Property developer One Living, backed by former Macquarie banker turned investment manager Chris Green’s investment firm, has unveiled plans to bring more institutional capital into housing to help address the national supply crisis.

The New York-based investor has focused his firm, GreenPoint Partners, on addressing the supply shortage hitting middle market housing in Australia.

It is backing the new One Living business to develop more than 1000 units along the eastern seaboard. The new firm is starting with a development on Mona Vale Road, on the border of Mona Vale and Pymble, in Sydney’s Northern Beaches, with around 140 apartments planned. They are eyeing off more sites across the city.

With cost pressures rising in the industry, One Living’s model is to be a vertically integrated developer-builder, so it can respond directly to the housing gap by removing the cost inefficiencies embedded in traditional residential delivery.

“We are building a platform designed to operate at scale and starting in a market where there’s a clear need for quality, attainable housing,” One Living joint managing director Joseph Scuderi said.

“It’s that missing middle – it’s that attainable end of housing… that’s what most Australians invest into and what Australians can actually afford.”

<img alt="Mona Vale" data-entity-type="file" data-entity-uuid="798dfa93-4941-4db6-a696-31e9dc18e81c" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%202.31.50%E2%80%AFPM.png?VersionId=mKBqi5C_DmeiXS.AtJkcR8LQIxqCqmFi" />

GreenPoint Partners brings years of experience assembling and scaling real estate operating businesses across major markets. And Green sees a big opportunity in Australia.

“For its size, sophistication and importance to the community, Australia’s living sector has remained largely under-institutionalised, which represents significant opportunity,” Green said. “GreenPoint identified that gap, assembled the right team, and is backing One Living to build a platform that is aligned to market needs.”

Green said being a builder-developer would give the company the capacity and flexibility it required to deliver reasonably-priced homes.

“We want it to be at that attainable level; not super high end luxury but at that attainable level,” he said.

<img alt="Mona Vale" data-entity-type="file" data-entity-uuid="74a5344a-4b26-4d4a-ada3-056b1220be77" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%202.32.15%E2%80%AFPM.png?VersionId=vY8hXHO4reBMdO8ZXMWCNtGZJofUPQ3j" />

&nbsp;

One Living will undertake a component of affordable housing in its schemes, which it will own and operate, and it could also run build-to-rent on some sites.

Green praised local policy settings.

“The NSW government is being very supportive, strategic and pragmatic in terms of how do we generate more supply of housing,” he said. “We think it’s actually positive for development and the bit that’s been lacking at that attainable level is that it’s lots of relatively small private developers, whereas we want to create an institutional platform.”

One Living is also&nbsp;looking at high-density projects and could take on more institutional funding in the future.

“The way we will be able to achieve economies of scale is through size,” Green added.

Joel Robinson

One Living enters Sydney's new apartment market with Northern Beaches site acquisition

It's been several years since there's been an opportunity to buy a brand new townhome in Melbourne's coastal suburb of Mordialloc. Even apartment developments in recent times have been few and far between in the area.

Local developer LDS Property identified the gap in new housing, securing a site on White Street, directly opposite&nbsp;Woodlands Golf Club Mordialloc. They've recently launched&nbsp;<a href="https://www.apartments.com.au/new-townhouses/wm-residences-mordialloc-102-white-street-mordialloc-vic-3195">WM Residences</a>, just 13 townhouses which they have already started building.

Projects by Buxton Director Heath Thompson, who is selling WM Residences, says the townhouses x that perfect middle ground be

"Mordialloc residents have had limited options to downsize within the suburb, often forcing them to look elsewhere despite long-standing ties to the area," Thompson says.

"With very little comparable new supply coming to market, projects like WM Residences are well placed, particularly as buyers look to capitalise on current conditions amid constrained supply."

[smartcode_project:default project_id=134646 project_image_fid=6109]

The development, designed by regarded architecture firm&nbsp;<a href="https://www.apartments.com.au/architects/ewert-leaf">Ewert Leaf</a>,&nbsp;adopts a deliberately restrained architectural approach, focusing on simplicity, durability and liveability rather than overt design gestures.

The boutique scale is central to the offering. With only 13 three-bedroom residences, each home is configured to prioritise functional layouts and everyday use, supported by private terraces and secure two-car garages.

Ewert Leaf’s design response leans into a calm, neutral material palette. Interiors are defined by oak flooring, white walls and soft finishes, creating a consistent and understated backdrop. The approach avoids trend-driven detailing in favour of longevity, with an emphasis on natural light and spatial clarity.

[smartcode_project:default project_id=134646 project_image_fid=6110]

Beyond aesthetics, the homes are designed to meet contemporary performance expectations. Each residence targets a minimum 6-star energy rating, incorporating double glazing, comprehensive insulation and all-electric Bosch appliances.

The project’s location supports a walkable coastal lifestyle, sitting within close proximity to Mordialloc’s foreshore, Main Street retail strip and the train station. Local cafés and dining venues, including Suburbia Deli and Hendriks Café, are within a short walk, reinforcing the area’s established neighbourhood character.

[smartcode_project:default project_id=134646 project_image_fid=6116]

While <a href="https://www.apartments.com.au/developments/mordialloc-vic-3195">Mordialloc</a> is often defined by its beach and pier, the project taps into other areas of day to day living, offering easy access to local food, casual dining and transport, rather than positioning itself purely as a lifestyle retreat.

WM Residences reflects a continued trend across Melbourne’s coastal suburbs towards smaller-scale, design-led townhouse developments, particularly on infill sites where proximity to amenity is already established.

With construction commenced prior to its market entry, the project aligns with a growing preference among buyers for developments with visible progress and defined delivery timeframes.

[smartcode_project_cta:default project_id=134646]

WM Residences fills gap in Mordialloc townhouse market

&nbsp;

Developer GURNER™ Group has revealed $1.65 billion in residential sales nationally across the 12 months to December 2025, driven largely by the continued momentum of its Docklands wellness-focused precinct, Elysium Fields.

The sales result was generated across seven projects in Victoria and New South Wales, headlined by Elysium Fields, GURNER™’s $2.75 billion mixed-use precinct planned for Harbour Esplanade in Docklands.

The project has recorded more than $500 million in sales across the first three towers, equating to around 580 apartments sold.

The first tower, Helios, has now sold out of its 240 private residences, with GURNER™ preparing to release a premium penthouse collection comprising 15 three-bedroom penthouses in coming weeks.

[smartcode_project:default project_id=144441 project_image_fid=370975]

Elysium Fields is being developed on the long-held 20,000 sqm Docklands site at 208-226 Harbour Esplanade, which had remained undeveloped for more than two decades prior to GURNER™ taking over the project around four years ago.

Construction has now commenced across four towers ranging between 18 and 30 storeys, with Hamilton Marino and Maxcon appointed as builders.

Once complete, the precinct is expected to comprise around 1,100 residences, alongside retail, hospitality and public realm uses integrated throughout the site.

[smartcode_project:default project_id=144441 project_image_fid=370981]

Designed by Fraser &amp; Partners in collaboration with GURNER™ Design House, the project has been positioned around the developer’s broader focus on wellness-led residential living.

“We don’t sell apartments. We create a true luxury lifestyle that simply doesn’t exist elsewhere in the market today,” Founder and Executive Chairman Tim Gurner said.

“To deliver that requires an extraordinary level of detail, coordination and discipline across multiple verticals, from design and hospitality through to wellness and service.”

“We’ve always believed that living extends far beyond the physical residence. It’s about how you feel the moment you arrive, how you live day-to-day, and the ecosystem that supports that.” 
[smartcode_project:default project_id=144441 project_image_fid=370977]

The project’s design places a heavy focus on landscaping, wellness amenities and biophilic design principles.

Plans include around 3,700 sqm of landscaped gardens and open space throughout the precinct, alongside a retail and dining offering spanning approximately 5,000 sqm.

The broader public realm strategy centres around what GURNER™ describes as the “Path of Life”, an urban forest and landscaped pedestrian environment intended to connect the various buildings and wellness spaces across the precinct.

The apartments themselves will incorporate a range of wellness-focused inclusions, including purified air and water systems, circadian lighting, antimicrobial surfaces, and optional in-home wellness upgrades.

[smartcode_project:default project_id=144441 project_image_fid=370980]

Gurner said the company’s experience through its Saint Haven wellness clubs had directly informed the residential offering now being incorporated into Elysium Fields.

“We’re seeing a clear global shift toward longevity, performance and proactive health,” Gurner said.

“Our role is to deliver that in a way that feels seamless, highly private and beautifully resolved within the environments we create.”

A large component of the wellness offering is planned through the resident amenity and health facilities proposed within the precinct.

That includes plans for bathing and recovery facilities spread throughout the towers, incorporating mineral pools, saunas, steam rooms, flotation therapy, red light therapy and wellness lounges.

The developer is also seeking approvals for what it describes as a “reverse ageing medical clinic” within the precinct.

[smartcode_project:default project_id=144441 project_image_fid=370978]

According to project information released by the group, the proposed facility would include cryotherapy, IV infusion therapy, infrared and dry saunas, PEMF beds, MRIs, DEXA scans, brain scans and blood analysis services.

Within the first tower, Helios, residents will also have access to a dedicated amenity offering known as the Sky Private Club.

The upper 15 levels of the building will include private lounges, dining spaces, rooftop amenities and optional private wellness studios integrated within residences.

The Helios tower itself comprises 260 apartments ranging between 60 sqm and 300 sqm, including a collection of penthouses.

That includes a planned two-storey penthouse spanning around 600 sqm with uninterrupted bay views.

The Elysium Fields precinct is being delivered in partnership with Digital Harbour Holdings, a consortium that includes the Liberman family, which controls the development rights across the Docklands site.

[smartcode_project:default project_id=144441 project_image_fid=370979]

The sales result comes as GURNER™ continues expanding its national development pipeline beyond Victoria.

“We have a strong pipeline across Australia and are now focused on scaling into key markets including New South Wales and Queensland, while continuing to build on our Melbourne base,” Gurner said.

“We currently have more than $3 billion in the market, growing to over $5 billion by October, and expect to materially outperform last year in the 2026 calendar year.”

The result also reflects the continued strength of the upper-end apartment market in Melbourne, particularly for owner-occupier-focused product with large-scale amenity and lifestyle offerings.

[smartcode_project_cta:default project_id=144441]

Record result anchored by the Group’s “utopian” Elysium Fields precinct – defying market headwinds in Docklands.

Elysium Fields drive Gurner to $1.65 billion in apartment sales over 2025

National Australia Bank (NAB) will fund <a href="https://www.apartments.com.au/new-apartments/palmera-residences-gold-coast-18-garfield-terrace-surfers-paradise-qld-4217">Palmera</a>, a $1 billion, 52-level luxury residential tower being developed by Central Equity in one of the Gold Coast’s most tightly held coastal locations at Northcliffe.

The project, launched recently by <a href="https://www.apartments.com.au/developers/central-equity">Central Equity</a>, one of Victoria’s largest private residential developers, comes at a time when construction funding for large residential developments has become increasingly competitive as lenders tighten exposure to the sector.

Multiplex has been appointed the builder, and construction is now underway.

[smartcode_project:default project_id=108274 project_image_fid=365784]

Since its first project, Central Equity has delivered more than 85 residential developments with a combined end value exceeding $8 billion.

Palmera reflects Central Equity’s growing focus on the Gold Coast luxury apartment market and continues a relationship between Central Equity and NAB that dates back to the late 1980s, when the bank funded one of Melbourne’s earliest inner-city residential towers at a time when high-rise apartment living in the CBD was largely unproven.

“NAB’s funding of Central Equity’s $36 million CBD development in the late 1980’s to the financing of the billion-dollar tower today highlights the long-term relationship between the two organisations in delivering major residential projects” said Central Equity Founder and Chairman Eddie Kutner.

He said NAB’s early support was instrumental in helping establish the company’s development model.

“When we commenced our first residential tower in the late 1980s the concept of funding off-the-plan apartments was still largely untested in Australia,” Kutner said.

“NAB recognised the opportunity early and supported the project when others were uncertain. That relationship has now continued for more than 37 years across many developments.”

[smartcode_project:default project_id=108274 project_image_fid=365771]

Central Equity was established in 1987 when Melbourne’s CBD and Southbank precinct were still dominated by warehouses and commercial buildings. Fewer than 100 residents lived in Southbank at the time, and large-scale residential development in the inner city was not widely considered.

Recognising changing demographics and lifestyle preferences, the company began developing high-rise residential projects designed to bring permanent residents into the city centre.

Central Equity has provided accommodation for approximately 40,000 residents across Melbourne’s CBD and Southbank, while also incorporating supporting infrastructure including essential lifestyle facilities like retail spaces, childcare facilities and neighbourhood activity centres.

Central Equity has spent many years assembling the Palmera development site on the corner of Garfield Terrace and Frederick Street in Northcliffe, creating a supersite of around 3,300 sqm.

The developer said the Palmera apartment tower reflects its long-term view of the Gold Coast as a growing and increasingly diversified economy.

[smartcode_project:default project_id=108274 project_image_fid=365768]

Supported by infrastructure including the light rail network, major road upgrades expanded education, hospital and medical facilities and continued expansion at the Gold Coast Airport with more international and domestic flights.

Positioned in the tightly held Northcliffe precinct, the 52-level tower will deliver 347 apartments, targeting buyers seeking a high-end coastal lifestyle, from downsizers to interstate investors.

Designed by Marchese Partners with interiors by DBI, Palmera has been conceived as a next-generation residential offering, featuring a collection of oversized apartments, with premium three-bedroom residences offering sweeping northern views stretching from Surfers Paradise through to Burleigh Heads.

[smartcode_project_cta:default project_id=108274]

NAB funds $1 billion Surfers Paradise apartment development, Palmera

Two years after completing one of the newest developments in North Sydney, developer <a href="https://www.apartments.com.au/developers/aqualand-australia">Aqualand</a> is turning its attention to the rapidly evolving St Leonards apartment market.

The developer, which completed AURA by Aqualand on North Sydney's Walker Street, has lodged plans for a 5,918 sqm site at <a href="https://www.apartments.com.au/new-apartments/33-37-herbert-street-st-leonards-nsw-2065">33-37 Herbert Street, St Leonards,</a> seeking approval for a pair of residential towers rising above a shared podium opposite Royal North Shore Hospital.

The proposal forms part of the broader transformation underway across the St Leonards-Crows Nest precinct, where former industrial and commercial sites are increasingly being redeveloped into high-density mixed-use projects tied to major transport infrastructure.

<img alt="Aqualand" data-entity-type="file" data-entity-uuid="2cc428cf-fe70-4cac-9cd5-264ad53af62c" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%209.51.56%E2%80%AFAM.png?VersionId=otKSnHtbjAvAddOnovyXQMgcAwE6DMe1" />

According to the planning documents, the site sits “within the St Leonards–Crows Nest Strategic Centre, identified by the NSW Government as a key area for accommodating future jobs and housing across Sydney.”

The proposal has been designed by fjcstudio, formerly FJMT Studio, and is being progressed through the State Significant Development pathway due to its scale and affordable housing provision.

The scheme would comprise 413 apartments, including 46 affordable housing units, alongside retail and commercial uses fronting Herbert Street. The project would also include communal open space, landscaping, a swimming pool, gymnasium, children’s play areas and podium-level resident amenities.

Planning documents show the development would consist of a part-13, part-39 storey tower form positioned above a four-storey podium.

“The development comprises a unified podium that activates the street interface, and two setback towers to accommodate new housing supply while maintaining an appropriate human scale at ground level,” fjcstudio noted in its Design Report.

The northern and southern towers have been shaped to respond to the surrounding skyline while also limiting overshadowing impacts to nearby public open space, particularly Talus Reserve.

The design report said the differing tower heights were intended to “contribute to a varied skyline while responding to the surrounding built form context and solar access considerations.”

<img alt="Aqualand" data-entity-type="file" data-entity-uuid="36da62dc-ff9e-41f2-a7e3-7be38373751c" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%209.51.45%E2%80%AFAM_0.png?VersionId=Mo6Rp2r.XRLTzIfg_PEEpw8NepDH8UBs" />

The site sits directly opposite Royal North Shore Hospital and within walking distance of both St Leonards Station and the new Crows Nest Metro station.

While the site itself sits just outside the formal Crows Nest Transport Oriented Development boundary, the planning documents repeatedly reference its alignment with the broader TOD objectives reshaping the Lower North Shore.

“The site is located adjacent to St Leonards Station and in close proximity to Crows Nest Metro which is within the Crows Nest Transit Orientated Development Accelerated Precinct which has been identified by the NSW Government to support housing delivery,” the Design Verification Statement noted.

According to fjcstudio, the project has been designed to respond to the broader transition occurring across St Leonards, where increasing residential density is being concentrated around transport infrastructure and employment hubs.

“The broader precinct is undergoing significant change, with a mix of existing mid-rise buildings and newer high-density developments,” the report stated.

“Recent and approved projects indicate a consistent shift toward taller built form, typically organised as tower-and-podium typologies with more active ground levels.”

The proposal includes close to 6,000 sqm of retail and commercial space across the ground floor and podium levels, designed to create a more activated street edge along Herbert Street.

Aqualand’s plans would also introduce a landscaped podium shared between the two towers, with communal open space in the form of a podium rooftop designed to support resident interaction and improve urban greening outcomes. The scheme would also introduce pocket parks at the northern and southern ends of the site, including a landscaped area at the corner of Herbert and Ella streets designed to improve pedestrian amenity and soften the streetscape.

&nbsp;

The proposal is being progressed through the NSW Government’s Housing Delivery Authority pathway, which was introduced to accelerate housing supply across the state. The application was declared State Significant Development in April 2025 following an expression of interest process.

<img alt="Aqualand" data-entity-type="file" data-entity-uuid="faf6d97d-2671-454f-b85a-fe1c6a7be608" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%209.51.49%E2%80%AFAM.png?VersionId=diVd28OBVr5.YV.7prrOz.uAanwwwm7a" />

St Leonards has been particularly active with new developments in recent weeks. Developer SP Setia’s <a href="https://www.apartments.com.au/news/nsw/first-look-sp-setia-targets-st-leonards-skyline-with-40-storey-tod-tower">plans for a new 42-storey tower</a> recently went on exhibition through the same pathway, while <a href="https://www.apartments.com.au/news/nsw/first-look-stockland-plans-52-storey-538-apartment-st-leonards-tower">Stockland’s 52-storey tower proposal</a> was also recently unveiled.

Aside from the St Leonards project, which is expected to take around nine months to move through the approvals process ahead of a potential 2027 launch, Aqualand is also preparing to launch Boronia, a new apartment project in Roseville comprising around 111 apartments on Larkin Street.

The developer also has approvals in place for the next stage of the Barangaroo precinct, which will feature new residential, retail, hospitality and community uses, alongside a new metro entry across the five-hectare site.

More than 50 new retail destinations are planned for Central Barangaroo, alongside a 270-metre-long boulevard connecting Hickson Park to Nawi Cove. Together with Harbour Park, more than 50 per cent of the precinct will comprise public open space and parkland.

First look: Aqualand joins St Leonards apartment party

Economics

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GUEST OBSERVER
The Reserve Bank of Australia could join the likes of Estonia and Lebanon in creating a cryptocurrency based on the Australian dollar, to reap the benefits of technology like the blockchain but with more stability than other well known currencies like Bitcoin.
The RBA has already been approached by interested startups to create this new digital currency, known as the “DAD” or Digital Australian Dollar.
In contrast with other cryptocurrencies a state-backed digital currency has the advantage of being backed by the government as in fiat currency, but at the same time has the technological advantages shared by other cryptocurrencies.
A digital Australian dollar could remove the role of middlemen and create a cheaper electronic currency system, while at the same time enabling the government to fully regulate the system.
It would also allow transactions to settle faster (several minutes to an hour) than the traditional banking system (several hours to several days), especially in a situation where an international payment is involved.
The difference between a digital Australian dollar and Bitcoin
We already use the Australian dollar in a digital form, for example paying via your smartphone. But banks are essential in this system, moving money on our behalf.
When using a cryptocurrency, you interact with a system like the blockchain, an online ledger that records transactions, directly. Bitcoin, Litecoin, and Ethereum are examples of cryptocurrency that use the blockchain in this way. These currencies are created by the community that use them and are accepted and trusted within the community.
However, since the community runs the system, the price of the cryptocurrency solely depends on the market mechanism. When the demand increases, the price increases, but when the demand decreases, the price also decreases. While it might create an opportunity for speculators to gain profit from trading, it also creates risk for the cryptocurrency holders.
In comparison to cryptocurrency, the digital Australian dollar might be well managed that the price volatility could be reduced significantly. The government holds the capability of increasing or decreasing the money supply in the system. This power can be used to stabilise the market supply of the new digital currency.
The blockchain technology also reduces the fee for every payment made. This is made possible by removing the role of banks or other intermediary parties charging fees for their services. However, a small transaction fee still needs to be introduced to protect the system from being flooded by adversaries with insignificant transactions.
The characteristics of cryptocurrency itself might limit its usage to daily transactions. As the pioneer of cryptocurrency, Bitcoin was created to become a payment system, but the users gain incentive by simply saving their cryptocurrency and not using them to purchase goods or services.
They believe the future price of the cryptocurrency is higher than the current price and thus does not make a good medium of exchange nor a store of value. There is no guarantee that the cryptocurrency will hold any value in the future. Since there is nothing to back up the value, users will lose their wealth when the community no longer acknowledges the value of cryptocurrency.
Cryptocurrency might also jeopardise the local government’s effort of implementing regulations to minimise illegal activities. Perpetrators create cryptocurrency transactions easily without being detected by the government’s financial monitoring system.
The privacy features of cryptocurrency also make it hard for law enforcement agencies to determine the actors behind illegal activities. Although most governments in the world have enforced the coin exchange services to identify their users, the operation of the cryptocurrency is beyond their reach.
There are other state-backed digital currencies
The idea of creating a national cryptocurrency is not new. Estonia has explored ways to create Estcoin, following an initiative on the blockchain-based residency registration called e-Residency. Lebanon’s central bank has also started to examine the possibility of creating one.
Despite the efforts of those central banks, several questions must first be addressed before launching the real product to the public. The user’s financial data could be exposed since the blockchain will make all transactions created in the system transparent.
<img src="https://counter.theconversation.com/content/86621/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">Consumer protection is also a concern since all transactions made in the blockchain are permanent without the possibility of being reversed. Without firm solutions to those problems, the digital Australian dollar will not satisfy all requirements to be the next groundbreaking innovation for the country’s financial system.
Dimaz Wijaya, PhD Student, Monash University
This article was originally published on <a href="https://theconversation.com" target="_blank">The Conversation</a>. Read the <a href="https://theconversation.com/why-the-rba-would-want-to-create-a-digital-australian-dollar-86621" target="_blank">original article</a>.
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j.ballantyne1990-6AQqhLzZaK

Why the RBA would want to create a digital Australian dollar: Dimaz Wijaya

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<img src="https://counter.theconversation.edu.au/content/82892/count.gif?distributor=republish-lightbox-advanced" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
Last Friday, the world’s central bankers and some high profile economics professors will gather in Jackson Hole, Wyoming, for the annual Jackson Hole Economic Policy Symposium.
The Symposium, which is hosted by the Kansas City Federal Reserve, began in 1978. It does allow for discussions, information exchange, and time to reflect on the key issues bearing on monetary policy. But it’s not like the US Fed Chair Janet Yellen can’t talk to the European Central Bank (ECB) president whenever she wants – and vice versa.
More importantly, it provides a platform for Yellen and ECB President Mario Draghi to send very public messages about the future path of monetary policy in their respective jurisdictions.
The theme this year is “Fostering a Dynamic Global Economy”. That sounds like a good thing to have – better than an “undynamic one” – but don’t expect a lot of headline-grabbing comments from Yellen or Draghi.
All the data, and all the recent public statements by Yellen and Draghi, point to things basically going as planned. Cross your fingers. Hold your breath. Pray. Whatever works for you.
Draghi is a very smart guy, but he made a complete unforced error in a speech in June. At a banking conference in Portugal he offered: “All signs now point to a strengthening and broadening recovery in the euro area.”
Markets sure paid attention to those remarks. Bond yields rose, as did the Euro, as investors figured Draghi was going to start unwinding his quantitative easing policy. That led to a cast of ECB members having to tell markets that QE was here to stay for now.
Draghi seems to have learned his lesson. On Wednesday in Lindau, Germany he said: “While forward guidance (a tool used by central banks to influence, with their own forecasts, market expectations) is a useful instrument, recent research has highlighted that its effectiveness can be improved if combined with other non-standard monetary policies.”
Translation: no end to QE for now.
We can expect him to say something equivalently uninformative in Jackson Hole (which is actually a compliment to a central banker).
In the US, the Fed has been slowly, deliberately, and carefully tightening monetary policy in response to low unemployment and improved GDP growth. According to the Bureau of Labor Statistics (BLS), unemployment now stands at 4.3% nationally. Wage growth is still on the low side with average hourly earnings (for private, nonfarm payrolls) at US$26.36, up by 2.5% year-on-year to July. But compare that to Australia’s 1.8% wages growth for private-sector workers.
The main issue for the Fed is that inflation remains subdued. Two weeks ago the US Labor Department released figures showing the CPI was up 0.1% in July, after being unchanged in June. Year-on-year the CPI stood at 1.7%, still below the 2% Fed target.
This is Big Issue One for the Fed. Why is inflation so stubbornly low? Is it really because stuff is cheap on Amazon? It’s fair to say that the Fed’s (and others’) macroeconomic models are having a hard time explaining this fact.
But don’t expect Yellen to wade into the inflation-puzzle waters this week. That’s the sort of thing best done in the post-summer period – the US academic new year. My guess is that Yellen will start addressing that topic publicly some time before Thanksgiving, if she decides to do so at all.
There is, however, always the possibility for some fireworks at Jackson Hole. Not from Yellen or Draghi, but one of the academic speakers.
<h2>Rocking the boat</h2>
At Jackson Hole in 2005 University of Chicago Booth School of Business professor Raghuram Rajan gave a speech that was not popular with then-Fed-Chair Alan Greenspan, but turned out to be prescient.
The title of the paper he based it on was “Has Financial Development Made the World Riskier?” And he answered it in the affirmative. The reaction from many in the room at the time was that Professor Rajan was some kind of financial Luddite. Perhaps he also thought the wheel was a bad invention?
The fact that he was, well, right, is interesting and important, but beside the point for the purposes of this column. The real question is what the equivalent bomb-throwing speech from a participant might be this time.
Hard to say, but it might be to do with 2% GDP growth being the new normal, and what that means for long term monetary policy. This has been discussed by many people, such as former US Treasury Secretary Larry Summers, so it might not be all that new. But it could be made forcefully at the very large megaphone that Jackson Hole provides.
Look for a speech from a noted academic suggesting that inflation targeting should be abandoned; perhaps replaced with targeting of nominal GDP growth.
Such a speech wouldn’t be super new, or very surprising. But it might ruffle some feathers. The Fed has a plan and they’re sticking to it. This is practical macro. I suspect they are not in the mood for an academic seminar.
<a href="https://theconversation.com/profiles/richard-holden-118107" target="_blank">Richard Holden</a> is a Professor of Economics and PLuS Alliance Fellow at UNSW and author for <a href="https://theconversation.com/au" target="_blank">The Conversation</a>.
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jchancellor-FAypfDUnLy

Don’t expect much from the central bankers at Jackson Hole: Richard Holden

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<img src="https://counter.theconversation.edu.au/content/75539/count.gif?distributor=republish-lightbox-advanced" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
The Australian Prudential Regulatory Authority (APRA) and the Reserve Bank (RBA) are locked into a strange game of tweaking with economic levers to try and reduce the risk of a rapidly growing property market.
But past cycles of rate rises and rules to try and curb lending to investors show the effectiveness of these measures is running out.
It also underscores the problems arising from a government unwilling to tackle the problem at source – the perverse incentives in the tax system. 
Looking back to December 2014, the RBA voiced its mounting concerns about the rapid growth in lending to property investors and the steep increases in property prices it was fuelling. But rather than address these concerns by raising interest rates, as the RBA had done in somewhat similar circumstances in the early 2000s, it was instead left to the banking system regulator APRA to tackle this by writing a letter to banks and other mortgage lenders about the need for more cautious mortgage lending practices.
This letter laid down new rules capping the annual growth in lending to investors at a benchmark of 10%. APRA also set stricter criteria for determining whether borrowers could repay their loans if interest rates were to change. 
This warning from the regulator had its desired effect. The share of new housing loans made to investors fell from over 40% during the 2014-15 financial year to less than 30% by the December quarter of 2015.
And this in turn saw the annual growth rate of loans to property investors slow from a peak of 10.8% in the June quarter of 2015 to less than 8% by the end of 2015. It fell again to less than 5% by the September quarter of last year. 
The banks also fell into line with the new rules, cutting back on other more risky types of lending, such as interest-only loans, and loans with initial loan-to-valuation ratios in excess of 90%.
The RBA was especially pleased with these developments, thinking that the risk was easing. So when it met again in May last year, the RBA Board was persuaded to cut the cash rate to a new record low of 1.75%,in response to a much-lower-than-expected inflation result for the March quarter. 
The RBA still seemed content at its August 2016 meeting, seeing the easing conditions in the housing market as being consistent with APRA tightening the lending standard screws. It decided on another cut in the cash rate, to 1.5%.
But now investors have come back into the property market with a vengeance. These two reductions in interest rates have in effect overwhelmed the tightening in lending standards enforced by APRA during the first half of 2015.
This resurgence in lending to property investors has pushed up property prices once again, especially in Sydney and Melbourne. Dwelling values rose by 18.4% in Sydney and 13.1% Melbourne respectively, over the year to February.
The share of new loans going to investors has picked up from less than 30% in the December quarter 2015, to over 35% in the December quarter 2016, according to APRA statistics. This is from less than 44% of new housing finance commitments (excluding refinancings) in November 2015 to more than 50% in January 2017 according to ABS housing finance statistics. 
The annual growth rate of loans outstanding to housing investors, as published by the RBA, has accelerated from 4.6% last August to 6.7% in February this year: over the last four months, lending to property investors has risen at an annualised rate of 8.0%. 
Now the RBA is back to being concerned about a build up of risks associated with the housing market. 
The RBA’s Assistant Governor (Financial System), Michele Bullock, acknowledges that although APRA’s 2015 actions “did address some of the risks” that had been mounting during 2014, “the initial effects on credit…may fade over time”. She added that APRA and the RBA “are prepared to do more if needed”. But since the RBA clearly has no appetite to reverse last year’s rate cuts any time soon, the only feasible option in the short term option is for APRA to do something about the Sydney and Melbourne markets. 
So APRA has today take another another bite at the cherry, requiring banks to restrict new interest-only lending to 30% of all new loans (a lower proportion than at any time since early 2009) and to ensure that growth in lending to investors is “comfortably below” the 10% cap.
What all of this highlights is the limited effectiveness of so-called “macro-prudential” measures in countering the very strong incentives to invest in residential property. These incentives are created by the combination of record low interest rates and the unusually generous treatment which the Australian taxation system gives to the costs of and returns from debt-funded property investment. 
While some commentators have urged the Reserve Bank to lift interest rates in order to dampen the latest surge in borrowing to invest in residential property, this seems unlikely. The RBA continues to expect inflation to remain below its 2-3% target range until at least the middle of next year, and unemployment to remain closer to 6% than to 5%.
It would be far better if the federal government were to tackle the problem at source. He could do this either by limiting the scope for negative gearing or reducing the capital gains tax discount, as Malcolm Turnbull once advocated (in a 2005 paper co-authored with the ANU’s Jeromey Temple). Even the Property Council of Australia has conceded should be lowered to 40%, and denied altogether on investments held for less than two years. 
However, given the government’s unwillingness to consider such measures, it seems more likely that APRA may have to become even more prescriptive with its lending criteria. And, as we have seen, in the current interest rate environment that is merely a bandaid solution – and bandaids eventually wear off.
Saul Eslake is vice-chancellor’s Fellow, University of Tasmania and author for The Conversation. He can be contacted <a href="https://theconversation.com/profiles/saul-eslake-665" target="_blank">here</a>.
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The APRA bandaid for the housing market is wearing off: Saul Eslake

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In his recent presidential address to the American Economic Association, Nobel Laureate Bob Shiller drew attention to the importance of narratives in economics and, particularly, in financial markets.
This corroborates some recent research by the author and colleagues at the University of Queensland into the psychology of economic behaviour.
When we tell ourselves stories, we link up a number of different events into a coherent whole.
In financial markets and across the economy as a whole, these stories not only affect expectations but are expectations.
And expectations shape behaviour.
Our research shows that the more simple a story, the more it extends and agrees with preconceptions, the more persuasive it is.
A good story becomes embedded in investors’ minds; the story becomes the expectation.
If a narrative embedded in the mind of an investor tells a positive story about, for instance, profitability, they will act on it.
A positive story results in good news in the financial markets.
An example of what might occur when a powerful narrative spreads across financial markets is playing out right now.
The latest figures from the Australian Bureau of Statistics (ABS) reveal a huge spike in commercial loans last November.
Seasonally adjusted, there was a 14.8% increase in commercial finance from the month before.
The strange thing is, this surge occurred at the same time NAB’s Monthly Business Survey showed businesses were “increasingly concerned about the underlying momentum in the economy as evidence mounts that the non-mining economy is losing steam”.
Businesses expecting a sluggish future don’t suddenly go out and borrow 14.8% more money.
But we can see in the graph below that for much of the year business finance had been flat or declining. Until it wasn’t.
<a href="https://www.propertyobserver.com.au/images/2017/02/07/Screen%20Shot%202017-02-07%20at%2012.43.55%20pm.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/2017/02/07/Screen%20Shot%202017-02-07%20at%2012.43.55%20pm.jpg" alt="">
Now these are aggregate data; they tell us the change in the amount of lending to business done by the financial sector as a whole.
Even then, this spike is unusually massive, and therefore in and of itself in want of an explanation.
John Maynard Keynes wrote that surges in finance are supported by two factors: relatively cheap credit and expectations of future returns.
Without strong expectations of future returns, no amount of cheap credit can induce businesses to borrow and invest.
This is the famous “liquidity trap”.
Our research shows that a compelling story – one that extends and agrees with preconceptions – would have been sufficient to overcome the liquidity trap.
A mathematical principle called the “Chinese Whispers” theorem indicates that for us to see remarkable and sudden changes in economic systems we must be observing the effects of a powerful narrative supporting positive expectations (i.e. future profitability).
Meanwhile, a concept popularly known as “Made To Stick” indicates that a simple story, connecting emotionally charged ideas together while extending and agreeing with preconceptions, is sufficient to become embedded in minds and inform expectations.
In our research we demonstrate that this idea is the logical conclusion of a half-century of psychological research on cognitive dissonance, personality and “salience” in perception, as well as some simple mathematics.
You can see this play out in the headlines about the “Trump bump”.
Very soon after the Brexit vote and consistently afterwards, Theresa May indicated an eagerness to strike free trade deals with the US and Australia and Malcolm Turnbull concurred.
And while Donald Trump campaigned on anti-trade policies, these excluded the Anglosphere.
Further, the British economy did not collapse following the Brexit vote, and Trump’s policy platform included massive infrastructure stimulus, tax cuts and deregulation. Adding to all this, Congress and the Supreme Court are now Republican.
This is a positive narrative for expectations of future returns, because the Australian economy on the whole does not compete with the US and UK economies.
Rather, we help to supply their demand.
We have business to gain by participating in a strong Anglosphere economic bloc, and we have little business to lose.
Throughout financial history, there are other examples where powerful narratives have driven the markets.
John Kenneth Galbraith, in his history of money and the 1929 crash, tells us of at least three spectacular ones.
When King Louis XV granted the Mississippi Company the profits of the colony of Louisiana, its share price rose so high it reflated the French economy.
In his book, The Ascent of Money, Niall Ferguson shows us exactly how the narrative about the unbounded wealth of the Louisiana company drove this spread – in pamphlets, cartoons and posters.
When parliament granted the South Sea Company a monopoly over trade with the Spanish American colonies, its shares became so valuable it was for a time decided it, rather than the Bank of England, should assume responsibility for the British national debt.
The fact its merchants would have to run the gauntlet of the Spanish navy all the way across the Atlantic was conveniently ignored, while the story of fabulous riches from the new world captured the attention of investors.
The narrative of the Shenandoah Corporation beats them all. The initial call for investments was oversubscribed by a factor of seven.
Why? Because at that time a story was being told about the ability of fund managers applying “investment science” to obtain amazing returns.
“Trust the experts, they’ll make you a mint” is a simple story, connecting emotionally charged ideas together while extending and agreeing with our tendency to defer to the advice of the “wise men”.
Governments and investors ignore the power of storytelling at their peril.
The financial markets are not driven by the “mechanics” of interest rates and money alone.
They are driven by one of the most ancient traditions of humanity – stories.
We can lead an investor to liquidity, but we can’t make them drink without telling them a story about why it is so very tasty.
And if we want to stop them from drinking a really tasty poison, it’s not enough to make the poison a bit harder to get.
Either it has to be taken away (verboten), or a simple story, extending and agreeing with preconceptions, has to be told about why poison that tastes really nice is still poison.
<a href="https://theconversation.com/profiles/brendan-markey-towler-151862" target="_blank">Brendan Markey-Towler </a>is an Industry Research Fellow for the Australian Institute for Business and Economics and School of Economics at The University of Queensland. He is an author for <a href="https://theconversation.com/au" target="_blank">The Conversation</a>.
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How storytelling drives finance and economics: Brendan Markey-Towler

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GUEST OBSERVATION
Over the past three months there has been a significant shift in market interest rates.
The yield curve has steepened and market pricing for another RBA rate cut has receded. Current market pricing indicates a small (15%) chance that policy is eased again. And it implies a 35% chance of a rate hike within the next 12 months.
<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/2017/02/06/cba-feb-1.jpg" alt="">
CBA’s house view is that interest rates are on hold over 2017. And in our view, the risks over the year lie with a cut. But the steeping in the yield curve and shift in market expectations has led us to revisit our estimate of the neutral cash rate.
The analysis confirms our earlier work that neutral it is much lower than in previous cycles which means that the cash rate would not need to rise by much for policy to no longer be having a stimulatory impact on the economy.  We estimate it to be 3% (2.5 – 3.5% range) which means that the current cash rate is about 150 bps in expansionary territory.
<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/2017/02/06/cba-feb-2.jpg" alt="">
What is a neutral interest rate and why does it matter?
The level at which the RBA sets the cash rate can either have an expansionary, contractionary or neutral impact on economic activity. The neutral cash rate is the interest rate (or range of rates) consistent with full employment, trend growth and neither upward nor downward pressures applied on the price level through monetary policy. Or more generally, when the setting of interest rates is such as to exert neither contractionary nor expansionary forces on the economy, policy can be said to be ‘neutral’.
<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/2017/02/06/cba-feb-3.jpg" alt="">
But the neutral rate it is not a constant rate. Rather it is influenced by changes in productivity, the stock of debt, lending margins, fiscal policy and the exchange rate. These drivers have moved in a way over the recent past that indicates the current neutral cash rate is probably at a record low.
The neutral rate is an important benchmark rate for evaluating the stance of monetary policy. It allows us to determine how expansionary or contractionary a particular policy setting is at any point in time.
<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/2017/02/06/cba-feb-4.jpg" alt="">
One rule of thumb often used is comparing the level of the cash rate to a historic average cash rate to assess how accommodative or restrictive policy settings are. But that can be misleading because the neutral rate is fluid and varies over time.
When we compare current policy setting to the neutral rate they do not look as expansionary as implied by comparing the current cash rate to the historic cash rate average.
<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/2017/02/06/cba-feb-5.jpg" alt="">
Policy implications
A range of estimates and theoretical arguments suggest that the neutral cash rate has moved to a record low. Our qualitative and quantitative analysis points to a neutral range of 2.5%-3.5% meaning a point estimate of 3%.
The analysis suggests that the RBA is faced with a relatively easy task if it needs to put the brakes on the economy at some point further down the road. It wouldn’t take a lot of tightening in policy to restore monetary policy to a neutral setting.
The flip side is that it becomes harder for the RBA to stimulate the economy as the neutral rate falls and we approach the lower bound. The limitations of monetary policy to stimulate growth become more apparent when the neutral rate falls towards the lower bound. The need for meaningful fiscal policy reform grows as a result.
We don’t see the RBA tightening over 2017. And in our view the risks like with further easing. Calls for fiscal policy reform in addition to higher levels of public investment will continue.
Gareth Aird is an economist at the Commonwealth Bank of Australia.
This is an edited extract of CBA Economics February 2016 report.
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jonathanchancellor-7SQnKwU6yx

RBA reaching the limits of its stimulatory solutions: CBA's Gareth Aird

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<img src="https://counter.theconversation.edu.au/content/57114/count.gif" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
When the Committee for Economic Development of Australia (CEDA) recently released its recommendations on how the government should balance the budget, it prefaced it with the statement “No economic problem in Australia is graver than the persistence of large budget deficits”. But precisely the opposite is true.
To understand why, it’s necessary to explain the economic work of David Alan Aschauer. Work that appears to have been ignored in the current discussion about budget deficits.
Aschauer investigated the effects of government spending on infrastructure in increasing of the rate of return on private investment and hence on the volume of investment in the private sector. His work has been accepted by an extremely wide range of economists. It is not new. His most-quoted article was published in 1989.
Moreover, Aschauer is a neoclassical economist; that is he belongs to what is currently the dominant school of economics. Since 1989 there have been many articles published by Aschauer and his followers.
Aschauer himself summed up his work in the following quote:
“On neoclassical grounds expansions of public investment spending should have a larger stimulative effect on private output than equal-sized increases in private consumption expenditure. Specifically, public investment is argued to induce an increase in the rate of return to private capital and, thereby, to stimulate private investment expenditure.
The empirical analysis indicates that movements in public investment bring forth movements in private-sector output which are four to seven times as large as the public sector outlays.”
Of course, there can be, and have been, arguments about the size of the effects that Aschauer estimated in his empirical work. The general tenor of these is that the figure is more likely to be closer to the lower end of Aschauer’s range than the top.
But when researchers at UNSW made estimates for Australia, they arrived at a figure they described as “very similar to Aschauer’s (1989) findings for the United States". They concluded that “public capital plays an important role in private production, a role which may often be overlooked”.
This provided evidence, they believed, of the positive relationship between public capital and productivity in the private sector in Australia in the 30 years before they wrote their article.
Both Aschauer and the Australian researchers Glenn Otto and Graham Voss used aggregate data – data for the whole public capital sector and for productivity in the private sector as a whole.
Their striking and important results do not remove the need for governments to pick public investment projects that are more likely to increase private sector productivity. The models they and Aschauer have used are too simple to give convincing answers to the question, which requires the use of much more sophisticated models. However, they do cast doubts on the likelihood of politically motivated public investment projects contributing anything to long-term growth in Australia. And they were not writing in an election year.
Current discussions about budget deficits largely ignore the work of Aschauer and are much poorer as a result.
If some attention had been paid to this work the gloom and doom of CEDA’s recent report would have been greatly reduced.
John Nevile is visiting emeritus professor, UNSW Australia and author for The Conversation. He can be contacted <a href="https://theconversation.com/profiles/john-nevile-139716" target="_blank">here</a>.
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Balancing the budget mantra overlooks benefits of infrastructure spending

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China’s policy makers met at the National People’s Congress in early March, announcing an economic growth target range of 6.5-7 percent. 
In addition, they released a target growth rate for total social financing of ‘around 13 percent’ – which would result in a further deterioration of debt-to-GDP.
As noted in this month’s China Economic Update, a broader estimate of China’s debt puts this figure at around 308% of GDP – a level comparable to many advanced economies and particularly high for a still developing country. Chinese authorities are now facing a debt dilemma – they can no longer allow debt to grow unchecked, however controlling debt growth would mean accepting a slower rate of economic growth. At least for 2016, they appear content to allow the former to happen.
Industrial production growth slowed to a seven year low in January-February, while fixed asset investment accelerated slightly, on the back of stronger investment in real estate. New construction starts were stronger over this period, but it is too early to know if this is a trend that can be sustained.
Retail sales were a little softer – with real retail sales growth likely dipping below 10 percent yoy, slightly weaker than the levels recorded across most of 2015 but still robust. 
At the end of February, the People’s Bank of China (PBoC) cut the Required Reserve Ratio for the fifth time in a year – down to 17 percent for large institutions – potentially adding RMB 690 billion in liquidity to financial markets. As we have previously noted, these policy changes are not necessarily stimulatory, as RRR cuts have been necessary to maintain liquidity in the finance sector, given the capital outflow in recent years.
<a href="/images/2016/03/14/Screen%20Shot%202016-03-14%20at%208.35.51%20AM.png" target="_blank">Click to enlarge</a>
  <img src="/images/2016/03/14/Screen%20Shot%202016-03-14%20at%208.35.51%20AM.png" alt="">
China’s policy makers met at the National People’s Congress in early March, releasing a range of targets for key economic indicators. The most closely watched is the economic growth target, which was slightly reduced for 2016 – to a range of 6.5 percent to 7.0 percent – compared with last year’s ‘around 7.0 percent’. 
Our forecast for growth is unchanged at 6.7 percent in 2016 and 6.5 percent in 2017, although we consider the risks to be weighted to the downside. 
Authorities also set a target for growth in total social financing, at around 13 percent for 2016 – which would mean a further deterioration in the country’s debt-to-GDP ratio. 
As noted in this month’s China Economic Update, a broader estimate of China’s debt puts this figure at around 308 percent of GDP – a level comparable to many advanced economies and particularly high for a still developing country. 
Under the newly commenced 13th Five Year Plan, also released at the National People’s Congress, China is targeting an average rate of growth of 6.5 percent in the period to 2020 – which would result in a doubling of GDP over 2010 levels. 
Chinese policy makers are facing a significant dilemma regarding the country’s debt. They can no longer afford to allow debt to grow unchecked – as this would increase the likelihood of a major financial crisis and the potential for a hard landing. On the other side, real economic growth is unlikely to be sustainable at the five year target without stronger growth in debt – bringing down the ratio would mean tolerating a considerably lower potential rate for economic growth (something that policy makers are unlikely to tolerate). 
China’s industrial production slowed across January and February – down to 5.4 percent yoy (compared with 5.9 percent in December 2014). This rate of growth was below expectations and the slowest rate of growth since the same period in 2009. 
Key heavy industrial sectors remained weak – with crude steel output falling by 5.7 percent yoy, cement production down 8.2 percent yoy – reflecting weakness in the construction sector, while the motor vehicle sector recorded growth of 5.3 percent yoy. Electricity generation was marginally stronger – up 0.3 percent yoy. 
•China’s industrial surveys have remained negative in early 2016, with the official NBS survey falling to 49.0 points in February (from 49.4 points previously), the weakest level since January 2009. In contrast, the Caixin Markit PMI also fell, down to 48.0 points (from 48.4 in January), but this measure is less negative than late 2015. 
<a href="/images/2016/03/14/Screen%20Shot%202016-03-14%20at%208.38.37%20AM.png" target="_blank"> Click to enlarge</a>
<img src="/images/2016/03/14/Screen%20Shot%202016-03-14%20at%208.38.37%20AM.png" alt="">
Fixed asset investment recorded an acceleration in early 2016, with growth at 10.2 percent yoy across January and February, up from 8.2 percent yoy in December. It is worth noting that this was around the rate of growth recorded in November 2015, which was well below the trend levels of recent years. 
Investment in the manufacturing sector has continued to slow – reflecting tough industrial conditions and excess production capacity – down to 6.7 percent yoy (on a three month moving average basis), compared with 7.6 percent in December. In contrast, there has been a slight improvement in real estate investment, recording growth of 1.7 percent yoy (3mma) in February, up from -3.3 percent in December. Combined, these two sectors accounted for almost 56 percent of total investment in 2015. 
In contrast, strong investment growth has been sustained in water conservation and environmental management (27 percent yoy across January-February) and public utilities (19 percent yoy) – with these sectors comprising around 15 percent of the total in 2015. 
Residential construction activity was stronger in January-February, however it is too soon to know whether this is a trend that can be sustained. New construction starts were up around 9.7 percent yoy over this period, and up 1.5 percent yoy on our preferred three month moving average basis (reflecting very weak growth in late 2015). 
House price trends have improved in recent months, however the majority of gains have been in China’s tier 1 cities (Beijing, Shanghai, Shenzhen and Guangzhou) – where prices rose by 17% yoy. In contrast, tier 2 cities rose by just 0.3% yoy and tier 3 and below by 1.1% yoy. A more sustained recovery outside tier 1 cities may be required to support sustained stronger construction activity. 
<a href="/images/2016/03/14/Screen%20Shot%202016-03-14%20at%208.39.56%20AM.png" target="_blank"> Click to enlarge</a>
<img src="/images/2016/03/14/Screen%20Shot%202016-03-14%20at%208.39.56%20AM.png" alt="">
China’s trade activity pulled back sharply over the first two months of the year, with substantial falls in both imports and exports – both from the levels of late 2015 and from levels a year ago. China’s trade surplus only narrowed marginally – averaging US$47.9 billion a month across January and February (compared with US$59.4 billion in December 2015).
Across January and February, China’s imports totalled US$207.5 billion, a year on year fall of 17%. In part, this reflects the continued falls in commodity prices, with the RBA Index of Commodity Prices falling by almost 25% yoy in the first two months of the year.
In contrast, the volume of imports has declined less significantly, down by only around 2.8% in 2015, and around 6.8% in January (although the earlier timing of Chinese new year may have distorted the latter result).
In terms of major commodities, there were noticeable increases in imports of copper (up 23% yoy in January-February), crude oil (up 9.3% yoy) and iron ore (up 6.3% yoy). In contrast, the declining trend for coal continued, down by 10% yoy over the first two months.
<a href="/images/2016/03/14/Screen%20Shot%202016-03-14%20at%208.51.56%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/03/14/Screen%20Shot%202016-03-14%20at%208.51.56%20AM.png" alt="" width="913" height="357">
China’s exports totalled US$303.3 billion across January and February, a fall of 18% yoy. China’s exporters remain relatively negative, with the new export orders measure in the NBS PMI survey at 47.4 points in February (albeit improved from 46.9 points in January).
The key driver of the fall in export values over the first two months was a decline in exports to Asia – which fell by over 18 percent yoy, to US$90 billion. Exports to Europe and the United States fell less significantly – with both down by around 16 percent yoy.
Exports to Hong Kong declined less sharply than other markets – down by around 13 percent yoy across January and February. In contrast, non-Hong Kong Asia saw declines of almost 22 percent yoy – led by falling export values to Malaysia, South Korea and Vietnam.
Trade data between China and Hong Kong continues to have considerable distortions, in part due to false invoicing used to hide unapproved capital flows – providing considerable uncertainty around the true level of trade.
<a href="/images/2016/03/14/Screen%20Shot%202016-03-14%20at%208.54.00%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/03/14/Screen%20Shot%202016-03-14%20at%208.54.00%20AM.png" alt="" width="787" height="294">
 
At the end of February, the People’s Bank of China (PBoC) cut the Required Reserve Ratio for the fifth time in a year – down to 17 percent for large institutions – potentially adding RMB 690 billion in liquidity to financial markets. As we have previously noted, these policy changes are not necessarily stimulatory, as RRR cuts have been necessary to maintain liquidity in the finance sector, given the capital outflow in recent years. 
We continue to expect two cuts to interest rates in early 2016 – bringing the benchmark one year lending rate to 3.85 percent by mid-year. Similarly further cuts to the Required Reserve Ratio are likely to maintain liquidity in the finance sector, with capital outflows likely to continue in the short term. 
After a sharp increase in January (ahead of Chinese new year), new credit slowed significantly in February. Over the two month period, aggregate financing totalled RMB 4.2 trillion, an increase of 23 percent yoy. 
Bank loans recorded slightly slower growth, 19 percent yoy, to total RMB 3.1 trillion. Efforts to tightened regulation around the shadow banking sector has seen a strong increase in bank loans across the past two years. 
The key driver of other credit was corporate bonds, with net issuance totalling RMB 541 billion in January and February, an increase of 110 percent. 
Key components of the shadow banking sector largely cancelled each other out – with growth in trust and entrusted loans (at 111 percent yoy) offset by a sharp fall in banker acceptances (-275 percent yoy). 
<a href="/images/2016/03/14/Screen%20Shot%202016-03-14%20at%208.55.28%20AM.png" target="_blank"> Click to enlarge</a>
<img src="/images/2016/03/14/Screen%20Shot%202016-03-14%20at%208.55.28%20AM.png" alt="">
Alan Oster is group chief economist, National Australia Bank, and can be contacted <a href="https://business.nab.com.au/author/alan-oster/" target="_blank">here</a>.
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China's economy at a glance: NAB's Alan Oster

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GUEST OBSERVATION
Behavioural economics is a revolutionary field. Its champions may not have beheaded any royalty, but they have done the academic equivalent by overthrowing a paradigm that ruled our thinking and shaped our institutions.
Behavioural economists have shown that the hyper-rational, self-interested agents of standard economics are mythical creatures. Real-world people are irrational, struggle to exert control over their emotions and impulses, and are social animals with a fondness for fairness.
This paradigm shift radically changes how we think about behaviour, and it seems poised to change our institutions. But how much change will it bring?
Will the influence of behavioural economics on policy be limited to improving the wording of parking fines sent out to misbehaving motorists? Or can it also help us institute bold, sweeping reforms of the type that have helped make Australia equitable and prosperous?
The answer is: it depends.
The policy impact of behaviour economics will be limited – and may even be harmful – if public servants focus excessively on the behavioural revolution’s most famous offspring, <a href="https://www.youtube.com/watch?v=pDub6gG1yxw" target="_blank">the policymaking approach called “nudge”</a>.
On the bright side, the focus on nudge is artificial. It does not flow from the evidence. Some of the most important regulatory reforms in Australia’s history could have been justified using behavioural economics – and such opportunities for reform will emerge again in the future.
<h2>The birth of the nudge</h2>
The “nudge” policy approach took the United States and United Kingdom by storm in 2008, when Cass Sunstein and Richard Thaler released their groundbreaking work, <a href="https://yalepress.yale.edu/book.asp?isbn=9780300122237" target="_blank">Nudge</a>.
In the psychological weaknesses uncovered by behavioural economists, Sunstein and Thaler saw opportunity. They argued we can exploit cognitive biases to nudge, or gently guide, people into making choices that are better for them and for the rest of us too — while always leaving them free to choose otherwise.
Want people to sign up for organ donations? Then harness their tendency to procrastinate, by switching from a system where they must choose to opt-in to one where they must choose to opt-out.
Want people to use less electricity? Then exploit social norms by showing them how little their energy-efficient neighbours pay for electricity.
Want people to avoid payday loans? Then make the loans’ downsides salient, by directly comparing their enormous interest rates with other borrowing options.
<h2>Confusing nudges with behavioural economics</h2>
Nudges may have grown out of behavioural economics, but evidence from that very field suggests that they often fail to meet the hype. Nudges designed to discourage people from taking out ludicrously expensive payday loans, for example, tend to be toothless in practice.
In a new policy brief at the Melbourne Institute, <a href="https://www.melbourneinstitute.com/downloads/policy_briefs_series/pb2015n04.pdf" target="_blank">The Potential of Behavioural Economics: Beyond the Nudge</a> I examine what behavioural economics tells us about the promise of both nudges and tools beyond them.
There is, right under our noses, an unnoticed world of behavioural evidence showing that traditional policy tools — like taxes, transfers and mandates — are in many cases superior to nudges.
Rather than throwing out the baby with the bathwater, behavioural economics suggests we should take a fresh look at how we might use traditional policy tools to counter cognitive biases.
<h2>A nudge bias</h2>
Why has the behavioural evidence on traditional tools been so overlooked? The reasons are largely political.
Nudge was written for a US audience, in a political climate shaped by the anti-paternalistic sentiment that would later coalesce into the Tea Party.
It has become tough, in this context, to pursue rational and equitable reforms of the traditional variety. Government is seen less as the tool the people use to democratically shape the society they want, and more as a suspicious intruder interfering with the benevolent market.
Sunstein and Thaler promoted nudges specifically because they promised a “middle way”: they influenced choices without coercing choice.
This justification turns out to be fanciful. In practice, many non-coercive nudges are too weak to provide serious benefits, and making a nudge effective often means making it coercive.
Take the nudge “success” story of the Save More Tomorrow scheme, designed to counter the strong biases that affect retirement savings decisions. Its central innovation is the automatic escalation of the savings rate over time, so people sign up to save more in future years without losing a dime today.
Though certainly a clever nudge, in practice it <a href="https://www.sco.ca.gov/Files-EO/2013_sco_flac_benartzi_behavioural_econ_and_savings_crises.pdf" target="_blank">increased the national US savings rate by a paltry 0.33%</a>, which will barely make a dent in the enormous problem of old age poverty. Australia’s superannuation scheme leaves it in the dust, with more than twenty times the impact.
Making Save More Tomorrow effective would require increasing its coerciveness — making it compulsory for workplaces to make it the default for all employees, with a much higher default increase in the rate of savings, and a penalty for opting-out — so that it essentially becomes a mandate.
Even then, as I will touch on below, behavioural economics suggests the opt-out would make the scheme welfare-reducing compared to superannuation.
Another example is the host of nudges applied to cigarettes. We plaster packages with gore and health warnings, and we exile smokers to the cold streets where they puff away under scowls and social stigma.
People can still choose to smoke, but this regime of tough nudges is hardly non-coercive. In fact, it is effective precisely because it imposes high costs on smokers.
The point is that nudges are much like traditional tools after all: they are subject to the same trade-offs between agency and welfare.
<h2>Behavioural economics for traditional tools</h2>
Sunstein and Thaler hoped to make peace between the United States’ warring tribes of progressives and libertarians, and this is precisely how we should understand nudges: they are a political innovation, only sometimes justified by the evidence.
What does the evidence say in full? Behavioural economics has comprehensively falsified rational choice economics. We make serious mistakes, and companies know it.
It would be paradoxical if, after rational choice has been so comprehensively discredited, policymakers responded by relying more on choice-preserving tools like nudges.
Consider the policies that make Australia prosperous and equitable, like publicly-funded universities, superannuation, and financial product regulation. Perversely, the nudge philosophy would reject these as too interventionist.
A more complete behavioural economics only strengthens the case for such policy. Take retirement savings: behavioural economics tells us that people tend to be present-biased, and they succumb to the temptation to withdraw early. One solution is to penalise early withdrawals.
The US Internal Revenue Service, for example, imposes a 10% penalty on early withdrawals — but even so, for every US$1 invested, US$0.40 is withdrawn early, at great cost.
How big should the penalty be? A behavioural savings model including the effects of present bias suggests that a <a href="https://eml.berkeley.edu/~webfac/seminars/Optimal_Illiquidity_2014.pdf" target="_blank">100% penalty would maximise welfare</a>, because it would stop all early withdrawals even for the most present-biased individuals.
In other words, Australia’s superannuation mandate is optimal. Savings should be made fully illiquid, with no opt-out. The mandate imposes small costs on the few who would have withdrawn rationally, but these costs are dwarfed by the vast welfare gains overall.
Cash transfers too can be reevaluated under the behavioural lens. Research explored in Mullainathan &amp; Shafir’s <a href="https://us.macmillan.com/scarcity/sendhilmullainathan">Scarcity</a> (2013) demonstrates that poverty causes IQ to plummet, because dealing with the everyday challenge of being poor takes up so much cognitive bandwidth.
The corollary is that when impoverished Indian farmers receive a cash infusion, they experience a massive boost in IQ.
The behavioural evidence suggests that poverty may be cyclic partly because it is so tough to make good decisions while in poverty. Cash transfers free cognitive resources to focus on longer-term problems like learning, finding work, and planning for the future.
<h2>A way forward</h2>
How should policymakers proceed? They should remain agnostic when choosing between nudges and more traditional policy tools.
The right tool will raise welfare as much as possible, without stopping people from making cherished decisions about their lives. The litmus test will be democratic: do people accept the policy or not?
Superannuation, notably, passes the test with flying colours — it curtails choice, but it creates such large benefits that it enjoys enormous levels of support (<a href="https://www.aist.asn.au/media/128974/2012.03.19%20essential%20media%20poll.pdf" target="_blank">only 7% of people polled were against</a> the increase in super from 9% to 12% of income).
It does not curtail a cherished choice, like what job we can take, where we can live, what we can learn, or who we can associate with. It helps most of us do what we already want to do, but struggle to do.
Nudges will play a valuable, complementary role to traditional tools. The science, however, reasserts that there is no easy middle road.
We must continue to democratically debate big ideas about the kind of society we want to build — and we should always build it upon the firm ground of evidence.
Reuben Finighan is senior research officer at The Melbourne Institute, Fellow of the ARC Life Course Centre of Excellence at University of Melbourne and author on The Conversation. He can be contacted <a href="https://theconversation.com/profiles/reuben-finighan-157147" target="_blank">here</a>.
 
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