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

Economy

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It is difficult to be negative about the economy when data shows that there were more new vehicles sold in 2016 than any calendar year before.
And it is not just so-called ‘standard’ vehicles being sold, but sports/luxury vehicles are taking a bigger share of total sales.
It’s not hard to see why people are updating their rides.
Car affordability is at the best levels recorded, employment is rising, interest rates are at record lows and wealth levels are at record highs.
Car affordability is even stronger when you consider that vehicles built in 2016 are far superior to those sold in the early 1970s.
Vehicle sales should remain solid in 2017. Interest rates are unlikely to rise any time soon and car manufacturers are competing hard for business, restraining prices.
In addition, all indications point to firm conditions in the job market.
The area to watch is the housing market as softer home prices could restrain car buying enthusiasm - although even that seems to be an unlikely outcome.
The services sector expansion is now accelerating at a healthy pace. In fact the Performance of Services index is now showing the fastest pace of expansion in almost 10 years.
And more importantly the resurgence in activity is broad-based with all five components of the index recording strong gains.
In particular the lift in new orders and the employment sub-indices bode well for hiring in coming months.
It was interesting that respondents noted a variety of reasons for the lift in service sector activity - from stronger customer demand, a lift in mining sector activity, to a lower Australian dollar and “good agricultural harvests”.
As we have been saying for a couple of months, the result mirrors the lift in activity noted across internal Commonwealth Bank Indicators like the Business Sales Indicator.
<a href="https://www.propertyobserver.com.au/images/2017/01/05/CS-1.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/2017/01/05/CS-1.jpg" alt="">
The Reserve Bank will be quietly confident on how the economy is panning out.
The key will be how non-mining business investment evolves over the next six months. CommSec expects no change to interest rates over 2017.
According to the Federal Chamber of Automotive Industries (FCAI), new motor vehicle sales totalled 98,763 in December, down 0.9 per cent on a year ago.
In 2016, a total of 1,178,133 new vehicles were sold – a record for a calendar year.
Sales by State: NSW (397,563), Victoria (326,269), Queensland (233,026), Western Australia (100,234), South Australia (71,738), Tasmania (19,751), ACT (18,816) and NT (10,736).
Respective market shares by vehicle type were: passenger (41.3 per cent), SUV (37.4 per cent), light commercial (18.5 per cent), and heavy commercial (2.8 per cent).
The top-five segments by volume were small cars (224,450, down 4 per cent), medium SUV (172,194, up 16.5 per cent), 4×4 ute (146,820, up 10 per cent), large SUV (142,495, up 2 per cent) and small SUV (110,414, up 2 per cent).
The sub-total of sales by buyer type for 2016 was: private (571,544, down 7 per cent), business (472,156, up 13 per cent), government (40,989, down 1.4 per cent) and rental (60,335, up 6 per cent).
Buyers using their ABN to buy a single car count as a business sale, while novated leases count as private.
Leading vehicle sources: Japan (325,689), Thailand (285,465), Korea (162,642), Germany (87,392) and Australia (87,096).
The top-selling vehicle was the Toyota HiLux, ahead of the Toyota Corolla, Hyundai i30, Ford Ranger, Mazda 3, Toyota Camry, Holden Commodore, Mazda CX-5, Mitsubishi Triton and Hyundai Tucson.
Top makes for 2016: Toyota (14th year in succession) with 209,610 units (up 1.6 per cent), ahead of top full- importer Mazda (118,217, up 3.7 per cent) and Hyundai (101,555, down 0.4 per cent). Holden finished outside the top-three, in fourth place on 94,308 (down 8.4 per cent), holding out a resurgent Ford (81,207, up more than 15 per cent).
The Australian Industry Group Australian Performance of Services Index lifted by 6.6 points to 57.7 in December – marking the highest result since May 2007.
AI Group notes “All five activity sub-indexes in the Australian PSI® were above 50 points and indicate expansion in December.
Sales jumped 14 points in December, up to 62.1 points from 48.1 in November.
New orders rose by 6.4 points to 60.4 points. Stocks lifted 5.7 points to 52.6 points, growing in ten out of the past eleven months.
The employment subindex picked up the pace, growing by 4.3 points to 56.6 points.”
<a href="https://www.propertyobserver.com.au/images/2017/01/05/CS-2.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/2017/01/05/CS-2.jpg" alt="">
“A number of respondents to the Australian PSI® noted that conditions were more positive in December with: customer demand strengthening; increased orders from the mining sector; a lower value for the Australian dollar; interest rates remaining stable and (for regional services) good agricultural harvests.
Overall, there was a sense of increased confidence from respondents across many services sub-sector.”
The Federal Chamber of Automotive Industries releases estimates of car sales on the third business day of the month.
The figures highlight the strength of consumer spending as well as conditions facing auto &amp; components companies.
The economy appears to be regaining momentum.
But as always more data is required to confirm the change in direction.
Certainly confidence levels are healthy, providing optimism early in the New Year.
The Reserve Bank is comfortably on the interest rate sidelines.
Savanth Sebastian is a senior economist for CommSec.
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j.ballantyne1990-6AQqhLzZaK

Difficult to be negative after record car sales in 2016: Savanth Sebastian

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Carol Schwartz has been appointed to the Reserve Bank of Australia (RBA) board, replacing Heather Ridout.
She describes herself as "a dove with a hawk's wings" when it comes to prioritising economic growth and inflation.
"It's a balance, isn't it," Schwartz said in an interview with Bloomberg.
"You have to be very careful about growth, you always have to have an eye for growth. But at the same time, obviously, inflation has an impact that one has to be incredibly aware of."
Schwartz, with a background in property and retail, will commence a five-year term from mid-February.
Schwartz has previously served as a non-executive director of the Bank of Melbourne, the chair of Industry Superannuation Property Trust and as national president of the Property Council of Australia.
Three of the RBA's nine board members are women.
Schwartz said the real estate industry must always be "vigilant" about the outlook: "Looking out for signs of overheating as well as looking out for signs of great opportunity.
"The property market always has pockets of opportunity, but at the same time one needs to be aware of those areas where things may be overheating and take a step backwards."
"The economy is patchy," Schwartz said, when asked for her take on it.
"As it always is. You've always got areas that are doing well and areas that aren't doing so well, and periods of time even in one year, particularly in retail where you might have several good months and then unexpectedly several bad months. And there are a lot of factors that impact on that."
Her current directorships include Stockland, Qualitas Property Partners and Trawalla Group.
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jchancellor-FAypfDUnLy

Carol Schwartz joins RBA board

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GUEST OBSERVER
The economy contracted by 0.5 percent in the September quarter after an upwardly-revised 0.6 percent increase in the June quarter (previously up 0.5 percent).
The Aussie dollar fell half a cent in response. It was the first contraction in the economy for 5½ years.  
Annual economic growth slowed from 3.1 percent to 1.8 percent.
Contribution to growth: The biggest contribution to growth came from household investment (+0.3 percentage points) followed by inventories (+0.1pp). The biggest drag on growth was public investment (-0.5pp) followed by net exports (-0.2pp) and dwelling investment, ownership transfer costs and commercial construction (all -0.1pp)
Income: Real gross national income rose by 0.9 percent in the September quarter to be up 3.2 percent on the year. In nominal terms GDP lifted 0.5 percent in the quarter and rose by 3.0 percent over the year.
Productivity: Gross value added per hours worked in the market sector fell by 0.8 percent in the September quarter after rising by 1.7 percent in the June quarter. Annual growth was 0.7 percent.
Industry sectors: Eleven of the 19 industry sectors expanded in the September quarter. The strongest sector was Agriculture, forestry and fishing, up 7.5 percent and adding 0.2 percentage points (pp) to growth. Finance and insurance services added 0.1pp. The Construction sector fell by 3.6 percent in the quarter (-0.3pp). Mining, “Other services” and Rental, hiring and real estate services all took 0.1pp off growth.
What does it all mean?
This will turn out to be just a blip on the radar screen, but a very important blip. Many Australians have become complacent. And that includes businesses and politicians. The only way the economy can grow is by Australians spending, investing and employing. Australians didn’t do this in the September quarter. The Reserve Bank has been intimating for some time, monetary policy is reaching its limits. Infrastructure spending may prove useful in coming quarters in providing fresh momentum to the economy.
In the September quarter the economy was hit by a perfect storm. Not only was there the reaction to the UK ‘Brexit’ vote, there was also the Federal election and then there was the uncertainty about the US elections. And clearly, when there is a lot of uncertainty around, consumers and businesses tend to delay decisions to spend, invest and employ. A big fall in public investment also accounted for the bulk of the contraction of activity in the quarter.
While spending measures of the economy were weak in the September quarter, income measures were actually quite strong. And the farm sector was also strong in the quarter and should also be a key contributor to growth in coming quarters. For those who may have forgotten after 25 years of consistent economic growth, a ‘technical recession’ involves two consecutive quarters of contraction in the economy. We don’t believe there are grounds for another quarter of contraction. And indeed it would be amazing if there was some variant of ‘recession’ with a jobless rate of 5.6 per cent.
The Reserve Bank is always looking ahead and so must we. The outlook for the economy remains bright with record home building, a record winter crop, unemployment at 3½-year lows and super-low interest rates. Already the data for the December quarter has been more upbeat including retail spending and job ads.
The Reserve Bank warned yesterday that annual economic growth would slow before it picked up in 2017. That is our expectation also. The economy should grow near its ‘potential’ rate of 3 per cent in 2017. We continue to believe that interest rates will remain on hold in coming months. But no one will be thinking of rate hikes any time soon.
Craig James is the chief economist at <a href="https://www.comsec.com.au/default.aspx" target="_blank">CommSec</a>.
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cjames-5S2v74qSNK

Economy shrinks, wake-up call for Australia: CommSec's Craig James

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<div>The Australian National Accounts recorded that real GDP growth came in at a seasonally adjusted -0.5 percent for the third quarter and +1.8 percent for the year. </div>
<div> </div>
<div>Oops.</div>
<div> </div>
<div>This was the first negative quarterly result for GDP since the Queensland flood-affected quarter of March 2011, and only the fourth such result since Australia's last recession in 1991. </div>
<div> </div>
<div>With a negative contribution of -0.2ppts net exports were a drag on growth this time around, and there was a big drop in public capital expenditure (for a contribution of -0.5ppts) after a surge of government investment last quarter, summarily in helicopters, healthcare, and hepatitis drugs.</div>
<div> </div>
<div>Household consumption contributed 0.3ppts to growth this quarter, but there wasn't much joy elsewhere. </div>
<div> </div>
<div><a href="/images/2016/12/08/GDP1.jpg" target="_blank">Click to enlarge</a></div>
<div> </div>
<div class="separator"><img src="/images/2016/12/08/GDP1.jpg" alt=""></div>
<div class="separator"> </div>
<div>With downward revisions to previous quarters, this takes annual GDP growth all the way down to +1.8 percent. </div>
<a href="/images/2016/12/08/GDP1-1.jpg" target="_blank">Click to enlarge</a>
<div class="separator"><img src="/images/2016/12/08/GDP1-1.jpg" alt=""></div>
<div class="separator"> </div>
<div>Nominal GDP fared somewhat better, growing by +0.5 percent in the quarter, and by +3 percent over the year.</div>
Income boost
<div>It's often been pointed out that in a country such as Australia with its volatile bulk commodity prices, real GDP isn't always an ideal measure of how things are tracking. </div>
<div> </div>
<div>In this quarter, for example, there was a large +4.4 percent jump in the terms of trade, meaning that the index is now up by +1.4 percent over the past year. </div>
<div> </div>
<div>Given that the terms of trade index has been falling since Q3 2011, this is hugely welcome news!</div>
<a href="/images/2016/12/08/GDP3.jpg" target="_blank">Click to enlarge</a>
<div class="separator"><img src="/images/2016/12/08/GDP3.jpg" alt=""></div>
<div class="separator"> </div>
<div>Behind the scenes, of course, commodity export volumes have been ramping up over time.</div>
<div> </div>
<div>Thus while real GDP contracted, real gross national income, real gross disposable income and real net national disposable income all rose to record highs in the September quarter, and we can expect to see further gains in Q4. </div>
<a href="/images/2016/12/08/GDP5.jpg" target="_blank">Click to enlarge</a> 
<div class="separator"><img src="/images/2016/12/08/GDP5.jpg" alt=""></div>
<div class="separator"> </div>
<div>In real terms, gross national income increased by +0.9 percent over the quarter and +3.2 percent over the year. </div>
<div> </div>
<div>Essentially, then, this this quarter has been the mirror image of the dynamics we've seen in previous quarters, shifting to strong income growth and weaker GDP growth.</div>
<div>Two-speed</div>
<div> </div>
<div>Research by SGS Economics and Planning has shown that Sydney and Melbourne have beendominating economic growth, while many regional economies are presently running slower as they adjust to life post-resources boom. </div>
<div> </div>
<div>State final demand was very weak in Western Australia at -3.8 percent as capex continues to work through its decline. </div>
<div> </div>
<div><a href="/images/2016/12/08/GDP4.jpg" target="_blank">Click to enlarge</a></div>
<div> </div>
<div><img src="/images/2016/12/08/GDP4.jpg" alt=""></div>
<div> </div>
<div>At the industry level, construction was the biggest loser, contracting by -3.6 percent, and swiping some -0.3ppts from GDP growth. </div>
<div> </div>
<div>Compensation of employees grew by +1.3 percent over the quarter and a positive +3.1 percent over the year, while the household savings ratio ticked down to 6.3 percent. </div>
<div> </div>
<div>I'll look at the impact on household incomes and expenditure in a separate post. </div>
The wrap
After 100 consecutive quarters without a recession, the economy posted a negative GDP result for the third quarter, but real national income measures surged to a record high.   
<div>Whether or not we experience a technical recession next quarter is open for debate, but it looks to be unlikely based on the recent growth in retail spend. </div>
<div>
 Overall, strong public investment figures in the first half of the year masked a softening underlying trend in growth in the economy. </div>
<div> </div>
<div>An annual GDP growth figure of +1.8 percent feels much more in line with the metrics we've seen elsewhere, including low employment and wages growth, soft inflation, and a budget in deficit. </div>
<div>
 If hours worked are said to be the best measure of the health of the economy, then the conclusion is clear: the economy stuttered in the first half of 2016, although there was at least a moderate improvement of +0.5 percent in Q3. </div>
<div> </div>
<div><a href="/images/2016/12/08/GDP7.jpg" target="_blank">Click to enlarge</a></div>
<div> </div>
<div class="separator"><img src="/images/2016/12/08/GDP7.jpg" alt=""></div>
<div> </div>
<div>In the face of an obviously weaker result, a key question for the government now is whether it uses low yields to borrow and invest in infrastructure, as the Reserve Bank doesn't sound particularly keen on cutting the cash rate too much further!</div>
<div> </div>
<div>
PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>. 
His latest book is <a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>.
</div>
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A recession looks unlikely: Pete Wargent

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GUEST OBSERVER
Australian third quarter GDP data was very weak, declining by 0.5 percent, missing consensus estimates for a 0.1 percent fall. 
Annual GDP growth has now declined to 1.8 percent, the lowest level since March 2009. All components of GDP were weak in the September quarter and the key points are:
Soft-ish consumer spending growth (up by 0.4 percent over the quarter resulting in a contribution of just 0.3 percentage points to quarterly GDP growth) as evidenced by poor retail sales outcomes over the quarter, although this may have been impacted by election uncertainty and poor weather;
A fall in dwelling investment (-1.4 percent qoq or a 0.1 percent point detraction), but this follows a few quarters of very strong growth;
A marginal lift in private business investment (+0.1 percent or a flat contribution), with a rise in machinery and equipment investment offsetting  a 1.3 percent qoq fall in non-residential construction as the slump in mining investment continues to impact. However, underlying private investment was actually weaker with the headline being boosted as a large asset transfer from the private to the public sector in the June quarter washed through;
A large decline in public spending (-2.4 percent qoq or a 0.6 percent point detraction) with headline government investment looking particularly low because of the asset transfer in the June quarter. Even adjusting for theasset transfer, public spending was still low in the September quarter;
<ul>
<li>A small contribution from total inventories (+0.1% point contribution to growth); and</li>
<li>A small detraction from net exports (-0.2% point detraction from growth) with import volume growth stronger than export volumes.</li>
</ul>
<a href="/images/2016/12/08/image004.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/12/08/image004.png" alt="">
Source: ABS, AMP Capital  
This is only the fourth quarter of GDP contraction since the last recession ended in 1991 – with the last three being in the December quarter 2000 (after the introduction of the GST), December quarter 2008 (the GFC) and March quarter 2011 (mainly because of a hiccup in exports). 
<a href="/images/2016/12/08/image005.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/12/08/image005.png" alt="">
Source: ABS, AMP Capital 
While the GDP contraction in the September quarter will no doubt invite talk of a recession (defined as two consecutive quarters of falling GDP) growth is likely to bounce back in the December quarter avoiding a recession so there is no reason to get too gloomy. 
A lot of the factors which drove the weak third quarter outcome will not repeat in the fourth quarter GDP numbers. Weak September quarter GDP partly looks like payback for stronger than expected GDP growth over the year to theJune quarter of 3.1 percent.
Looking forward, there is going to be a further ramp up in resource export volumes, non-residential building approvals are lifting considerably, mining investment is getting closer to a bottom, retail sales growth trends have picked up again, there is still a lot more dwelling construction in the pipeline, state government budgets indicate a lift in public investment and the rebound in commodity prices with the terms of trade up 4.5 percent in the September quarter tells us that the income recession in Australia is over.
So we expect GDP growth to lift back to around a 2.5 percent pace in the current quarter and through 2017. 
The Australian dollar has remained surprisingly resilient on the poor data, dropping from 0.7465 to around 0.7430 and the share market actually rose 0.2% at the time of writing – indicating that markets also expect growth to bounce back. 
But despite our expectation that recession will be avoided and that growth will bounce back, growth is still likely to be fragile and constrained. In an ideal world now would be a time for some fiscal stimulus focussed on infrastructure spending. But with public debt well up from pre GFC levels and the Government focussed on reducing the budget deficit and the (increasingly difficult) task of maintaining Australia’s AAA credit rating this looks unlikely.  
As such the pressure is likely to remain on the RBA. With the RBA likely to reduce its circa 3 percent growth forecasts and further delay the expected return of inflation to its 2-3 percent target in its February Monetary Statement we remain of theview that it will cut rates again next year. The need to offset increases in bank mortgage rates that are being driven up by the rise in global bond yields and the desire to push the $A lower are additional reasons to expect further RBA monetary easing.
<a href="https://www.propertyobserver.com.au/https://plus.google.com/110172465327488162875?rel=author" target="_blank">SHANE OLIVER</a> is head of investment strategy and economics and chief economist at <a href="https://www.ampcapital.com.au/home" target="_blank">AMP Capital</a> and is responsible for AMP Capital's diversified investment funds.
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The Australian economy hits an air pocket - but recession unlikely: Shane Oliver

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GUEST OBSERVER
Here are the six standout charts over the past week covering home prices, Australian All Ordinaries Accumulation index, business investment, planned business investment, Nymex oil price and US 10-year bond yields.
<a href="/images/2016/12/05/Screen%20Shot%202016-12-05%20at%201.06.56%20PM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/12/05/Screen%20Shot%202016-12-05%20at%201.06.56%20PM.png" alt="" width="760" height="500">
<a href="/images/2016/12/05/Screen%20Shot%202016-12-05%20at%201.07.06%20PM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/12/05/Screen%20Shot%202016-12-05%20at%201.07.06%20PM.png" alt="" width="654" height="214">
Savanth Sebastian is an economist for <a href="https://www.commsec.com.au/" target="_blank">CommSec</a>
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The six standout charts for this week: CommSec's Savanth Sebastian

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<img src="https://counter.theconversation.edu.au/content/69398/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
Despite the well publicised closure of some manufacturing sectors in Australia, manufacturing isn’t dying.
Instead, like industry around the world, it’s undergoing a period of significant change as new, disruptive technologies and economic realities take hold and new markets emerge.
There is a role for the manufacturing sector in Australia. Through interviews with 56 stakeholders, three workshops and a survey of industry and government organisations, as well as leading researchers, CSIRO identified major growth opportunities and what the manufacturing sector needs to do to achieve them.
Currently Australian manufacturing contributes 6.05% of Gross Domestic Product (GDP), exports A$96.1 billion of goods and employs 856,000 people. This has fallen from a high in 1995, when it contributed to 14% of GDP and employed more than a million people. 
High wages, geographical remoteness and a small dispersed local market are some of the reasons for these changes. However consumers are also changing what products they buy which then impacts the type of products made.
Major companies like Boeing and General Electric now look to the world using global supply chains for components for their final product, so Australia has to compete globally. 
The innovation resulting from science and technology, such as automation, digitisation and new materials, has changed the equation of what it means to be a manufacturer. Manufacturing is no longer a basic industry that employs low-skilled workers.
Over the next 20 years, Australia’s manufacturing industry must transform into a highly-integrated, collaborative and export-focused “ecosystem” that provides high-value customised solutions contributing to global supply chains.
Our research brought up some exciting examples of Australian companies that have already embraced this evolution, setting a standard to follow.
<h2>Customised high-margin solutions</h2>
We found that demand for more expensive bespoke products is replacing mass-produced products relying on value from producing a lot for the market. New materials, automation, biotechnology and new chemical processes have driven this innovation in manufacturing. 
These new technologies enable a new level of customisation. Products like personalised medical implants and functional foods and clothing are already possible thanks to the combination of design services and superior components (such as 3D printing).
Small to medium enterprises (SMEs) make up 97% of Australia businesses. So customisation is an ideal recipe for Australian SMEs to achieve global reach without the need for producing more goods than their competitors.
An example of an Australian company doing this well is Oventus. They produce an O2Vent mouthpiece for those that suffer sleep apnoea. Oventus uses a 3D scanner to map a patient’s mouth, then 3D prints a custom-made mouthpiece that helps stop dangerous pauses in sleep at night. Its custom fit and relative comfort attract a price premium. The company recently listed on the Australian stock exchange and is about to go global.
<h2>Collaboration</h2>
Too often Australian manufacturers focus on the rival across the street, rather than the looming competition over the horizon.
Our research shows manufacturers need to partner among themselves, either through business partnerships or increased collaboration. Nautitech and Northern Light Technologies Australia, for example, were brought together by a mining company to improve underground communications. 
These two companies combined hardware from one company and software from the other to provide mobile Wi-Fi coverage for mine sites. It allows miners to monitor worker safety, fleet optimisation, machine performance and also allows autonomous mining and productivity improvements. 
<h2>Global supply chain integration</h2>
In a global marketplace, Australia cannot stand on its own. The Australian market alone is too small - our population is the size of Shanghai, China. 
Australia has few multinational companies manufacturing here. However multinational companies do source components from the best suppliers globally and herein lies the opportunity for Australia.
For example, manufacturer ANCA Tools delivers specifically designed parts to Japan. These parts are made using the company’s multi-axis grinding machines. 
These machines, designed and built in Australia, are automated and wired up for flexible and precision manufacturing. The components are integrated into Japanese customers’ unmanned, factory-wide automated production systems.
Manufacturers need to integrate into international supply chains; using Australia’s advanced technology industry and research sector, to stand out from the crowd. One example of this highlighted from our research is Carbon Revolution, a company that pioneered the commercial production of carbon composite car wheels. These wheels are made from a single piece of material. 
Carbon Revolution is supplying Ford with wheels for the Mustang Shelby GT350R, making it the first company in the world to supply mass produced carbon fibre wheels on standard equipment for a major automaker.
The wheels weigh up to 50% less than conventional aluminium equivalents and reduce carbon emissions by up to 6%. Carbon Revolution is now investigating opportunities in aerospace and industrial markets.
<h2>Increased role for the research sector</h2>
Australia’s research sector can play a critical role in the future of Australian manufacturing, providing the significant technological innovation needed to drive future prosperity.
Publicly funded research agencies in Australia are already building stronger industry engagement. In our research, Australian manufacturers have identified the science and technology gaps that need filling. 
These companies want to use research results to be able to differentiate, make manufacturing processes more efficient, monitor in real time and drive decision making with data. Australian research institutions need to adapt to these demands.
The establishment of open access hubs such as Lab22, the Australian National Fabrication Facilities (ANFF), industry collaboration spaces in research organisations, researchers in business, industry PhDs and internships are all examples of initiatives to link the research and manufacturing sectors.
Australia has a high level of education, an excellent research sector, vast natural resources, a reputation for quality, keen SMEs and close proximity to a burgeoning Asia. The strengths far outweigh the weaknesses.
Cathy Foley is deputy director and Science Director Manufacturing Flagship CSIRO, and can be contacted <a href="https://theconversation.com/profiles/cathy-foley-1066" target="_blank">here</a>.
Keith McLean is director, CSIRO Manufacturing, CSIRO and can be contacted <a href="https://theconversation.com/profiles/keith-mclean-318305" target="_blank">here</a>.
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The Australian manufacturing industry is not dying, it’s evolving: CSIRO study

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On August 22, I wrote a note in which I concluded:
<ol>
<li>Record low interest rates have not been effective in stimulating investment to close the savings/investment imbalance. A change in policy from governments on infrastructure and structural reform is urgently required. 
</li>
<li>Central banks are exacerbating the imbalance with (quantitative easing (QE) policies. With these policies now generating negative yields and pressuring the banking system while sending confusing signals on risk free rates there is an urgent need for these policies to be reviewed and abandoned.} 
</li>
<li>When these QE policies are finally abandoned, as they surely must be, there will be a huge re-pricing of risk free assets with rates heading in the direction of nominal GDP growth, although the pace of this adjustment will still depend on the other progress which governments have made in closing the savings/ investment imbalance.</li>
</ol>
At that time the US 10 year bond rate was 1.54% while the Australian 10 year bond rate was 1.9%. Today these rates stand at 2.35% and 2.75% respectively.
I nominated nominal GDP growth in the US at around 4% (2% real growth and 2% inflation).
The US bond rate has risen about a third of the way towards what I would call that “equilibrium” despite no clear progress on lifting investment although, of course, markets are pre-emptive.
In the period 1992-2002 when we had more of an alignment between savings and investment, and bond rates were broadly in line with nominal GDP growth, we saw that investment in the US was growing at around 8% compared to the average growth rate in recent years of around zero.
The recent rise in bond rates can be considered in two periods – before and after the Presidential election.
The US bond rate started to rise from around late September from 1.55% to reach 1.85% on the eve of the US presidential election.
A key catalyst for that move was a change in tone from both the Bank of Japan (BOJ) and the European Central Bank (ECB). In the case of Japan policy was adjusted to target a level of the 10 year Japanese Government Bond (0%) rather than continuing to expand the balance sheet.
In the case of the ECB, prospects of further increasing the €80 billion of monthly asset purchases took a downturn and while there is no signal from the Board that tapering is imminent the debate around the effectiveness of QE and negative interest rates has been vigorous both in the market and amongst the officials.
Finally, I expect that markets believed that whoever was elected to the presidency we would see a measure of fiscal stimulus.
Since the election of Mr Trump, the US 10 year Treasury bond rate has risen from 1.85% to 2.35% - the total increase in bond rates, from the lows (80 basis points), represents about a third of the move towards my “equilibrium” target of 4% (250 basis points). As we expect with markets, this adjustment has occurred purely through a change in expectations. I would not expect this to progress much further until we see concrete evidence around progress on infrastructure and reform.
So what else in my “wish list” apart from a significant change in ECB and BOJ approaches has occurred?
The second part of the “wish list” was “change in policy from governments on infrastructure and structural reform”.
Do Mr Trump’s policies provide some comfort in that direction?
Recall that the first policy he referred to in his acceptance speech was to “rebuild” America. Given my emphasis on the need for aggressive infrastructure investment to lightening rod the US economy out of secular stagnation, I was impressed.
Until I looked into the details of his infrastructure policy. The current policy is to invest US$1 trillion (around 5% of GDP) in public infrastructure, over 10 years, with 85% to be financed from the private sector. Unless his team is aware of a massive list of public assets that could be privatised with the funds being used to finance the road/bridge/inner city spend, this policy is likely to fail due to a lack of support from the private sector.
My view is that he needs to redirect a large amount of the tax package towards direct infrastructure investment. The current tax package, which includes reducing the corporate tax rate from 35% to 15%, is estimated to cost (according to the <a href="https://crfb.org/donald-trump" target="_blank">Committee for a Responsible Federal Budget</a>) around US$5-6 trillion over 10 years. The corporate component is around 75% of the total package cost with the remainder representing the cost of lowering personal tax rates. But the <a href="https://www.taxpolicycenter.org/publications/analysis-donald-trumps-tax-plan/full" target="_blank">Tax Policy Centre estimates</a> that 47% of the benefits of the personal cuts will go to the top 1% of income earners.
The starting point for the total government debt position also threatens the tax package. When Reagan adopted his “supply side” economic policies, government debt stood at 24% of GDP compared to 78% today. The tax package could lift debt to around 110% of GDP over the next 10 years.
So my view on policy as it stands is that a much larger and realistic infrastructure package needs to be embraced at the expense of a significantly more modest tax package.
What about reform?
Reform is required to convince businesses that growth is in prospect and therefore investment should be lifted.
US firms pay US taxes on income generated anywhere in the world while allowing the firms to defer tax on these earnings by keeping the money offshore. Trump has considered offering companies a window tax “holiday” to repatriate some of the $2 trillion held outside the US. Such reform would 'spark' new investment if firms anticipated stronger growth in the US. An angle might be to 'link' the tax savings to the proposed private funding of infrastructure.
Currently there is some market belief in his claim to “clean up regulation”, with the unwinding of Dodd-Frank (a complex banking regulation) being the most comprehensive. Policies to unwind excessive regulation and some early successes in that regard will be just as crucial as a much more aggressive infrastructure policy to lift confidence in growth prospects.
The moderated approach to QE and negative interest rates by the ECB and BOJ started the move away from unrealistically low rates.
The emphasis in the Trump rhetoric on infrastructure and reform has been a very welcome development. However, at this stage, Trump’s policies do not signal a clear commitment to infrastructure and there does not appear to be a list of “achievable” reform initiatives.
Markets and firms will need to see clear evidence of Trump’s ability to implement ambitious policies before I could declare that we are on a steady path towards equilibrium and 4% bond rates.
Bill Evans is chief economist at Westpac.
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Trump needs to find balance between infrastructure and tax priorities: Westpac's Bill Evans

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GUEST OBSERVER
Australia has a new “two-speed” economy that comprises: (i) NSW and Victoria (driven largely by Sydney and Melbourne); and (ii) the rest of Australia.
The size and relative strength of the NSW and Victorian economies means that economic data presented at the national level is masking weakness throughout the rest of Australia.
Economic activity in NSW and Victoria, along with strong dwelling price growth in Sydney and Melbourne, is likely to see the RBA sit on the sidelines. But the rest of Australia could probably do with more policy easing. 
<a href="/images/2016/11/22/Screen%20Shot%202016-11-22%20at%2010.22.22%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/11/22/Screen%20Shot%202016-11-22%20at%2010.22.22%20AM.png" alt="">
During the mining investment boom it was fashionable to talk about Australia’s “two- speed” economy. Surging commodity prices drove a spectacular lift in activity in the resources sector that sent the WA, QLD and NT economies into full blown growth mode.
<a href="/images/2016/11/22/Screen%20Shot%202016-11-22%20at%2010.23.31%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/11/22/Screen%20Shot%202016-11-22%20at%2010.23.31%20AM.png" alt="">
Meanwhile, relatively high interest rates (compared to other advanced economies) and a strong AUD weighed heavily on the rest of Australia. As such, the term “two-speed” was coined to characterise the Australian economy. 
Fast forward some six years and Australia yet again finds itself with a “two-speed” economy. But this time it’s NSW and Victoria that are driving demand and employment growth while the rest of Australia is feeling the pinch (chart 1). In fact, it’s largely Sydney and Melbourne propping up national outcomes.
<a href="/images/2016/11/22/Screen%20Shot%202016-11-22%20at%2010.24.46%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/11/22/Screen%20Shot%202016-11-22%20at%2010.24.46%20AM.png" alt="">
Capacity utilisation is high in Australia’s two largest cities and demand growth is strong, courtesy of incredibly low interest rates. As a result, the NSW and Victorian economies have performed much better than the rest of Australia. 
The big influence that NSW and Victoria have on the national figures means that pretty soft conditions throughout the rest of Australia have flown under the radar. In fact, economic outcomes in most regions of Australia are probably weaker than the national figures are suggesting unless you’re in Sydney or Melbourne. There are some exceptions, notably the ACT, but the generalisation holds for most places. 
<a href="/images/2016/11/22/Screen%20Shot%202016-11-22%20at%2010.25.47%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/11/22/Screen%20Shot%202016-11-22%20at%2010.25.47%20AM.png" alt="">
In this note we look at how the Australian economy is faring on the new “two-speed” basis. We slice the economy into two pieces – (i) NSW &amp; Victoria (termed VicNSW); and (ii) the rest of Australia (termed ROA). For dwelling prices that are published on a capital city basis we split the data between Sydney &amp; Melbourne (SydMel) and the remaining capital cities (ROA). Basically we are trying gauge how the rest of the Australian economy is going when you strip out NSW and Victoria (or Sydney and Melbourne). Of course, it can be argued that if you exclude the strongest parts then all you are left with is the weakest bits. But that is precisely the point. We want to better understand how the rest of the Australian economy is going outside of NSW and Victoria. 
The numbers – setting the scene.
To understand what we are analysing it makes sense to briefly look at the size of our two pieces. By Gross State Product (GSP), which is effectively output, NSW is worth 32% of the national pie and Victoria 221⁄2%. So our VicNSW economy is worth 541⁄2% of the national economy which leaves the ROA comprising 451⁄2% (chart 2). By population, NSW has 32% of Australia’s residents and Victoria clocks in at 25%. This leaves 43% of people residing in the ROA. By capital city, 64% of people who live in NSW are in Sydney and 75% of Victoria’s residents are in Melbourne. For the ROA, 62% of people are in the capital cities (chart 3). So our VicNSW and ROA split 
Population growth
We kick off with population growth because it heavily influences aggregate growth rates like output and employment. The latest figures show that in the year to QI 2016, population growth in VicNSW was running at 1.6% while it was growing at 1.1% for the ROA (charts 4 and 5). This is a material difference. It largely reflects two forces (i) interstate migration, in particular from WA and SA to Victoria due to a lack of job opportunities; and (ii) a significant proportion of overseas migrants settling in either Sydney or Melbourne.
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<img src="/images/2016/11/22/Screen%20Shot%202016-11-22%20at%2010.26.53%20AM.png" alt="">
We need to keep the population growth rates of VicNSW and ROA in mind when looking at the economic data because the ROA is at a “handicap” of about 0.5%pa. Put another way, if the ROA is clocking in at 0.5%pa less than VicNSW for growth rates then performance per capita is effectively the same. We consider this to be important because differing population growth rates can give a misleading impression of economic performance. And per capita measures are a better barometer for gauging changes in living standards (see here). As our analysis shows, even accounting for the 0.5%pa difference in population growth, VicNSW is performing far better than the ROA. 
State Final Demand
State Final Demand (SFD) is basically the sum of household and government expenditure and investment. It does not include exports and is therefore a better measure of demand (i.e. the total value of goods and services that are sold domestically) than GSP which includes exports.
The data shows that demand growth has been strong in VicNSW while it has been contracting throughout the ROA since mid-2014 (chart 6). The decline in SFD throughout the ROA reflects falling business investment and weak consumption growth. SFD has been hit particularly hard in the mining regions of WA, QLD and NT where investment in the resources sector has fallen sharply (chart 7). SFD growth has been tepid in SA and Tas leaving the ACT as the only bright spot. All up, demand growth in the ROA is consistent with very soft economies.
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Strong demand growth in VicNSW has been assisted by the positive wealth effect from rising dwelling prices. Higher asset prices have supported household consumption growth and dwelling investment in Australia’s two largest states. These two economies did not experience a downturn in mining investment and were able to benefit from both the fall in interest rates and the AUD. 
Employment growth
There is plenty of evidence of our new “two-speed” economy in the labour market data. Jobs growth has slowed nationally. But the slowdown in jobs growth for the ROA has been sharp. In fact, there has been a contraction in the level of employment for the ROA through the year to October (chart 8). The number of people working in the ROA has fallen by 40k over the past year. The reality is that jobs growth in Australia has been driven by NSW and Victoria over the past year. For the ROA, the labour market is incredibly weak. In some states, conditions in the labour market are commensurate with a recession, particularly WA (chart 9). 
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Unemployment rate
The national unemployment rate has been trending down over the past year thanks to a decline in participation. But when we look at the economy through our “two- speed” lens it becomes apparent that the unemployment rate for the ROA has been stuck above 6% for two years (chart 10). It has basically trended sideways since mid-2015 while the unemployment rate has been falling in VicNSW. A disappointing story for the ROA which reflects a decline in the level of employment offset by a fall in participation. 
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<img src="/images/2016/11/22/Screen%20Shot%202016-11-22%20at%2010.30.13%20AM.png" alt="">
Of course new jobs have been “created” in the jurisdictions that comprise ROA. But there have also been a lot of job losses, primarily in the mining and manufacturing sectors. To be fair to our Territories, the unemployment rate is low in the ACT and NT. But it’s well above the level associated with full employment (considered to be around 5%) in QLD, SA, WA and Tasmania (chart 11).
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<img src="/images/2016/11/22/Screen%20Shot%202016-11-22%20at%2010.31.13%20AM.png" alt="">
In our view, the jobless rate for the ROA is likely to sit a touch above 6.0% over the next six months. It will continue to be a different story in VicNSW and we see the unemployment rate holding at around 51⁄4%. A big lift in public investment in NSW should keep the unemployment rate anchored around 5%. 
It’s worth noting here that the unemployment rate is not proving as useful as usual to determine the amount of slack in the labour market. That’s because underemployment has bene rising while the unemployment rate has been falling due to the casualisation of the workforce (see here). As a result, wages growth has been easing.  
Business investment 
Investment in VicNSW has trended up recently because of a lift in capex in NSW. But for the ROA business investment is down 17.2% through the year to QII 2016 (chart 12). The big decline has been driven by a huge fall in spending in QLD and WA because of the downturn in mining capex. There has also been a decline in capex in SA, Tas, and NT. For the ROA, only the ACT has posted a lift in business investment. This is a pretty poor result considering the stimulus that has come through from lower interest rates and a lower AUD. It should be a concern to policymakers.
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We expect business investment to continue to decline in the ROA as resource related projects are completed. The pace of the downturn, however, will start to slow as the worst of the downturn in mining capex is now behind us. The outlook for the non- mining part of the economy remains mixed. Our forecasts have non-mining capex lifting a little over 2016/17 which should see VicNSW post a further modest lift in business investment. 
Dwelling Prices
National dwelling prices have risen substantially over the past 31⁄2 years. But the data shows that the lift in dwelling prices has largely been a Sydney and Melbourne story (chart 13). Demand for housing has been strong in Australia’s two largest cities, driven by a variety of factors which include: (i) interest rate cuts; (ii) a high level of investor demand; (ii) foreign investment; (iii) strong population growth; and (iv) some supply issues (particularly in Sydney).
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<img src="/images/2016/11/22/Screen%20Shot%202016-11-22%20at%2010.33.24%20AM.png" alt="">
For the ROA, however, dwelling price growth has been much more modest. In fact, dwelling prices have been falling for a few years in Perth (chart 14). Price rises in most of the other capital cities have been significantly lower than those in Sydney in Melbourne.
Commentators often make the mistake of generalising about dwelling prices in Australia and assume that the housing market is homogeneous. But the data shows that there is a significant divergence between price growth across Australia’s capital cities. 
Building approvals
Strong dwelling price growth in Sydney and Melbourne has translated into a big lift in building approvals, particularly for apartments. For the ROA, however, building approvals have eased. On a rolling annual total basis dwelling approvals are down 7.1%pa for the ROA (chart 15). There is a bit of a multispeed story for approvals in the ROA. There has been a big fall in approvals in WA as vacancy rates rise and dwelling prices fall. Approvals in QLD have actually been quite strong and a big lift in apartment supply will hit the Brisbane market over the next few years. But when we look at the ROA as a collective, dwelling investment will cool. For VicNSW, however, there is still a lot of residential construction in the pipeline. The supply response is welcome given the big lift in dwelling prices. 
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Are there implications for monetary policy?
The RBA has recently shifted from an implied easing bias to a neutral tone. And market pricing for a rate cut has receded (chart 16). We think the RBA’s reluctance to ease policy further is generally related to the strength of the NSW and Victorian economies, in particular the exceptionally strong housing markets of Sydney and 
Melbourne, and the lift in commodity prices. But the economic data suggests that the ROA could do with more policy easing.
Last week’s wages and employment data were weak. Normally, softness in the labour market and below-target inflation would imply that policy easing is forthcoming. A lower cash rate would, among other things, push the AUD down which would boost activity in Australia’s tradables sector. But clearly the RBA has a degree of discomfort at the strength of dwelling price growth in Sydney and Melbourne that has taken a near term rate cut off the table.
The lesson here is that the new “two-speed” economy means that current monetary policy settings are likely to be suboptimal for the ROA outside of Sydney and Melbourne. If the Sydney and Melbourne property markets stall or falter then policy easing will probably come back onto the agenda because the ROA could do with more stimulus. Of course that stimulus could also come via fiscal policy as we have previously argued (see here). But that’s a conversation for another day. 
Gareth Aird is economist at Commonwealth Bank and can be contacted <a href="https://www.propertyobserver.com.au/https://au.linkedin.com/pub/gareth-aird/14/790/905" target="_blank">here</a>.
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Our new two-speed economy – how does it look? CBA's Gareth Aird

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<img src="https://counter.theconversation.edu.au/content/69117/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
The federal deficit will be worse in 2017-18 than predicted in the May budget, despite some easing in the delays imposed by the Senate, Deloitte Access Economics’ budget monitor predicts.
It also says the short-term business implications of a Trump presidency are likely to be smaller and slower than the headlines have suggested but in the longer term there may well be net negatives for the global and Australian economies.
The Deloitte assessment comes as the government starts the final parliamentary fortnight of the year, reasonably confident that it will get its industrial relations bills, which were the triggers for the double dissolution, passed.
In a gloomy outlook for the government’s core challenge of budget repair, Deloitte says: “There are challenges seen on almost every front: under-performance on wages and jobs is forecast to continue, we see shortfalls creeping back in on company tax, super may also fall shy, and GST may do the same.”
On current policy settings, Deloitte forecasts a deficit of A$29.9 billion in 2017-18, which is A$3.8 billion worse than budgeted.
“That says something simple: no, the tide isn’t turning,” Deloitte says.
It estimates a $40.5 billion deficit in 2016-17, $3.4 billion worse than budgeted, and a total blow out of $24 billion in the deficit over the forward estimates. 
The government will release its budget update on December 19.
Deloitte applies a reality check to the benefits of the boost in coal prices, which has seen contract prices going to $US200 a tonne and spot prices to more than $US300.
Coal “is dragging Australia out of the income recession we’ve juggled since late 2011. But King Coal also comes with some king-sized caveats.
"First, as many coal companies have been making losses, a switch to earning profits has a slower-than-usual impact on tax payments. Second, many of the factors that sent coal stratospheric are temporary, and most other commodity prices are more in line with budget assumptions.”
So a spike in national income would then ease back, according to the forecast.
It says both wages and jobs are likely to undershoot official forecasts. The tax take from individuals is predicted to fall short of the budget forecasts by A$1.3 billion in 2016-17 and by A$2 billion in 2017-18. In a break with recent trends, a minor shortfall in indirect tax of A$500 million is also forecast in 2017-18.
While the government has made some progress with measures in the Senate “the overall story on spending remains one of the continuing cost of failing to get a backlog of measures through parliament, topped up by a soupcon of new measures”.
Commenting on the Deloitte report, Treasurer Scott Morrison said the government would be adopting a cautious approach to commodity price assumptions in the budget update “and agrees with Deloitte that commodity price impacts are being offset by wages and inflation outcomes”.
“Deloitte also correctly identifies the need for more important savings measures to be passed by the parliament, that are opposed by Labor. This reinforces the position adopted by rating agencies who continue to watch our parliament to see whether they will support the government’s approved pathway to restore the budget to balance,” Morrison said.
Deloitte says that while the election of Trump was bigger news than Brexit, its shorter-term implications are likely to be less than the speculation.
“The US political system has remarkably strong checks and balances, and those checks and balances have increasingly solidified into gridlock over a number of years”, so presidents are rather less powerful than popular opinion believed.
On the other hand, there are Republican majorities in both houses of Congress, and presidential power is at its strongest on foreign policy – suggesting policy change is now more likely in some areas.
“Examples relevant to Australia include trade and climate change policy, and perhaps foreign policy more generally.
"On balance, we would recommend concentrating on the longer-term implications. In brief, we’d say that overall policy changes may well be net negatives for the global and Australian economies – especially trade- related developments and the increased potential geopolitical uncertainties. However, a number of those negatives will be years in the making.”
In Peru for APEC, Prime Minister Malcolm Turnbull continued to extol the virtues of the Trans-Pacific Partnership (TPP), despite it being apparently dead under a Trump administration.
He said Trump had “never said that he’s against free trade. He has criticised a number of agreements on the basis that they’re not good enough deals.
"It may well be that over time the TPP is re-embraced by the United States, by the Congress or indeed by the president, perhaps in the same form it is today, perhaps in a different form.
"The important thing is to maintain the commitment to the arrangements, the free trade, the open markets that are delivering jobs in Australia,” Turnbull said.
Observers are taking the fact the government is preparing to bring on the bills to tighten union governance and to re-establish the Australian Building and Construction Commission in the Senate this fortnight as a sign that it thinks it can get them through. Previously Turnbull has said they would be brought forward “when we believe there is a majority that will support it and on terms that we will accept”.
Asked about this at the weekend Turnbull said that with the Senate “it’s a long game and we work away, we respect every single senator”. On Sunday Employment Minister Michaelia Cash was engaged in negotiations over the legislation.
Michelle Grattan is professorial fellow, University of Canberra and author for The Conversation. She can be contacted <a href="https://theconversation.com/profiles/michelle-grattan-20316" target="_blank">here</a>.
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