S&amp;S Projects is boosting its investment at Rainbow Bay to more than $1 billion after the prolific Gold Coast developer acquired a new site for $20.25 million and immediately laid plans for a new luxury apartment project in the sought-after precinct.

The site, which is the company’s fifth acquisition at Rainbow Bay in the past four years, will be home to the company’s largest project to date after delivering 3 sold-out projects and construction progresses on Radia worth a combined $215m. 
S&amp;S Projects is currently finalising plans for its latest strategic acquisition, a 1,518 sqm site located 209-213 Boundary Street in Coolangatta, with a development application expected to be lodged within weeks.

The luxury residential development will build on the company’s highly successful projects at Rainbow Bay, comprising Flow, Awaken, Esprit and Radia, with Radia currently under construction by Hutchinson Builders.

“We have been unflinching in our commitment to Rainbow Bay and the transformation we have helped drive in this incredible part of the Gold Coast, which is among the city’s most desirable residential locations,” said S&amp;S Projects founder and director Paul Gedoun.

“Our fifth project will reflect the best of what we have done so far to create a lifestyle precinct that is second to none.”

The latest development, which has yet to be named, is proposed to accommodate 88 luxury apartments in a design that will immerse residents in a unique wellness lifestyle that expands on the legacy of S&amp;S Project’s earlier developments at Rainbow Bay.

The development will feature an expansive rooftop garden and wellness centre with a resort- style pool, among a host of lifestyle amenities planned for residents.

“Rainbow Bay, with its beautiful, protected beach and alongside one of the world’s best surf breaks at Snapper Rocks, is the natural wellness heartland of the Gold Coast,” said Gedoun.

“We are taking every advantage to create a truly unique rooftop wellness experience with a natural feel for residents, offering stone features throughout and an underlying theme that emulates a botanical garden.”

The latest acquisition comes as S&amp;S Projects is at the completion of Esprit and construction continues on Radia, which are part of their significant portfolio undertaken by the company at Rainbow Bay since 2022.

The $215 million Radia, which comprises 38 apartments, is currently the flagship development by S&amp;S Projects at Rainbow Bay which is expected to be completed in 2027.

Jayde Pezet, of Pezet Matheson, which has managed sales and marketing for S&amp;S Projects across their Gold Coast portfolio, emphasised the developer’s commitment to continuous improvement and excellence.

“S&amp;S Projects continue to elevate the benchmark of luxury with each development," Pezet said.

“We have worked with S&amp;amp;S on their 4 other projects in Rainbow Bay and their approach reflects a team that is constantly learning, refining, and pushing the standard higher.

“Their hyper-local knowledge and deep expertise within the luxury property sector are what truly set them apart, allowing them to deliver projects that feel both globally sophisticated and authentically connected to their coastal environment”

S&amp;S Projects plans to officially launch its latest project at Rainbow Bay in the second half of this year.

“As we embark on our largest project yet, we have pulled out all stops to create another landmark development that truly reflects the relaxed southern Gold Coast lifestyle,” Gedoun added.

Joel Robinson

S&S buys $20m Rainbow Bay site for fifth beachside apartment project

Japandi, an emerging design trend that combines Scandinavian functionality with Japanese rustic minimalism, remains relatively untested in Australia’s residential development market.

As developers look to differentiate their projects and offer something distinct to buyers, Brisbane-based developer Lantona has embraced the hybrid style for its recently launched Toowong apartment project, <a href="https://www.apartments.com.au/new-apartments/koya-residences-6-josling-street-toowong-qld-4066">Koya Residences</a>, with early response to the design proving positive.

Lantona entrusted Red Door Architecture and interiors practice Luma Design Co with delivering the Japandi brief. The approach blends Japanese minimalism with Scandinavian functionality, emphasising warm, restrained interiors, natural materials and clean lines. Drawing on the Japanese concept of wabi-sabi (beauty in imperfection) and the Scandinavian principle of hygge (comfort and cosiness), it creates serene, uncluttered and sustainable living environments.

These design principles are expressed throughout the Josling Street development, both in its exterior form and across the 40 one-, two- and three-bedroom residences within.

[smartcode_project:default project_id=150787 project_image_fid=366229]

Koya reflects a deliberately scaled approach, with the five-storey form designed to align with the surrounding residential streetscape rather than dominate it.

“Koya is conceived as a building that sits comfortably within its surroundings. Every decision, from material selection to spatial planning, has been guided by long-term liveability and enduring relevance,” the developer said.

[smartcode_project:default project_id=150787 project_image_fid=366243]

Positioned within an established inner-west neighbourhood, the development sits near riverfront parklands and the Bicentennial Bikeway, while remaining within walking distance of Toowong Village and multiple public transport options connecting to the CBD, St Lucia and West End.

Lantona said the location was central to the project’s conception, pointing to Toowong’s balance of green space, transport access and proximity to major education institutions.

“<a href="https://www.apartments.com.au/developments/toowong-qld-4066">Toowong</a> combines river access, walkability, immediate CBD connection and a strong educational presence. That balance made it the obvious setting for Koya.”

[smartcode_project:default project_id=150787 project_image_fid=366230]

Communal amenity is concentrated on the rooftop, where a shared retreat will include a pool, dining areas and outdoor spaces oriented towards neighbourhood and city views. The design allows for both private use and small gatherings, extending the living environment beyond individual apartments.

Koya enters the market at a time when smaller-scale developments are becoming less common in established suburbs, with many recent projects in the suburb shooting for the sky.

In a nod of confidence,&nbsp;<a href="https://www.apartments.com.au/builders/brisbane-builders">Brisbane Builders</a>&nbsp;has already commenced construction on the building, which is slated for completion in early 2027. Keenan &amp; Byrne is marketing Koya.

[smartcode_project_cta:default project_id=150787]

Japandi-inspired Koya Residences launch in Toowong

<section data-scroll-anchor="false" data-testid="conversation-turn-6" data-turn="assistant" data-turn-id="request-WEB:ca872054-bfe3-4cc5-a2c8-b373d4dfeafb-2" dir="auto">
A completed Castle Hill apartment development is returning to market with an uncommon level of financial backing, positioning it as one of the more secure options for buyers in Sydney’s north-west.

Skyview in Castle Hill, originally developed by Top Place and now overseen by capital partner <a href="https://www.apartments.com.au/developers/equitifund-group">Equitifund</a>, is being relaunched following a full remediation process. Central to its repositioning is a substantial financial reserve designed to provide ongoing protection and reduce uncertainty for incoming purchasers.

At the core of this offering is an $11 million bond secured during the project’s remediation phase, negotiated by former NSW Building Commissioner David Chandler. With less than $4 million required to complete the works, approximately $7.2 million remains in reserve, with around 15 years left on the term.

[smartcode_project:default project_id=147685 project_image_fid=359134]

Rather than a typical insurance-backed structure, the remaining funds are held as cash, creating a readily accessible financial buffer should any future building issues arise. The structure is intended to provide buyers with an added layer of certainty, differentiating the development from more conventional apartment offerings.

Equitifund Executive Chairman Greg Huxley said the structure provides a level of security not typically seen in apartment developments.

“The $11 million bond established for the Skyview Castle Hill development represents exceptional value, providing genuine financial security for purchasers,” Huxley said.

“Unlike a standard insurance policy, this bond consists of real funds held in trust for the Owners Corporation, offering a tangible layer of protection and added peace of mind.”

[smartcode_project:default project_id=147685 project_image_fid=359135]

The remediation process has now been completed in full, with no active rectification orders or outstanding directives linked to the project on NSW Government registers. This outcome reflects the broader tightening of building oversight across the state, while also highlighting the project’s transition into a completed, compliant asset.

In a market where many buyers remain cautious about apartment quality, initiatives like this are designed to restore confidence, giving purchasers greater certainty and a stronger sense of security in their investment.

Equitifund has since acquired the remaining apartments and is managing their reintroduction to the market. With the works finalised and a significant financial reserve in place, the project now presents with a markedly different risk profile compared to its initial release.

[smartcode_project:default project_id=147685 project_image_fid=359137]

Beyond the added security, the development is positioned in one of Castle Hill’s more established pockets. The Gay Street address places it within close proximity to Castle Towers, one of the country’s largest retail centres, as well as Castle Hill Metro Station, which now connects directly to the broader Sydney Metro network.

Equitifund National Sales Director Ben Hamblett said buyer demand in the area continues to be driven by access to transport and amenity.

“Interest from both owner-occupiers and investors in Castle Hill remains exceptionally strong, with buyers consistently prioritising developments in close proximity to the Metro station and Castle Towers Shopping Centre,” Hamblett said.

“There is a clear trend in the market, with purchasers seeking convenient access to transport and lifestyle amenities that support a seamless, low-maintenance way of living.”

[smartcode_project:default project_id=147685 project_image_fid=359145]

The apartments also enter the market at a relatively accessible price point for the area, with two-bedroom configurations starting from $995,000 and rental demand for similar stock reaching around $900 per week. This combination of pricing, connectivity, and completed status is expected to appeal to both owner-occupiers and investors seeking lower-risk entry into the Hills District apartment market.

For eligible buyers, a limited 3.50 per cent p.a. two-year fixed interest rate is currently available through Equitifund’s lending partners, providing an additional layer of affordability.

EquitiCredit Pty Ltd ACN 676 363 769 holds ACL 559289 and provides credit assistance. Finance is arranged through EquitiCredit and funded by its lending partners. Interest rates are subject to change and eligibility criteria apply. Terms, conditions, fees and charges may apply. This is not financial advice and should not be relied upon as such. Prospective buyers should seek independent financial advice.

[smartcode_project_cta:default project_id=147685]
</section>

Castle Hill apartments offering unmatched buyer protection through dedicated fund

A State-Assessed Rezoning Proposal for the Kurnell Peninsula is now on public exhibition, setting out a plan to deliver up to 4,300 homes alongside new retail, tourism and public open space on a 210-hectare coastal site.

The proposal, backed by the Minns Labor Government, would transform a former sand mining area along Captain Cook Drive into a mixed-use precinct delivered over approximately 20 years.

In addition to housing, the plan includes more than 7,000 sqm of retail and commercial space, new community facilities and approximately 116 hectares of open space, equating to more than half the site.

<img alt="Kurnell" data-entity-type="file" data-entity-uuid="ce1c6567-1df0-4de0-9fe5-a76be0367834" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-04-13%20at%209.11.51%E2%80%AFAM_0.png?VersionId=dbbTmYaJvROA5fkQbgaxis8cmFwtpB5_" />

<hr data-end="849" data-start="846" />
<h2 data-end="902" data-section-id="ony3l3" data-start="851">Rezoning framework enables mixed-use development</h2>

The rezoning application seeks to amend planning controls under the State Environmental Planning Policy (Precincts—Central River City) and the Sutherland Shire Local Environmental Plan 2015.

Its primary objective is to enable a broader range of land uses across the site, including residential, employment, tourism and community uses, while also formalising environmental protections and land management outcomes .

The proposal has progressed through the state-led rezoning pathway after being identified as a project of regional significance, supported by several years of technical studies and agency consultation .

Development would occur in stages, aligned with the progressive closure and remediation of the existing sand mine.

<hr data-end="1718" data-start="1715" />
<h2 data-end="1768" data-section-id="krwii9" data-start="1720">Master plan structured around three precincts</h2>

The accompanying urban design report outlines an indicative master plan that divides the site into three primary precincts, anchored by a town centre in the western portion of the site.

The town centre is planned as the first stage of development, located on land that has already been remediated. It is intended to accommodate higher-density housing, retail, and community uses.

<img alt="Kurnell" data-entity-type="file" data-entity-uuid="4bfd5873-4847-4105-b220-0a30c96f5573" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-04-13%20at%209.20.09%E2%80%AFAM.png?VersionId=7aVaSsZLAc6mElSH4g6Ct5bGsNxZcnPL" />

Additional precincts extend toward Bate Bay and Boat Harbour, with built form responding to environmental conditions and proximity to the coastline.

The design framework identifies distinct local character areas, with the master plan structured to reflect “unique natural qualities” across the site.

<hr data-end="2495" data-start="2492" />
<h2 data-end="2544" data-section-id="1vitwqn" data-start="2497">Open space forms core of the design approach</h2>

A key component of the proposal is the allocation of approximately 116 hectares to open space and ecological land.

This includes:

<ul data-end="2846" data-start="2678">
	<li data-end="2702" data-section-id="d96caj" data-start="2678">Three district parks</li>
	<li data-end="2723" data-section-id="17y6uz6" data-start="2703">Nine local parks</li>
	<li data-end="2741" data-section-id="14hui00" data-start="2724">Sports fields</li>
	<li data-end="2778" data-section-id="ts7psx" data-start="2742">Coastal and ecological corridors</li>
	<li data-end="2846" data-section-id="agduax" data-start="2779">Two kilometres of publicly accessible beachfront along Bate Bay</li>
</ul>

The urban design report positions this open space network as central to the structure of the development, rather than ancillary to it.

It is intended to support ecological regeneration, provide recreational amenity and create a connected network across the peninsula.

The plan includes north–south ecological corridors, expanded wetland systems and pedestrian and cycling links designed to connect residential areas to the coastline and open space areas .

<hr data-end="3347" data-start="3344" />
<h2 data-end="3381" data-section-id="ql66rt" data-start="3349">Housing mix and affordability</h2>

The proposal includes approximately 4,300 dwellings across a range of housing types.

This includes high-density apartments, medium-density housing, townhouses and seniors housing.

Affordable housing provision is identified at approximately 240 dwellings, alongside a smaller component of social housing.

The master plan emphasises housing diversity, with the intent of accommodating a range of household types and age groups within the development.

<img alt="Kurnell" data-entity-type="file" data-entity-uuid="d4baba4d-b5b0-4a86-bcad-5d319b036184" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-04-13%20at%209.11.59%E2%80%AFAM.png?VersionId=udYFz0q8tjEPR3pmKLHRSFRJN4dKakPO" />

<hr data-end="3877" data-start="3874" />
<h2 data-end="3919" data-section-id="rgckdv" data-start="3879">Built form controls and height limits</h2>

Proposed building heights across the site range from three to 12 storeys.

These controls are set out within the rezoning application and are intended to manage visual impact, maintain view corridors and ensure compatibility with the coastal landscape.

Floor space ratios and height limits are applied across different parts of the site to reflect varying environmental conditions and proximity to open space and the coastline .

Higher density is generally concentrated within the town centre, with lower-scale development toward the coastal edge and environmentally sensitive areas.

<hr data-end="4548" data-start="4545" />
<h2 data-end="4588" data-section-id="1minlda" data-start="4550">Retail, tourism and employment uses</h2>

In addition to residential development, the proposal includes retail, commercial and tourism uses.

This includes:

<ul data-end="4896" data-start="4706">
	<li data-end="4775" data-section-id="1jrun76" data-start="4706">Approximately 7,000–9,800sqm of retail and commercial floor space</li>
	<li data-end="4803" data-section-id="10kyifw" data-start="4776">A full-line supermarket</li>
	<li data-end="4830" data-section-id="fz1hdg" data-start="4804">Food and beverage uses</li>
	<li data-end="4896" data-section-id="1aqg2fj" data-start="4831">Tourism accommodation, including hotel and short-stay options</li>
</ul>

The proposal also identifies employment outcomes, with the development expected to support jobs both during construction and in ongoing operations.

These uses are concentrated within the town centre and key activity areas across the site.

<hr data-end="5142" data-start="5139" />
<h2 data-end="5172" data-section-id="162x2kt" data-start="5144">Infrastructure and access</h2>

The proposal includes upgrades to Captain Cook Drive, which provides the primary access to the peninsula.

These upgrades are intended to improve traffic flow and support emergency access.

The transport strategy also incorporates:

<ul data-end="5529" data-start="5407">
	<li data-end="5433" data-section-id="fanquy" data-start="5407">Internal road networks</li>
	<li data-end="5469" data-section-id="o6y80y" data-start="5434">Walking and cycling connections</li>
	<li data-end="5529" data-section-id="jgraft" data-start="5470">Proposed public transport routes and bus stop locations</li>
</ul>

The rezoning report includes detailed analysis of transport, flooding, and infrastructure requirements to support the staged development of the site .

<hr data-end="5723" data-start="5720" />
<h2 data-end="5769" data-section-id="14urh3" data-start="5725">Environmental and cultural considerations</h2>

The site is identified as having environmental and cultural significance, including areas of ecological value and Aboriginal archaeological sensitivity.

The proposal includes measures to protect and enhance these areas, including:

<ul data-end="6230" data-start="6004">
	<li data-end="6056" data-section-id="1pzyouo" data-start="6004">Retention and regeneration of coastal vegetation</li>
	<li data-end="6100" data-section-id="bjn2vz" data-start="6057">Strengthening of biodiversity corridors</li>
	<li data-end="6148" data-section-id="1bpeyoj" data-start="6101">Protection of riparian systems and wetlands</li>
	<li data-end="6230" data-section-id="lg0cka" data-start="6149">Integration of cultural interpretation and recognition of Indigenous heritage</li>
</ul>

The urban design report also outlines opportunities for incorporating Indigenous cultural elements into public spaces and landscape design.

<hr data-end="6893" data-start="6890" />
<h2 data-end="6908" data-section-id="w7rk5f" data-start="6895">Next steps</h2>

The proposal is currently on public exhibition, with submissions open to the community. Feedback received during this period will inform the Department of Planning’s assessment of the rezoning.

If approved, the rezoning would establish the planning framework for future development applications across the site.

<hr data-end="6893" data-start="6890" />
<h2 data-end="6908" data-section-id="w7rk5f" data-start="6895">What the NSW Government says</h2>

Minister for Planning and Public Spaces Paul Scully said the planned closure of the sand mine and remediation of the Kurnell Peninsula presents an exciting opportunity to transform the area.

“This proposal envisions a vibrant new beachfront community with thousands of new homes, jobs and great open space in the Sutherland Shire. I encourage the community to have their say during the public exhibition period. Feedback from the community will play an important role in the assessment of the proposal.”

Sydney's newest beachfront city: NSW Gov to unlock 4,300 new homes on Kurnell peninsula

A long-awaited transformation of a former industrial site in Holroyd has been given the green light, with the NSW Government approving the $1.2 billion Crescent Parklands masterplan that will deliver more than 1,200 new homes just south of Parramatta.

The State Significant Development approval clears the way for a large-scale mixed-use precinct at <a href="https://www.apartments.com.au/new-apartments/1-crescent-street-holroyd-nsw-2142">1 Crescent Street</a>, replacing an underutilised site with a coordinated residential community anchored by new open space, retail, and commercial uses.

Designed by <a href="https://www.apartments.com.au/architects/woods-bagot">Woods Bagot</a> for WA-based developer Tiberius, the approved scheme comprises seven buildings arranged across two precincts. In total, the development will deliver 1,227 apartments, including 201 allocated as affordable housing, alongside approximately 2,500 sqm of retail and 5,000 sqm of commercial space within a mixed-use podium.

<img alt="Tiberius’ Crescent Parklands to deliver 1,200+ homes in major Holroyd transformation" data-entity-type="file" data-entity-uuid="1cc82dd2-8184-4b86-8665-90653147820d" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Crescent%20buildings.png?VersionId=2ZmVDc_Rfc4AzQ6ShzZJlvdZnACLerVM" />

The project is structured as a masterplanned precinct rather than a standalone tower. Buildings 1 to 4 will rise from a shared podium with shop-top housing, while Buildings 5 to 7 are positioned closer to the northern park interface as residential flat buildings. The built form has been carefully modulated to balance density with amenity, with the design resolving building separation, solar access, and wind impacts at a precinct scale.

A significant focus of the design is the activation of Crescent Street and the integration of public domain. The submission notes that “individual townhouses [were] removed for community based functions to Crescent Street to increase activation and surveillance,” reinforcing a more urban and publicly engaged street edge. Retail, commercial tenancies, and resident amenity spaces are concentrated along this frontage and within the podium to support day-to-day activity.

The landscape strategy underpins the project’s identity, with a network of pedestrian connections, landscaped corridors, and open spaces linking the site internally and to its surroundings. The design prioritises permeability, delivering “increased uninterrupted flow between spaces for pedestrian access” and improved connections through to the adjoining parklands.

<img alt="Tiberius’ Crescent Parklands to deliver 1,200+ homes in major Holroyd transformation" data-entity-type="file" data-entity-uuid="19282454-ab2f-4e2c-866f-4b35cf4283d4" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Crescent%20masterplan.png?VersionId=JQdWGYI5B5R1lzmK4omYOp_8KLPkT4Bv" />

Buildings within the western precinct are oriented toward the park, shaping a residential offering defined by proximity to open space. The design describes this approach as creating apartments “immersed in nature with apartments facing the park,” positioning the landscape as a central organising element of the masterplan.

The broader architectural response addresses both infrastructure and context, with taller elements capturing long-range views toward Parramatta while setbacks and separation distances mitigate impacts on surrounding residential areas. Sustainability initiatives, including solar optimisation, cross-ventilation, and integrated landscape systems, are embedded across the scheme.

Located approximately one kilometre south of Parramatta CBD, the 3.6-hectare site is bounded by Crescent Street, Woodville Road, and Holroyd Sportsground. It benefits from strong access to public transport, including nearby bus routes and train stations, and sits within a rapidly evolving corridor earmarked for increased residential density. The design also strengthens connections between surrounding green spaces, including Holroyd Sportsground and Parramatta Parklands.

The approval follows several years of planning, including a rezoning process that enabled significant uplift in height and density across the site. With determination now secured, Crescent Parklands is positioned to play a major role in delivering new housing supply within Greater Parramatta’s growth area.

Tiberius’ Crescent Parklands to deliver over 1,200 homes in major Holroyd transformation

Debt

<html><body>
GUEST OBSERVATION
 
After two decades equating budget surpluses with good economic management, it might seem convenient that the federal government has <a href="https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/speeches/speech-australian-chamber-commerce-and-industry-canberra">changed its fiscal strategy</a> just before the budget to focus on jobs over keeping the deficit in check.
But it’s the right move. The world has changed in ways that make government spending more necessary and government debt more sustainable than ever.
Debt talk still dominates <a href="https://www.afr.com/policy/economy/budget-must-chart-course-to-eliminate-debt-and-deficit-20200929-p5605q">newspaper headlines</a> and many of Treasurer Josh Frydenberg’s <a href="https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/transcripts/interview-karl-stefanovic-today-show-1">media appearances</a>. But it shouldn’t. Here’s why.
We are in the middle of a major economic shock
The COVID-19 recession is the biggest economic shock since the Great Depression. GDP <a href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release">fell 6.3%</a> in the year to June, the worst annual result since 1929.
The federal government should use its balance sheet to spread the costs of such a large shock over time. The alternative would be to leave those who lost their jobs or businesses in poverty.
The government’s emergency response saved businesses and jobs from going under in the short term. Now, as we emerge from the crisis into the recovery phase, large-scale stimulus is needed to boost demand and create new jobs.
Debt has never been cheaper
It has never been cheaper for governments to borrow. As the next chart shows, the interest rate on 10-year Australian Government Bonds is less than 1%. If inflation stays above 1%, as the Reserve Bank and Treasury expect, the “real” interest rate the federal government pays on the bond will be negative. That is, it will effectively be paid to borrow.
<hr>
<img src="https://images.theconversation.com/files/361517/original/file-20201005-20-1oqmgxs.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="Yields on 10 Year Australian Government Bonds."> Author provided
<hr>
These very low interest costs change the dynamics of managing debt we accrue now. Investments that boost future growth – including spending to reduce unemployment and close the output gap – will pay for themselves.
This is the fiscal “free lunch” spoken about by the former chief economist of the International Monetary Fund, <a href="https://www.aeaweb.org/articles?id=10.1257/aer.109.4.1197">Olivier Blanchard</a>, and the deputy governor of the Reserve Bank of Australia, <a href="https://www.rba.gov.au/speeches/2020/sp-dg-2020-09-22">Guy Debelle</a>.
Extra stimulus won’t spook financial markets
To get the unemployment rate below 5% by the end of 2022, the <a href="https://theconversation.com/now-well-need-100-120-billion-why-the-budget-has-to-spend-big-to-avoid-scarring-145489">Grattan Institute</a> estimates a further A$100 billion to A$120 billion of fiscal stimulus is needed on top of what governments have already announced.
This is unlikely to cause financial markets to break a sweat. Even if gross debt was to nudge 50% of GDP in the next few years, it would still be far below that of most other developed nations before the COVID crisis. At the end of 2018-19, the gross public debt in the UK was 85% of GDP, in the US 103%, and in Japan more than 200%. All have borrowed substantially more since then at very low rates.
There’s also no risk that significant government spending will cause wages or inflation to rise dramatically. In fact, Australia has the opposite problem. Wages were stagnant before the crisis and are forecast to remain so for years. Inflation has been persistently below the Reserve Bank’s inflation target and is forecast to remain so for years.
We can manage debt without austerity
Frydenberg has signalled that, as employment recovers, the government’s fiscal strategy will shift to stabilising and then reducing debt as a share of GDP. Although his stated threshold of “well under 6% unemployment” is <a href="https://theconversation.com/frydenberg-is-setting-his-budget-ambition-dangerously-low-146855">not ambitious enough</a>, the idea makes sense.
The good news is that with interest rates on government borrowing so low, debt as a share of GDP can be reduced without pursuing austerity in the form of deficit reduction.
The interest rate is one of three factors that affect the size of debt relative to GDP. The other two are the budget balance (the incremental contribution to debt) and nominal GDP growth, which depends on economic activity and inflation.
Even if interest rates were a little higher than now (say, 1.5%), the government can reduce debt relative to GDP even while continuing to run large deficits, provided that nominal GDP growth returns to a moderate level (say, 4.5%, as it was before the pandemic).
The next chart shows that under these circumstances the government can run deficits of up to $50 billion and still reduce debt as a share of GDP.
<hr>
<a href="https://images.theconversation.com/files/361518/original/file-20201005-24-r8s4ta.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/361518/original/file-20201005-24-r8s4ta.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="Gross debt-to-GDP projections based on different budget deficit scenarios."></a> Author provided
<hr>
Different rates of GDP growth would change this story, as the next chart shows. With an even higher nominal growth rate, debt would shrink even faster relative to GDP. In a scenario of prolonged low growth, debt would increase relative to GDP a little, but remain very modest.
<hr>
<img src="https://images.theconversation.com/files/361519/original/file-20201005-14-1f2z9na.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="Gross debt-to-GDP projections based on different GDP growth scenarios"> Author provided
<hr>
The government can do things to boost nominal growth in areas such as tax reform, education and skills, workforce participation, energy and climate policy, and land-use planning. The Reserve Bank should also do more by boosting inflation, which would support nominal growth.
Don’t scrimp on stimulus
There are many <a href="https://insidestory.org.au/the-biggest-bang-for-the-stimulus-buck/">urgent and valuable priorities</a> for government spending right now, such as permanently raising JobSeeker, boosting child-care support and building more social housing.
More debt might impose a small cost over a very long time. But the cost of insufficient stimulus and a prolonged recession would be vastly bigger.
The choice is simple. We should not let debt panic distract us from making it.<img src="https://counter.theconversation.com/content/147369/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/danielle-wood-147710">Danielle Wood</a>, Chief executive officer, <a href="https://theconversation.com/institutions/grattan-institute-1168">Grattan Institute</a> and <a href="https://theconversation.com/profiles/tom-crowley-1041697">Tom Crowley</a>, Associate, <a href="https://theconversation.com/institutions/grattan-institute-1168">Grattan Institute</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/dont-worry-about-the-debt-we-need-more-stimulus-to-avoid-a-prolonged-recession-147369">original article</a>.
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j.ballantyne1990-6AQqhLzZaK

We need more stimulus to avoid a prolonged recession

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GUEST OBSERVATION
 
Overwhelmingly, the 50 leading Australian economists surveyed by the Economic Society of Australia and The Conversation ahead of Thursday’s <a href="https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/update-economic-and-fiscal-outlook">economic statement</a> want the government to keep spending to support the economy — even if it means a substantial increase in debt.
The question is the third asked in the <a href="https://theconversation.com/au/topics/esa-conversation-national-economic-poll-87063">Economic Society-Conversation monthly poll</a>, which builds on a series of polls conducted by the society since 2015.
The economists polled were selected for their preeminence in the fields of microeconomics, macroeconomics, economic modelling and public policy. Among them are former and current government advisers and a former and current member of the Reserve Bank board.
Each was asked whether they agreed, disagreed, or strongly agreed or strongly disagreed with this proposition:
Governments should provide ongoing fiscal support to boost aggregate demand during the economic crisis and recovery, even if it means a substantial increase in public debt.
Only three of the 50 economists polled disagreed with the proposition, none of them “strongly”.
It is one of the starkest results in the survey’s five-year history.
<img src="https://images.theconversation.com/files/348556/original/file-20200721-17-1h8kcyj.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="50 economists respond: Govs should provide ongoing fiscal support to boost aggregate demand during the economic crisis and recovery, even if it means a substantial increase in public debt. Strongly agree: 66%, Agree: 22%, Uncertain: 6%, Disagree: 6%">The Conversation, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a>
Of the 50 economists polled, 44 supported the proposition, 33 of them “strongly”.
Of the remaining six, three were uncertain, and provided well-argued accounts of their reasoning which are published in full along the responses of each of the other participants at the bottom of of this article.
Debt now, concern later
Rachel Ong of Curtin University said the amount of public debt that has accumulated during the COVID-19 crisis was at a historical high and had to be repaid at some point. But she said governments had to be careful about removing support until the economy was clearly on a trajectory of recovery.
Nigel Stapledon of the University of NSW said while some level of on-going support was needed, at some point the cost would be larger than the benefit. Some sectors, including universities, will have to permanently adjust to lower incomes.
The economists who strongly agreed said that if not enough support was provided or if it was withdrawn too early, the resulting recession would itself make the debt that had been run up less sustainable (Fabrizio Carmignani, Griffith Business).
Financial markets are keen to lend
Beth Webster of Swinburne University argued the only real limit to government spending was high and damaging inflation.
If the government was worried about debt, it could finance its spending in other ways, by borrowing from the Reserve Bank (which could itself create money and “monetise” the debt).
Sue Richardson from the University of Adelaide agreed, using a technical term to argue that the was economy was “so far inside its production possibility frontier” (producing so much less than it was capable of) and inflation was so dormant, that there was a case for creating money.
Saul Eslake said that wasn’t necessary. Even with the hundreds of billions committed, financial markets appeared to be comfortable with the debt and keen to lend.
Debt is how we do things
Reserve Bank board member Ian Harper said the Commonwealth could borrow for 30 years at about 1%. “Can we expect the economy to grow faster than 1% per annum in nominal terms over a 30-year horizon?” he asked rhetorically. “I would have thought that’s a shoo-in,” he answered. If so, then the debt would be easily serviced.
Consulting economist Rana Roy pointed out that public debt was “not an anomaly”. It was an enduring and defining feature of the modern economy, providing an enduring and defining asset class, sovereign bonds, which were in high demand.
Of the three economists who opposed the proposition, Tony Makin of Griffith supported “supply side” measures such as <a href="https://theconversation.com/bowing-out-gracefully-how-theyll-wind-down-and-better-target-jobkeeper-143011">JobKeeper</a> that would keep firms in business but opposed “demand side” measures to boost consumer spending, saying they would ultimately prove counterproductive.
Escalating public debt would induce capital inflow, drive up the dollar and make Australian businesses less competitive. Although interest rates are at present low, they would increase when the debt had to be refinanced.
Doubts for differing reasons
Paul Fritjers of the London School of Economics said he would normally support running up government debt for the sake of the economy, but could not support it being run up to support an economy the government itself had run down.
The government should wean the population off of its “irrational fears” and letting “normal economic life return”.
Although strongly argued, these views were more weakly held than those of the majority.
<img src="https://images.theconversation.com/files/348557/original/file-20200721-23-a3clr6.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="Previous responses weighted by confidence: Strongly agree: 70.4%, Agree: 21.7%, Uncertain: 3.5%, Disagree: 4.4%">The Conversation, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a>
Participants were asked to rate the confidence with which they held their opinions on a scale of 1 to 10.
When adjusted for these ratings, the proportion prepared to countenance a substantial increase in public debt climbed from 88% to 92.1%.
The proportion opposing it fell from 6% to 4.6%.
Tommorrow’s <a href="https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/update-economic-and-fiscal-outlook">economic statement</a> will be the last budget and economic update before the budget itself on <a href="https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/2020-21-budget-announcement">October 6</a>.<img src="https://counter.theconversation.com/content/143089/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/peter-martin-682709">Peter Martin</a>, Visiting Fellow, <a href="https://theconversation.com/institutions/crawford-school-of-public-policy-australian-national-university-3292">Crawford School of Public Policy, Australian National 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/should-the-government-keep-running-up-debt-to-get-us-out-of-the-crisis-overwhelmingly-economists-say-yes-143089">original article</a>.
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Should the government keep running up debt? Economists say yes

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New figures released from the ABS show new home lending plunged in the month of April by $935.5 million.
In the same month, Australians wiped a record $1.55 billion off debt accruing interest on their credit cards – the highest drop on record.
HOUSING 
The ABS lending indicator statistics released today show that new lending dropped by 4.80 per cent, month-on-month, with the total value of new lending down by $935.5 million compared to March 2020, according to the seasonally adjusted data. Of this, a $720.9 million drop was from new owner-occupier loans. 
Refinancing, however, picked up pace – the number of external refinances increased by 11.20 per cent in the month of April, and 26.96 per cent, year-on-year, according to the seasonally adjusted figures.
<table border="0" cellspacing="0" cellpadding="0"><tbody>
<tr>
<td rowspan="2" nowrap>
Value of new loans
</td>
<td>
% change 
</td>
<td>
% change 
</td>
</tr>
<tr>
<td>
Mar 2020 – Apr 2020
</td>
<td>
Apr 2019 – Apr 2020
</td>
</tr>
<tr>
<td nowrap>
Total housing
</td>
<td nowrap>
-4.80%
</td>
<td valign="bottom" nowrap>
11.24%
</td>
</tr>
<tr>
<td nowrap>
Owner occupiers
</td>
<td nowrap>
-5.00%
</td>
<td nowrap>
14.75%
</td>
</tr>
<tr>
<td nowrap>
Investors
</td>
<td nowrap>
-4.23%
</td>
<td nowrap>
2.38%
</td>
</tr>
</tbody></table>
Notes: Seasonally adjusted figures. Figures exclude refinancing.
Source: ABS lending indicator statistics for April 2020, released 10 June 2020.
<table border="0" cellspacing="0" cellpadding="0"><tbody>
<tr>
<td rowspan="2">
Number of owner-occupier loans
</td>
<td>
% change 
</td>
<td>
% change 
</td>
</tr>
<tr>
<td>
Mar 2020 – Apr 2020
</td>
<td>
Apr 2019 – Apr 2020
</td>
</tr>
<tr>
<td nowrap>
First home buyers
</td>
<td nowrap>
-3.75%
</td>
<td nowrap>
15.56%
</td>
</tr>
<tr>
<td nowrap>
Refinancers
</td>
<td nowrap>
11.20%
</td>
<td nowrap>
26.96%
</td>
</tr>
</tbody></table>
Notes: Based on the number of new loans to owner occupiers using seasonally adjusted figures.
Source: ABS lending indicator statistics for April 2020, released 10 June 2020.
CREDIT CARDS
Statistics released yesterday from the RBA show that outstanding debt accruing interest dropped by $1.55 billion or 5.76 per cent. The highest monthly drop on record. 
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<table border="0" cellspacing="0" cellpadding="0"><tbody>
<tr>
<td valign="bottom" nowrap>
TOTAL
</td>
<td>
Apr-20
</td>
<td>
Mar 2020 vs Apr 2020
</td>
<td>
Apr 19 vs Apr 2020
</td>
</tr>
<tr>
<td valign="bottom" nowrap>
Number of accounts
</td>
<td valign="bottom" nowrap>
13.50 million
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<td valign="bottom" nowrap>
-136,817
-1.00%
</td>
<td valign="bottom" nowrap>
-1.09 million
-7.48%
</td>
</tr>
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<td valign="bottom" nowrap>
Total balances accruing interest
</td>
<td valign="bottom" nowrap>
$25.43 billion
</td>
<td valign="bottom" nowrap>
-$1.55 billion
-5.76%
</td>
<td valign="bottom" nowrap>
-$4.10 billion
-13.87%
</td>
</tr>
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<td valign="bottom" nowrap>
Total value of purchases
</td>
<td valign="bottom" nowrap>
$14.72 billion
</td>
<td valign="bottom" nowrap>
-$6.43 billion
-30.42%
</td>
<td valign="bottom" nowrap>
-$7.22 billion
-32.92%
</td>
</tr>
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<td valign="bottom" nowrap>
Total value of cash advance
</td>
<td valign="bottom" nowrap>
$307.44 million
</td>
<td valign="bottom" nowrap>
-$199.54 million
-39.36%
</td>
<td valign="bottom" nowrap>
-$287.76 million
-48.35%
</td>
</tr>
</tbody></table>
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Notes: excludes commercial cards, using original data from the RBA. Data released 9 June 2020. 
RateCity.com.au research director, Sally Tindall, said a lot of Australians spent their lockdown refinancing their mortgages and getting on top of their debt.
“Australians spent the month of April getting their finances in order, scaling back spending and knocking down their debt, with the biggest monthly drop in debt accruing interest on record,” she said.  
“The early access to superannuation program is likely to be a factor in this record busting drop, giving some Australians an opportunity to wipe clean their credit cards that was, in their mind, too good to refuse.
“Refinance activity has also taken off during lockdown. We expect this to continue to gain pace with many homeowners looking to sure up their finances. 
“In relation to mortgages, today’s drop is likely to be the beginning of a long road ahead for the home lending market.  
“In April alone, nearly one billion dollars of new lending was ripped out of the property market, as the country went into lockdown; the biggest monthly drop in new lending since October 2015, in dollar terms,” she said.
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Aussies hunker down on debt in lockdown

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Wayne Byres, chairman of the Australian Prudential Regulation Authority (APRA), has said financial stability risks from very cheap debt overload and high-cost housing were still present in the economy.
Amid signs of a property recovery in the Melbourne and Sydney property markets, Byres said the market was at an "interesting juncture".
"The downward adjustment in prices has occurred in an orderly fashion and been positive for stability," he said in a speech in Melbourne.
"However, it is worth remembering that the original risks we were concerned about in 2014 - high prices, high debt, low interest rates and subdued income growth - have not gone away, and in some cases increased."
He noted the downward adjustment in prices has occurred in an orderly fashion and been positive for stability.
"It would be unhelpful if recent (and prospective) interest rate reductions led to a resurgence in speculative activity," he said. 
Byres said he did not want banks to cut their credit standards as a way to fire up loan growth.
"When it comes to the supply of credit, it would therefore be unwise for lending standards to be allowed to erode again as a means of generating lending growth. And on the demand side, it would be unhelpful if recent (and prospective) interest rate reductions led to a resurgence in speculative activity," he said.
"Financial stability doesn’t happen by chance," he noted.
Earlier this month, CoreLogic reported Melbourne house prices rose 1.3 per cent in August, while Sydney prices rose 1.5 per cent. National housing prices were up 0.8 per cent in the same month, the first increase since October 2017.
Byres' speech also noted the squeeze on bank profits.
It arose from low interest rates as lenders offset the decline in their lending rates through their deposit portfolios.
Byres said smaller banks, which have a higher reliance on deposit funding, could feel the hit on their profits "more forcefully" than large banks.
He indicated it could affect competition in the market.
"All four Australian major banks enjoy AA credit ratings, and ready access to funding; very few European banks (without explicit government support) enjoy similar ratings
"In 2018, a decade after the crisis, the four Australian majors were ranked in the top 35 banks in the world by market capitalisation.
"Europe, despite a much larger banking system and population, only had four banks in the top 35.
"The return on equity (RoE) of the Australian major banks has certainly declined but has not fallen below 10 per cent, even during the GFC, and is now in the order of 12 per cent; for large global European banks, RoE was negative at the height of the crisis, and has struggled to get much above 5 per cent since then."
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APRA's Wayne Byres warns of high debt and rising property prices

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<h1>
<a href="https://theconversation.com/profiles/mark-mcgovern-168" target="_blank" style="font-family: Tahoma, Helvetica, Arial, sans-serif; font-size: 12.16px;">Mark McGovern</a>, <a href="http://theconversation.com/institutions/queensland-university-of-technology-847" target="_blank">Queensland University of Technology</a>
</h1>
The Queensland state government is <a href="https://www.qtc.com.au/annual-reports/annual-report-2016-17/" target="_blank">paying a higher interest rate</a> than most Queenslanders are on their mortgages. To make matters worse, debt is <a href="https://www.researchgate.net/publication/265852954_Subprime_agriculture_and_Australia" target="_blank">becoming problematic in rural areas</a> with incomes and asset values down, and debts, unemployment and underemployment up.
Without improved state government debt arrangements, and policies to alleviate stressed industries and communities, Queenslanders’ income and wealth will suffer.
A destructive dynamic is at work in government, rural and urban debts. As debt servicing bites, consumption falls, stressing businesses and their employees. Public and private interest payments crowd out jobs and business investment.
The interest rate on Queensland government debt is currently 5.2% per annum, compared to <a href="https://www.canstar.com.au/compare/home-loans/?amount=350000&amp;profile=Buying+Next+Home+350k&amp;purpose=Buying+Next+Home&amp;repayment_type=P%2BI&amp;state=NSW&amp;Loan+Type=Variable&amp;provider_link=Yes%2C+only+show+results+with+links" target="_blank">mortgage rates</a> between 3% and 4%.
Interest rates fluctuate markedly from year to year. Today the <a href="https://www.rba.gov.au/statistics/cash-rate/" target="_blank">Reserve Bank of Australia cash rate is 1.5% pa</a> yet the Queensland government in 2013-14 was paying the same 5.2% pa when the RBA cash rate was 3% pa. Failure to capture lower market rates is evident in the state’s finances.
<h2>Government debt</h2>
The Queensland government sells bonds to cover its borrowing. For example, it could sell a ten-year bond for A$1,000 (the face value) that pays out 5% pa every six months. The Queensland Treasury makes interest payments every six months and pays back the A$1,000 after ten years.
However, bonds are traded in markets and can be bought and sold for more or less than the face value. If interest rates in the wider economy are lower than what the bond pays or if perceived risks are low, a bond may trade for more than the face value, say A$1,100.
Looking at <a href="https://www.qtc.com.au/annual-reports/annual-report-2016-17/" target="_blank">Queensland Treasury Corporation data</a> we can see that total debts held by the State of Queensland had a face value of A$89.2 billion but a market value for A$98.5 billion at the end of June 2017. This was A$9.3 billion more than face value.
Also evident is that total debt peaked in 2014-15, but <a href="https://www.sunshinecoastdaily.com.au/news/leaders-trip-over-debt-campaign-unfolds/3253743/" target="_blank">no one seems to have noticed</a>.
<iframe style="border: none;" src="https://datawrapper.dwcdn.net/10id6/3/" frameborder="0" width="100%" height="400"></iframe>
Examining the breakdown between Queensland departments such as Treasury and the government-owned corporations that supply electricity, water and the like, the rise in Queensland general government debt was relatively smooth between 2007 and 2015. Changes in government had no significant effects on the trend in general government debt.
This rise appears driven by a <a href="https://s3.budget.qld.gov.au/budget/papers/2/4-Revenue.pdf" target="_blank">shortfall in government revenue</a>, poor policies and the global financial crisis. A lack of critical information about government debt compounded these problems.
As discussed by the <a href="https://publications.qld.gov.au/dataset/rural-debt-and-drought-taskforce-report/resource/fea23ad0-e069-4484-91ce-d1d762decc48" target="_blank">rural debt and drought taskforce</a>, relatively small rural debts also appear to be manageable. Much bigger challenges lie in the big cities because of the sheer size and the recentness of much debt.
<h2>Refinancing Queensland?</h2>
Relatively small steps can have big effects in the current situation.
The first step for the new government is to provide better transparency about the state of government debt with Treasury publishing better analysis and fuller accounts. This will help lead to more sustainable state finances, and to tackle problems in both rural and urban areas.
Although large Queensland government debts appear relatively manageable, this is providing that net government revenues can be maintained.
There are several potential policy initiatives but we only have space to consider one. Suppose the Queensland government set a target of transitioning to raise one-third of its funds from directly selling non-transferable bonds (that can’t be bought or sold) to Queenslanders. This was a regular practice before financial liberalisation in the 1980s. If done again well, it could be a win-win outcome.
Much like a term deposit, Queenslanders could buy five-year bonds with an interest rate of, say, 3% pa. This would reward Queensland savers with better returns than they could get in a savings account and keep money within the state. It would have saved the government the significant sum of A$620 million if used for a third of government bonds in 2016-17.
<img src="https://counter.theconversation.com/content/87586/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">Interest payments should be one focus for the incoming government as it works with insight to improve its management of debts and their effects. Gains from some fresh thinking could be considerable.
<a href="https://theconversation.com/profiles/mark-mcgovern-168" target="_blank">Mark McGovern</a>, Visiting Fellow, QUT Business School, Economics and Finance, <a href="http://theconversation.com/institutions/queensland-university-of-technology-847" target="_blank">Queensland University of Technology</a>
This article was originally published on <a href="http://theconversation.com" target="_blank">The Conversation</a>. Read the <a href="https://theconversation.com/the-queensland-government-is-paying-more-for-its-debt-than-the-average-mortgage-holder-87586" target="_blank">original article</a>.
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The Queensland government is paying more for its debt than the average mortgage holder

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<img src="https://counter.theconversation.edu.au/content/75857/count.gif?distributor=republish-lightbox-advanced" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
The current debate about housing muddles two separate issues: the affordability of housing, and the risk in the banking system of any significant fall in house prices. Clearly, they are both important issues and the link between them is the potential for a lot of home owners to overreach in their finances, to not be able to repay their loans, and so to bring down their banks.
When you look at the data (in three charts) on mortgage stress, the systemic risk of people not being able to repay their home loans appears small. Data from the Australian Prudential Regulation Authority (APRA) reveals the average balance on housing loans has barely trended upwards over the last five years (see our first chart below).
This was during a period when house prices have risen quite strongly. In effect, this means that, on average, people have more equity in their houses to stand behind their borrowings.
This is not just true for the average but also if you look at investor loans or for low documentation (loc-doc) loans (these are aimed at those who cannot provide the usual required paperwork, for example self-employed people). The same trends emerge. It’s not clear from this that people are taking on excessive risk – and certainly not recently.
<a href="https://www.propertyobserver.com.au/images/2017/04/10/v1.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/04/10/v1.jpg" width="600" height="432">
Source: ABS6416.0 and APRA Quarterly ADI Property Exposures
Even for new loans you get the same basic picture. The chart below shows the loan to valuation ratios for new loans. What is clear is that for most new loans people are borrowing between 60% and 80% of the value of their houses.
The proportion of people who have very high exposure to a fall in house prices – those with loan to valuation ratios above 90% – has been declining over time. Once again, the basic picture is one of prudent households, rather than a community of people gambling on house price rises.
<a href="https://www.propertyobserver.com.au/images/2017/04/10/v2.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/04/10/v2.jpg" width="600" height="432">
Source: APRA Quarterly ADI Property Exposures
A lot of the confusion about housing arises because people make inappropriate comparisons. One common mistake is to compare the amount of housing debt with national income. This is highly misleading.
A more correct comparison is between your income and the amount of your income needed to service your loan. At a national level, this means we should look at the size of national income and the amount of income needed to service the debt (not the amount of debt).
An alternative that the Reserve Bank uses is to compare the amount of debt people have with the amount of assets they hold. As we can see in the chart below, the value of household liabilities has been increasing but the total value of assets held by households appears to have been rising faster. Again, there is no clear case that the household sector has borrowed excessively.
<a href="https://www.propertyobserver.com.au/images/2017/04/10/v3.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/04/10/v3.jpg" width="600" height="432">
Source: Reserve Bank of Australia
None of this is to deny that house prices can fall, or that some people are finding it very hard to buy somewhere to live in Sydney. Houses are much cheaper in other parts of Australia and property prices have even been falling recently in some regions.
Rodney Maddock is a Vice Chancellor's Fellow at Victoria University and Adjunct Professor of Economics, Monash University and author for The Conversation. He can be contacted <a href="https://theconversation.com/profiles/rodney-maddock-107543" target="_blank">here</a>.
 
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jchancellor-FAypfDUnLy

Mortgage stress isn't as bad as you might think: Rodney Maddock

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The real estate franchise business LJ Hooker is facing a December debt refinancing requirement, according to the Australian Financial Review's Street Talk column.
It comes after shelving plans for a $400 million float earlier this year.
The Street Talk column suggested the franchise business has around $60 million in obligations with a refinance due at the end of 2016.
A spokeswoman advised the company founded in 1928 by the legendary Sir Leslie Hooker was reviewing "a variety of capital management options to deliver its growth plans." 
It was in July last year that Janusz Hooker, the grandson of Sir Leslie, cemented his control of the business as a number of well-known shareholders sold out.
Among them were its former chairman Greg Paramor, former Leighton chief Wal King, developer and yachtsman Syd Fisher and RAMS founder, John Kinghorn.
In October, last year there was a pre-initial public offering cash call of around $20 million. 
There was also talk of a joint venture with Barry Plant.
Street Talk advised today there were whispers about Janusz Hooker and whether he will relocate to Singapore.
LJH advised Property Observer there were major factual issues with the story, including the claim that it owed any debt this year.
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LJ Hooker reviewing capital management options

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<img src="https://counter.theconversation.edu.au/content/64367/count.gif" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
A new study shows two million Australians are experiencing high financial stress which prevents them from coping in difficult situations, for example, in paying unexpected expenses such as a big mobile phone bill or the fridge breaking down.
Adults face these sorts of scenarios frequently. When they arise, people usually turn to savings, a credit card, or a friend or family member to help out.
Our report, Financial Resilience in Australia, funded by the National Australia Bank, quantifies the amount of Australians: experiencing problems paying debts; meeting the costs of living; and accessing appropriate, affordable and acceptable financial products and services.
It also shows some Australians have trouble accessing social support in times of crisis and may have low levels of financial knowledge.
Our research measured financial resilience by the four key resources that support it: personal economic resources (such as savings), financial products and services (such as insurance), financial knowledge and behaviour (including financial literacy), and social capital (having social support in times of crisis, including friends and families).
Many Australians simply don’t have the resources to bounce back. For example, around:
<ul>
<li>One in two adults have limited to no savings</li>
<li>One in two only have a “basic understanding” of financial products and services</li>
<li>One in ten have unmet need for credit and/or insurance</li>
<li>One in five have limited or no social connections</li>
<li>One in 30 stated they needed but did not have access to any form of government or community support.</li>
</ul>
This has implications for the short and long-term impact on individuals and their families.
<h2>Who is most at risk?</h2>
Our research found secure housing, steady income, education, being employed and good mental health are strongly associated with financial resilience.
On average, financial resilience is significantly lower among people who are homeless, living in social housing, are short-term renters or live in student accommodation.
Financial resilience increases with the level of education and, unsurprisingly, people with very low personal incomes fare poorly.
Employment status is a key marker. People who are unemployed, underemployed, not in the labour force and those who only work odd jobs are more likely than their full-time employed counterparts to have lower levels of financial resilience.
People with a serious mental illness are significantly more likely to be in severe or high financial stress, are less likely to be financially secure and fare worse on each of the individual resource groups than people without mental illness.
The gender split in financial resilience is fairly even overall. However, the four components of financial resilience are influenced by gender. Women have lower general levels of economic resources than men, but men have lower levels of social capital than women.
People who were born overseas in a non-English speaking country have lower levels of resilience than those who were born in Australia. Finally, the influence of age on financial resilience varies and is often affected by other factors.
One in four study participants reported difficulties accessing financial services. The barriers are varied, but include cost, trust, poor and inadequate services, and (for a few) language, disability and discrimination.
This underscores the importance of making financial information, products and services more user-friendly and accessible. This will ensure these resources are available and accessible to everyone who needs and wants them in society.
The factors influencing financial security are not surprising. People who own their own homes, have a university-level education and have a personal yearly income of more than A$100,000, for example, have higher levels of financial resilience. However, only 35.7% of Australians are financially secure.
The prevailing attitude around financial problems is that individuals are solely responsible for their situation. Our research challenges this ideas as it shows multiple aspects to financial resilience, some out of the individual’s control.
The below shows how interlocked the different components of financial resilience are and when pieces of the puzzle are removed, the most vulnerable people are at risk.
<a href="/images/2016/08/29/image-20160826-11150-bc398a.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2016/08/29/image-20160826-11150-bc398a.jpg" alt="" width="754" height="407">
<h4>
The jigsaw of financial resilience. The Centre for Social Impact, Author provided
</h4>
At the moment social sector leaders are lobbying the government to scrap proposed budget cuts that will reduce the amount of certain welfare payments. Our research shows these same people have the least resilience to bounce back if they were to lose some financial support.
This is an example of how the government needs to play a more active role in understanding financial resilience and where support is needed. By understanding the often interrelated elements of financial resilience, tipping points and who is most at risk, prevention and intervention can be better tailored.
Rebecca Reeve is senior research fellow, Centre for Social Impact, UNSW Australia and author for The Conversation. She can be contacted <a href="https://theconversation.com/profiles/rebecca-reeve-97205" target="_blank">here</a>.
Kirsty Muir is professor of Social Policy / Research Director, Centre for Social Impact, UNSW Australia and author for The Conversation. She can be contacted <a href="https://theconversation.com/profiles/kristy-muir-158422" target="_blank">here</a>.
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Two million Aussies are experiencing high financial stress

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<img src="/images/2016/03/30/Holdencapital_banner.jpg" alt="" width="646" height="136">
SPONSORED POST
This is a question faced by many developers as they find themselves inevitably stepping up to larger projects and the consequential demand on their equity resources. The answers are complex and can vary depending on many variables but let’s take a look at what each option offers
Firstly, lets be clear on the differences between debt and equity. Debt comes in many forms but essentially, it comprises funds that are lent at a proscribed interest rate which in a project scenario are usually but not always, capitalized as a cost of the project. Debt is typically but again not always, secured by a registered charge over the security property together with sponsor guarantees and in the final wash up, the lender’s repayment of capital, interest and fees take priority over those of the sponsor when apportioning the proceeds of sale. Clearly it is important to negotiate the best possible terms when committing to a debt position but at the end of the day, the golden rule tends to apply, he who has the gold, makes the rules.
Equity on the other hand is usually defined as the capital contribution provided by the sponsor of the project and any related parties. Equity can take the form of cash, services provided and any improvement in value derived from the revaluation of an asset as a consequence of a rezoning or similar.
Sponsor structures can take many different forms but for the purposes of this article we will treat partnerships the same as single traders (as do lenders), while Joint Ventures provide a structured arrangement enabling parties with differing skills and or capabilities to come together to undertake a project and share in the resulting profits. 
The manner in which debt and equity can be sourced and applied is almost limitless but lets take a look at the typical options available to a developer and consider the benefits.
The Debt Options:
Firstly, you need to be aware that the state of the market will often determine what is actually available. Simplistically, in a rising market, access to both debt and equity is typically more readily available and pricing is competitive. Traditional debt providers such as the banks and major funds chasing market share, will consider higher Loan to Cost/Value ratios, more competitive terms such as lower presale requirements and keenly priced interest margins and fees.
Alternatives such as mezzanine funding also become more prevalent in rising markets with participants providing funds to top up the capital stack in a project. Typically filling the gap between senior debt at say 75-80 percent up to 90-95 percent of the total project cost, the cost of Mezzanine can range from 20-25 percent p.a. but as the market gets hotter and depending on the level of risk, pricing can fall to as little as 14 percent.
While these funds may seem attractive, they are often accompanied by very tight and restrictive terms, which can result in the sponsor losing control of the project to the advantage of the mezzanine lender. Sponsors need to be aware that a Mezzanine partner is really just another lender albeit with more to lose that the senior debt provider and when the going gets tough, you potentially have two masters to satisfy rather than just one and neither is likely to have the same agenda as you.
A key point to remember is that in a rising market Mezzanine Lenders are attracted to a share of the upside and negotiate accordingly. In a falling market they will seek to cap their exposure and prioritise their returns at your expense. Conversely, you as the developer are looking to maximise the blue sky in the project or protect your downside as the case maybe.
“Stretch senior” debt is another option that is usually seen in stronger markets with some specialist lenders prepared to exceed the usual Major bank construction loan LCR’s of between 70-80 percent by lending up to 90 percent+ of LCR in return for a margin that reflects the associated risk, which might be some 3-4% above that charged by the banks, depending on their assessment of the project and sponsor risks.
In a falling or credit constrained market as we are currently experiencing, the traditional lenders tighten their terms and we see LCR’s firm to between 65-75% and the application of stricter presale requirements, typically with a minimum of 100% debt cover as a condition precedent. 
Joint Ventures:
The attraction of Joint Ventures is that they provide a multitude of structures that can be tailored to the developers needs and typically provide access to capital and expanded skill sets in return for a share of both the profit and the risk.
Like debt, Joint Venture funds are easier to secure in a rising market but even more importantly than with debt, the secret here is to find the right partner. While negotiating the right terms and a soundly drafted JV Agreement are critical (we will deal with this in a future article), the most important consideration is finding a partner who not only has complementary skills and capabilities to work with their own but also has the same goals and values in terms of their decision-making processes. This is a more challenging exercise that selecting the right debt or mezzanine partner but has the potential to be far more rewarding. 
The classic JV structure where the parties are equal in their contributions and profit entitlements are rare with most comprising of a party with the ideas/opportunities and the other with the capital and resources to make it happen or a similar permutation. As a result, in a rising market Joint Venture partners with capital are attracted by an increased share of the upside and negotiate accordingly, while in a falling market they will seek to cap their exposure and prioritise their returns at the expense of their partner or the lender. Conversely, the initiating developer is also self motivated and looking to give away as little as possible in their project which usually results in an increased downside in the event that they do not perform their obligations and for newcomers this inevitably ends in tears as they over estimate their own capabilities.
So, the question as regards more debt as opposed to equity is not simply one of cost. More importantly it is one of understanding your capabilities to deliver and being able to deal with the consequences if unforeseen forces result in a less than optimum outcome.
In the case of “more debt”, the developer needs to be aware that losing control to the lenders has a proportionally higher risk in terms of the financial consequences both in terms of the project and their personal fortunes. On the other hand the Joint Venture can reduce the downside risks from a capital exposure perspective but comes at the cost of having to give away a substantial portion of the projected profit.
So, there is no right or wrong answer here, the key question an under capitalized developer needs to ask themselves is what option best fits my situation, what is the downside if events outside my control mean that the project fails and can I live with the consequences of my decision?
 
This article was written by Dan Holden of HoldenCAPITAL, who are a bespoke construction finance firm, they arrange construction finance and invest in projects through their equity fund, Queen Street INVEST. To discuss your project finance requirement please call (07) 3171 4200 or visit HoldenCAPITAL <a href="https://www.holdencapital.com.au/" target="_blank">here</a>.
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Risk and Reward – Does more debt solve your problems or do you need a JV Partner? HoldenCAPITAL

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The global bond fund giant PIMCO has suggested that falling interest rates and rising house prices had the potential to drive a more irrational response with a 'herd mentality' that assumed continued capital price appreciation.
Based on the fear of missing out, PIMCO portfolio manager Aaditya Thakur said there was a risk that people build unrealistic and unsustainable expectations that house prices could continue to rise given prevailing conditions.  
"If you think about why people lever up its because they expect further income or price appreciation or a combination of both, but if they are extrapolating from past history, it might not be a true reflection of future productivity of the asset," she told The Australian Financial Review after issuance of her co-authored report.
PIMCO noted Australian household debt to net worth had increased from below 15 per cent in the early 90s to a peak to almost 30 per cent in 2009 - and now remained above 25%. 
PIMCO, which manages $US1.6 trillion of assets globally and $35 billion in Australia, completed the research paper to understand the drivers of household borrowing decisions.
The fund's thesis is of a "new neutral" which suggested Australian interest rates would be held lower for longer by a number of factors.
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Australians being "irrationally exuberant" by borrowing too much to invest in housing, exposed the economy to financial shocks, global bond fund giant PIMCO tipped.
The PIMCO researchers found that Australians' decision to borrow was driven by falling interest rates and rising house prices – not economic fundamentals that reflect the health of the economy like employment.
The world's biggest bond investor said Australians appeared to be "trigger happy" about debt – responding far quicker than others to changes in interest rates and asset prices. 
PIMCO says they start borrowing more after only six months of increases in house prices compared with a year in the US.
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