and business confidence. Persistent weak consumer sentiment, consistent with weak consumer demand, may be worrying businesses around the sustainability of current strong conditions.
From our perspective prospects for consumer spending and residential construction appear soft. We do not expect that economic conditions in Australia in 2018 will be consistent with the need for the Bank to raise rates. 
 
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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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Time to buy a dwelling index up, still at very low levels: Bill Evans

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GUEST OBSERVER
Growth bounces back (again)
After another (weather related) soft patch in the March quarter, Australian economic growth bounced back in the June quarter with quarterly growth of 0.8%, up from 0.3%. However, annual growth is still subdued at 1.8% year on year, which is well below potential of around 2.75%.
In the quarter, growth was helped by a pick-up in consumer spending and business investment, strong public investment and a contribution from net exports after a detraction in the March quarter. 
<a href="https://www.propertyobserver.com.au/images/2017/09/07/Screen%20Shot%202017-09-07%20at%208.35.03%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/09/07/Screen%20Shot%202017-09-07%20at%208.35.03%20AM.png" alt="">
Australia continues to defy the doomsters’ endless recession calls. Against this, economic and underlying profit growth is lagging that seen in major economies. However, there are some positives pointing to a pick-up in growth.
Threats, risks and worries 
<a href="https://www.propertyobserver.com.au/images/2017/09/07/Screen%20Shot%202017-09-07%20at%208.36.39%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/09/07/Screen%20Shot%202017-09-07%20at%208.36.39%20AM.png" alt="">
Putting global threats aside, Australia’s worry list is well known:
Housing construction is starting to slow with falling approvals pointing to a further slowing (see next chart). 
Related to this, there is the risk of a house price crash “as seen” on Four Corners. However, there have been endless property crash calls since around 2004. In the absence of a stronger supply surge, the Reserve Bank of Australia (RBA) making a mistake and raising rates too high and/or unemployment surging, our view is that a slowdown in Sydney and Melbourne is likely, but not a crash.
Consumer spending is constrained by record low wages growth and high levels of underemployment. While consumer spending has been running faster than income growth, as rising wealth has allowed consumers to run down household savings (to now just 4.6%) this is unlikely to continue as the wealth effects flowing from property price gains in Sydney and Melbourne slow. Rapid power cost increases and high debt are also not helping. All of which is driving low consumer confidence.
Mining investment is still falling with business investment intentions pointing to another 22% fall this financial year.
The Australian dollar is up 16% from last year’s low and at around $US0.80 (and threatening to go higher) it is at risk of slowing growth (and investment) in trade-exposed sectors like tourism, agriculture and manufacturing.
Underlying inflation is too low and risks staying below target for longer due to record low wages growth, a rising $A, competitive pressures &amp; weak rents as new supply hits.
Our political leaders seem collectively unable to undertake productivity-enhancing economic reforms and take decisive action (eg, on energy policy). With the citizenship crisis threatening an early election, it’s unlikely we will see an improvement any time soon. 
Five reasons to expect growth to improve
These worries are well known and despite them we remain of the view that recession will be avoided and growth will pick up over the year ahead 
First, the growth drag from falling mining investment is nearly over. Mining investment peaked at nearly 7% of GDP four years ago and has since been falling at around 25% per annum (pa), knocking around 1.5% pa from GDP growth. At around 2% of GDP now, its weight in the economy has collapsed reducing its growth drag to around 0.4% this year and it’s near the bottom (see next chart). 
<a href="https://www.propertyobserver.com.au/images/2017/09/07/Screen%20Shot%202017-09-07%20at%208.37.45%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/09/07/Screen%20Shot%202017-09-07%20at%208.37.45%20AM.png" alt="">
Second, non-mining investment is likely to rise this year. Comparing corporate investment plans for this financial year with those made a year ago points to a decline in business investment this year of around 3.5% (see next chart). But this is the best it’s been since 2013 and once mining investment is excluded this turns into an 8% gain for non-mining investment.
Third, public investment is rising strongly, up 14.7% over the last year, reflecting state infrastructure spending.
<a href="https://www.propertyobserver.com.au/images/2017/09/07/Screen%20Shot%202017-09-07%20at%208.39.22%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/09/07/Screen%20Shot%202017-09-07%20at%208.39.22%20AM.png" alt="">
Fourthly, net exports are likely to continue adding to growth as the completion of resources projects boosts mining and energy export volumes and services sectors like tourism and higher education remain strong.
Finally, profits for listed companies are rising again after two years of falls. This is a positive for investment and the flow of dividends helps household incomes.
<a href="https://www.propertyobserver.com.au/images/2017/09/07/Screen%20Shot%202017-09-07%20at%208.40.33%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/09/07/Screen%20Shot%202017-09-07%20at%208.40.33%20AM.png" alt="">
These considerations should ensure that the Australian economy continues to avoid recession and that growth should pick up to around a 2.5% to 3% pace over the year ahead. This should be enough to head off further cuts in the cash rate. But with growth still a bit below RBA forecasts, wages growth likely to pick up only slowly, inflation likely to remain subdued abstracting from higher electricity prices, and the RBA likely wanting to avoid pushing the $A higher, our view remains that the RBA will keep the cash rate unchanged at 1.5% out to the December quarter 2018 at least before starting to raise rates.
Implications for investors
There are several implications for Australian based investors. First, a return to reasonable growth is positive for growth assets. Australian shares are vulnerable to a short term US-led share market correction – given North Korean and Trump risks – but we remain of the view that it will be higher by year end.
Second, bank deposits are likely to provide poor returns for investors for a while yet, highlighting the case for yield-focussed investors to continue to look for superior sources of yield. The yield gap between Australian shares and bank deposits remains wide, driving a strong source of demand for shares. After Telstra cut its dividend, just make sure you get a well-diversified portfolio of stocks paying decent dividends though. 
<a href="https://www.propertyobserver.com.au/images/2017/09/07/Screen%20Shot%202017-09-07%20at%208.41.38%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/09/07/Screen%20Shot%202017-09-07%20at%208.41.38%20AM.png" alt="">
Third, while Australian shares are great for income, global shares are likely to remain outperformers for capital growth. In fact, global shares have been outperforming Australian shares since October 2009. This reflects relatively tighter monetary policy in Australia, the commodity slump, the lagged impact of the rise in the $A above parity in 2010, and a mean reversion of the 2000 to 2009 outperformance by Australian shares.
<a href="https://www.propertyobserver.com.au/images/2017/09/07/Screen%20Shot%202017-09-07%20at%208.42.39%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/09/07/Screen%20Shot%202017-09-07%20at%208.42.39%20AM.png" alt="">
 
And of course, abstracting from volatile resource company earnings, underlying profit growth at around 5-6% in Australia is well below that in the US (at around 11%) and Europe and Japan (at around 20-30%) so the underperformance of Australian shares may have a while to go yet. Which all argues for a continuing decent exposure to global shares relative to Australian shares. 
<a href="https://www.propertyobserver.com.au/https://plus.google.com/110172465327488162875?rel=author">SHANE OLIVER</a> is head of investment strategy and economics and chief economist at <a href="https://www.ampcapital.com.au/home">AMP Capital</a> and is responsible for AMP Capital's diversified investment funds.
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Five reasons why some further pick up is likely and implications for investors: Shane Oliver

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<div class="column">GUEST OBSERVER</div>
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<div class="column">Consumer confidence fell further in the past week to the lowest levels in almost a year. Why the gloom? Well, data showed wage growth remaining near 2 per cent, well below the levels of a few years ago.</div>
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<div class="column">Still, data in the past week showed the job market to be in good shape with job growth in the past five months the best for an equivalent period in 121⁄2 years.</div>
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<div class="column">Consumer confidence is also tied to the fortunes of the Aussie dollar and the currency has backed away from US80 cents.</div>
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<div class="column">Aussie consumers are fretting about slower wage growth, rising energy bills and higher healthcare costs. Of course at the same time the affordability of a rash of spending categories has improved such as food, clothing, travel and transport.</div>
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<div class="column">Consumers may say they are gloomy, but importantly they are still spending. It’s a case of watch what they do, not what they say. Real retail trade posted the best growth in the June quarter for any June quarter in the past eight years. At the same time, measures of economy-wide spending continue to show firm growth. Certainly if consumer spending was slowing, this would be reflected in business conditions and confidence – but both those metrics remain strong.</div>
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<div class="column"><a href="https://www.propertyobserver.com.au/images/2017/08/23/Screen%20Shot%202017-08-23%20at%208.09.40%20AM.png" target="_blank">Click to enlarge</a></div>
<div class="column"><img src="https://www.urban.com.au/images/2017/08/23/Screen%20Shot%202017-08-23%20at%208.09.40%20AM.png" alt=""></div>
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<div class="column">One key positive in the past week – the measure of whether it was a good time to buy a major household item rose to +35, above the long-term average of +33.</div>
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<div class="column">What do the figures show?</div>
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<div class="column">Consumer sentiment
The weekly ANZ/Roy Morgan consumer confidence rating eased 2.2 per cent from 111.7 to a near 12-month low of 109.2 in the week to August 20. Confidence is down 10.3 per cent over the year and below the average of 113.2 since 2014.
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 Four of the five components of the index fell in the latest week: 
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  The estimate of family finances compared with a year ago was down from +5 to +3; 
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  The estimate of family finances over the next year was down from +23 to +16; 
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  Economic conditions over the next 12 months was down from -5 to -6; 
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  Economic conditions over the next 5 years was down from +5 to -2; 
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  The measure of whether it was a good time to buy a major household item was up from +30 to +35. 
What is the importance of the economic data? 
</li>
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 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.
<a href="https://www.propertyobserver.com.au/images/2017/08/23/Screen%20Shot%202017-08-23%20at%208.11.08%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/08/23/Screen%20Shot%202017-08-23%20at%208.11.08%20AM.png" alt="">
 
What are the implications for interest rates and investors?
Consumers say that they aren’t overly confident at present. But they are still spending. Whilever wage growth is exceeding price growth then consumers will spend.
Retailers need to watch measures of consumer sentiment but not unduly worry about survey results. 
Craig James is the chief economist at <a href="https://www.comsec.com.au/default.aspx" target="_blank">CommSec</a>.
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