Repeat buyers are one of the strongest measures of confidence in any apartment development.

At <a href="https://www.apartments.com.au/new-apartments/era-newcastle-west-124-126-bull-street-newcastle-west-nsw-2302">ERA</a> in Newcastle West, some purchasers are returning to <a href="https://www.apartments.com.au/developers/gwh">GWH</a> after living at the developer's One Apartments. Their decision to purchase again was driven by the quality of life they found after moving into their first GWH home.

Keith Wilton had spent years living in a house in East Maitland before deciding it was time for a change. Apartment living had always been on his radar, but he was selective about what he wanted.

<iframe allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share" allowfullscreen="" frameborder="0" height="315" referrerpolicy="strict-origin-when-cross-origin" src="https://www.youtube.com/embed/FH_1EzB-1vs?si=XScVlP1ERsTDJoME" title="YouTube video player" width="560"></iframe>

"I had some boxes I wanted to tick," he says.

Keith points to the open-plan design, generous outdoor areas and considered inclusions as key reasons One Apartments worked for him.

“One of those things was a nice indoor open plan area, but also I wanted a nice outdoor open area that I could entertain on in summer or Christmases or birthdays,” he says.

He also found value in the smaller details, from integrated appliances to shared resident spaces including the pool, cinema and rooftop areas.

[smartcode_project:default project_id=135096 project_image_fid=356818]

After comparing several developments, he chose One Apartments because of GWH's longstanding local reputation and his own experience working with the developer on a commercial project more than a decade earlier.

"I knew that they were local, that the quality of the build was going to be up there. I'd looked at other apartment complexes around and close by, and I just knew that here was a better decision location wise."

Today, Keith says the move has completely changed how he experiences Newcastle.

"I enjoy living in this location because it's more of a lifestyle change. That Newcastle city living where you can walk to restaurants and bars and even beaches and parks and even shopping across the road."

[smartcode_project:default project_id=135096 project_image_fid=356828]

Beyond the location, he says it's the sense of community that has surprised him most.

"Everyone loves living here because they chose to live here, but everyone looks out for each other. It's a real great community feel here."

For Aimee and Lyle Goodman, the journey started almost by chance.

<iframe allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share" allowfullscreen="" frameborder="0" height="315" referrerpolicy="strict-origin-when-cross-origin" src="https://www.youtube.com/embed/tsioMLcnjas?si=zq-ys3JuWpfa5hFv" title="YouTube video player" width="560"></iframe>

The couple happened to be having coffee in Newcastle when they noticed the site where One Apartments was about to begin construction.

"We were aware GWH was planning a development," Aimee says. "We made one phone call and things moved pretty quickly after that."

As busy business owners, they initially thought apartment living would simply reduce the maintenance that came with larger homes. Instead, it fundamentally changed how they spent time together.

"We actually catch up more as a family now," Aimee says.

"We've had homes with big yards and lots of space, but everyone ended up in different rooms. Here we'll have dinner together, the kids can play, and we spend far more quality time together."

[smartcode_project:default project_id=135096 project_image_fid=356829]

Lyle says their confidence came from GWH's reputation within Newcastle's building industry.

"I know people who've worked across different apartment projects, and whenever GWH came up the feedback was always the same. They're rock solid. They're quality."

That confidence only grew throughout the buying process.

"One of the things that really impressed us with GWH was the whole process, was the communication," Lyle says. "It was consistent, it was regular, there was no problem if we had some weird questions, there was no problems in getting answers."

[smartcode_project:default project_id=135096 project_image_fid=351104]

Aimee says one moment stood out.

"The project actually finished on time. We realised we needed to hurry up and sell our house because everything was happening exactly when they said it would."

The positive experience at One Apartments ultimately gave all three buyers the confidence to purchase again with GWH, this time at ERA.

Their confidence reflects what many buyers are seeking in today's apartment market. Location remains important, but so too does certainty around delivery, quality and long-term liveability.

[smartcode_project:default project_id=135096 project_image_fid=356822]

ERA builds on those foundations with 280 one, two and three-bedroom apartments across two landmark towers in <a href="https://www.apartments.com.au/developments/newcastle-west-nsw-2302">Newcastle West</a>.&nbsp;

Designed by <a href="https://www.apartments.com.au/architects/fk-australia">Fender Katsalidis</a>, the project will include more than 2,000 square metres of resident amenities, including a resort-style pool, gym, sauna, private cinema and rooftop entertaining spaces overlooking the harbour and coastline.&nbsp;

The development is also within walking distance of the Newcastle Interchange, Honeysuckle, Darby Street, the harbour foreshore, restaurants, retail and the city’s beaches, continuing the walkable lifestyle that existing GWH buyers say has transformed how they live.

[smartcode_project:default project_id=135096 project_image_fid=356826]

For Keith, the appeal remains straightforward.

"You feel at home even before you've moved into your home."

For Aimee, the change is measured in time.

“I just felt like I had more time,” she says.

[smartcode_project:default project_id=135096 project_image_fid=351102]

Construction at ERA is now underway, with more than half of the residences already sold and limited two and three-bedroom apartments remaining in the East Tower release. Priced from $980,000 for two-bedroom residences and $1.46 million for three-bedroom residences, buyers can secure an apartment with a 10 per cent deposit, with premium homes offering ocean views from Level 8 and harbour views from Level 10.

ERA is also backed by Resilience Insurance's 10-year Latent Defects Insurance policy, providing protection against structural or waterproofing defects for 10 years after completion. The project is anticipated to be completed in early 2028.

[smartcode_project_cta:default project_id=135096]

Joel Robinson

From ONE to ERA: Why buyers are choosing GWH again in Newcastle West

Virgate Property Group is preparing to commence construction of Verdé, its new apartment development in Melbourne's Arts Precinct at Southbank, following a strong run of sales that has seen more than half of the project's 173 apartments secured.

Verdé has attracted a broad mix of first home buyers, owner-occupiers upgrading from nearby inner-city suburbs and investors, with younger owner-occupier couples aged between 28 and 45 accounting for the strongest enquiry. Many are already living in Southbank, South Melbourne, Albert Park, Port Melbourne, South Yarra and the CBD.

"Verdé is located in one of the most desirable pockets of southern Melbourne," Blair Property Group Director Darren Blair, who is managing sales at Verdé, said.

"It's within walking distance of the Arts Centre, Royal Botanic Gardens, Albert Park Lake, and Southbank's restaurants and retail. It's a great lifestyle location with strong amenity and liveability, which made it a very attractive choice for the project."

[smartcode_project:default project_id=4661 project_image_fid=372549]

Virgate was already familiar with the precinct, having previously delivered the successful Domain House development in neighbouring South Melbourne. That experience gave the developer confidence to acquire the Coventry Street site and continue expanding its presence in Melbourne's inner south.

"We had been keeping an eye on the site and the broader precinct for a few months before deciding to move forward with the acquisition," Virgate said.

The project was ultimately secured in 2020 following feasibility studies, planning assessments and due diligence, with the brief centred on delivering "a high-quality, considered design that feels both refined and fit for purpose."

[smartcode_project:default project_id=4661 project_image_fid=314259]

Designed by <a href="https://www.apartments.com.au/architects/bruce-henderson-architects">Bruce Henderson Architects</a>, Verdé comprises 173 one, two and three-bedroom apartments priced from $599,000. The architecture is distinguished by a faceted glass façade that responds to both the site's outlook and Melbourne's changing light conditions.

According to Bruce Henderson Architects, the coloured glazing gives the building a distinctive identity while also providing privacy and solar shading, with residences oriented to capture views across the bay, city skyline and surrounding parklands.

Inside, <a href="https://www.apartments.com.au/interior-designers/designoffice">DesignOffice</a> has created interiors focused on natural light, efficient planning and enduring materials. Apartments feature engineered oak flooring, natural stone benchtops, floor-to-ceiling glazing and SMEG appliances, while a restrained material palette aims to complement the expansive outlooks rather than compete with them.

[smartcode_project:default project_id=4661 project_image_fid=372550]

Resident amenity has also been designed around everyday functionality rather than occasional use. Facilities include a concierge-serviced lobby, residents' lounge with fireplace, library and co-working space, gym, terrace garden with barbecue facilities, ground-floor café, and package delivery management.

The project's location continues to be one of its strongest drawcards. Positioned on Coventry Street, Verdé sits within walking distance of the National Gallery of Victoria, Arts Centre Melbourne, Royal Botanic Gardens and Albert Park Lake, while Southbank's dining precinct, Sturt Street trams and the new ANZAC Station are all nearby. The surrounding education catchment also includes Melbourne Grammar, Melbourne Girls Grammar, Mac.Robertson Girls' High School and several major university campuses.

The sales team says buyers have responded particularly well to the combination of location, design quality and long-term liveability.

"They're responding really positively to the quality of the design, premium resident amenities and the uninterrupted views. Many also appreciate the location and how connected it is to everything they need."

The ability to secure stamp duty savings before completion has also been a key factor for purchasers, alongside the opportunity to personalise finishes ahead of settlement.

With construction set to commence soon and more than half the apartments already sold, Verdé enters its next phase as one of the Arts Precinct's more established apartment developments, offering remaining buyers an opportunity to secure a residence before construction advances further. Expected completion is scheduled for late 2027.

[smartcode_project_cta:default project_id=4661]

Virgate's Verdé Southbank moves toward construction as sales fly past halfway stage

Downsizer-focused apartment development Kooyongkoot in Hawthorn has been recognised at the 2026 Better Future Melbourne Design Awards, taking home Gold and Silver awards in two categories.

<a href="https://www.apartments.com.au/new-apartments/kooyongkoot-hawthorn-1-kooyongkoot-road-hawthorn-vic-3122">Kooyongkoot</a>, currently being delivered by developer PQD and designed by Cera Stribley, received Gold in the Interior Design – Proposed category and Silver in the Architecture – Proposed category.

The dual recognition reflects the design approach behind the boutique development on prestigious Kooyongkoot Road, where the focus has been on creating homes for downsizers seeking the space, quality and functionality of a detached house within a low-rise apartment building.

Rather than maximising apartment numbers, <a href="https://www.apartments.com.au/developers/pqd">PQD</a> and <a href="https://www.apartments.com.au/architects/cera-stribley-architects">Cera Stribley</a> limited the development to just 18 residences, allowing for larger floorplans, greater privacy, generous landscaping and expansive communal spaces.&nbsp;The majority of the apartments also benefit from corner aspects, allowing for dual sources of natural light.

Now around 70 per cent complete and on track for completion in November 2026, Kooyongkoot will comprise a mix of garden residences, ter​race apartments, sub-penthouses, and is crowned by two half-floor penthouses with direct lift access and private rooftop terraces.

[smartcode_project:default project_id=102717 project_image_fid=355297]

The Silver Award for Architecture recognised the way the building responds to its prominent corner position at the ent​rance to Hawthorn's Scotch Hill precinct, one of Melbourne's most established residential neighbourhoods.

Rather than competing with the grand homes that line Kooyongkoot Road, the architectural approach focused on restraint and longevity, using curved brickwork, generous landscaping and carefully considered proportions to integrate with the existing streetscape.

"The form feels fluid and timeless, as though shaped by the landscape itself – architecture that belongs, rather than competes," said Chris Stribley, Co-Founder and Managing Principal of Cera Stribley.

The judging submission also highlighted practical innovations throughout the building, including lift cores servicing only nine homes each, a central landscaped lightcourt designed to bring daylight and ventilation into the building, and fully enclosed private storage rooms with lighting, power and shelving to better accommodate residents transitioning from larger family homes.

[smartcode_project:default project_id=102717 project_image_fid=355293]

The Gold Award for Interior Design recognised the project's focus on long-term liveability rather than display-home aesthetics.

According to the awards submission, the interiors were designed from the inside out, prioritising how homes would function over decades of daily use through generous proportions, practical storage, durable natural materials and flexible layouts.

The specification includes natural stone throughout, upgraded acoustic glazing, V-ZUG appliances and fully enclosed storage rooms, alongside an amenity offering focused on wellness, entertainment and everyday convenience.&nbsp;

Residents will have access to a gym and yoga studio, a wellness centre featuring traditional and infrared saunas, a cold therapy shower and treatment room, as well as a residents' lounge and golf simulator/cinema room for entertainment.&nbsp;Kooyongkoot has also considered the everyday convenience of its residents by offering a private carwash and pet wash facilities on site as well as dedicated parcel lockers and oversized fully enclosed storage rooms.&nbsp;

[smartcode_project:default project_id=102717 project_image_fid=355303]

The project's attention to detail has already resonated with buyers. Earlier this year, Kooyongkoot recorded one of Boroondara's highest apartment sales when an $8 million penthouse was purchased by a Melbourne CEO downsizing from a nearby family home.

"Every detail feels deliberate, from the overall design down to the smallest touches," the purchaser said.

"The level of quality and refinement is exceptional, but what really sold it was how liveable it felt... It felt like a place where everything had been considered, not just a luxury building."

[smartcode_project:default project_id=102717 project_image_fid=355304]

Sustainability also formed a key part of both award submissions. Kooyongkoot is targeting a minimum 7.5-star NatHERS rating across all residences, supported by passive design principles, high-performance glazing, EV charging infrastructure, water reuse systems and a wellness model focused on lower-energy dry facilities rather than pools and large wet areas.

Located within walking distance of Scotch College, Methodist Ladies' College, Koo​yong Lawn Tennis Club, Aubur​n Village and Camberwell Junction, Kooyongkoot continues to target owner-occupiers looking to remain in Melbourne's inner east without compromising on space or quality. A limited selection of two, three and four-bedroom residences remains available, with prices starting from $1.9 million.

[smartcode_project_cta:default project_id=102717]

Kooyongkoot wins Gold and Silver at Better Future Melbourne Design Awards

New apartment supply has become increasingly constrained across <a href="https://www.apartments.com.au/developments/parramatta-nsw-2150">Parramatta</a> in recent years, with fewer projects progressing through to completion as development conditions have become more challenging.

It makes <a href="https://www.apartments.com.au/developers/novm">NOVM</a>'s 2021-completed <a href="https://www.apartments.com.au/buildings/the-lennox-parramatta-12-phillip-street-parramatta-nsw-2150">The Lennox</a> one of the most recently completed residential towers on the Parramatta River, and among the newest apartment developments in Sydney's second CBD.

With the project largely completed before the sharp escalation in construction costs and inflation following the pandemic, The Lennox is now offering pricing that would be difficult to replicate in a comparable new development in Parramatta today, or across much of Western Sydney.

The majority of the 413 apartments at The Lennox sold before and shortly after completion. A limited release of the remaining apartments has recently been brought to market by capital partner <a href="https://www.apartments.com.au/project-marketer/equitifund-group">Equitifund</a>, with entry-level pricing from $700,000 and two-bedroom apartments available from under $1 million.

Rising above the Parramatta River at 12 Phillip Street, The Lennox comprises one, two, three and four-bedroom apartments, appealing to first home buyers, young professionals, families, downsizers and interstate investors seeking a completed apartment in one of Australia's fastest-growing economic centres.

[smartcode_project:default project_id=5743 project_image_fid=372394]

Rather than positioning Parramatta as an alternative to Sydney's CBD, Equitifund believes the city has reached a point where it stands on its own merits.

"Parramatta is no longer simply an alternative to Sydney CBD, it's becoming a destination in its own right," Equitifund Executive Chairman Greg Huxley said.

"The Lennox captures that evolution with a level of quality and amenity that's difficult to match at its price point."

[smartcode_project:default project_id=5743 project_image_fid=953]

Designed by <a href="https://www.apartments.com.au/architects/marchese-partners">Marchese Partners</a>, the tower responds directly to its riverfront setting through expansive glazing and open-plan layouts that maximise views across the Parramatta River and city skyline. Interiors feature engineered timber flooring, stone benchtops, stainless steel appliances and floor-to-ceiling glazing, while generous balconies extend the living spaces outdoors.

Marchese Partners says the project was conceived to balance high-quality apartment living with practical, long-term functionality, pairing larger, efficient floorplans with amenities more commonly associated with five-star hotels.

That emphasis continues through the resident facilities, which include a 20-metre rooftop swimming pool, fully equipped gym and wellness spaces, full-time concierge, a residents' lounge, function room, private lifts, secure basement parking and rooftop communal areas overlooking the Parramatta River. Ground-floor boardwalk retail and dining further activate the riverfront and integrate the building into the surrounding public realm.

[smartcode_project:default project_id=5743 project_image_fid=925]

Australian housing and finance group Equitifund has secured the remaining apartments, believing there are few completed apartment opportunities in Parramatta that offer the same combination of location, amenity and pricing.

Equitifund National Sales Director Ben Hamblett says buyers are increasingly recognising that premium apartment living no longer needs to come with Sydney CBD pricing.

"The Lennox is where aspirational living becomes attainable," Hamblett said.

"Wake to river and mountain views, step into Sydney's Second CBD, and arrive home to resort-calibre amenities, all without the harbour price tag."

Hamblett says owner-occupiers are also attracted by the convenience of having Westfield Parramatta, Church Street's dining precinct, Parramatta Park, Riverside Theatres, Western Sydney University and major transport connections all within walking distance.

"At The Lennox, lifestyle is not an afterthought, it is the foundation."

[smartcode_project:default project_id=5743 project_image_fid=5374]

The Lennox places residents within walking distance of Parramatta Square, Westfield Parramatta, Church Street Eat Street, Parramatta Station, the ferry wharf, Light Rail, the future Sydney Metro West, Parramatta Park and CommBank Stadium, reinforcing Parramatta's position as one of Australia's most connected metropolitan centres outside Sydney's CBD.

Equitifund says buyers visiting the display suite consistently comment on the quality of the finishes, generous floorplans, river and skyline views, and the walkability of the location. The project has attracted a broad mix of local professionals, upsizers, downsizers, buyers relocating from Sydney's inner suburbs and interstate investors seeking long-term growth opportunities.

That demand aligns with Parramatta's continued evolution as an economic powerhouse. Equitifund Research and Market Insights specialist John Bekiaris says sustained population growth, infrastructure investment and expanding employment opportunities continue to support long-term housing demand across the city.

"Parramatta has evolved from a satellite city into one of Australia's most important economic centres. Population growth, infrastructure investment and employment are all supporting sustained long-term housing demand."

[smartcode_project_cta:default project_id=5743]

The apartment price gap drawing Sydney buyers west

A luxury beachfront apartment at Rainbow Bay has more than doubled in value since it sold off the plan six years ago, setting a new local apartment record in the process.

The three-bedroom apartment in the Flow development on Petrie Street, the first of four new projects locally by Paul Gedoun's S&amp;S Projects, has sold for $7.4 million, after originally selling for $3.27 million when the project launched in 2020.

The seventh-floor apartment, comprising 187 sqm of internal living space and a 54 sqm balcony overlooking Froggies Beach and Snapper Rocks, was purchased by a local family.

The transaction was negotiated by Pezet Matheson director Kerry Pezet and equates to more than $30,000 per sqm.

Pezet said the sale reflected the limited opportunities to buy into the boutique beachfront development.

"The sale highlights the rarity of opportunities within the boutique beachfront development, where residences seldom become available," Pezet said.

"Flow is one of the Gold Coast's most tightly held buildings. Buyers from our database move quickly when residences become available, and achieving an off-market sale at $7.4 million demonstrates the depth of demand for property of this calibre."

<img alt="Flow" data-entity-type="file" data-entity-uuid="c585b206-2130-4eee-a50c-3f27c51a7c70" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-06%20at%208.33.25%E2%80%AFPM.png?VersionId=m3pHRDV62Y3fvN.XQuQHq.52ilTWpRLf" />

Flow was the first of four luxury apartment developments delivered by Paul Gedoun's S&amp;S Projects at Rainbow Bay and was completed in 2023.

Positioned on the beachfront overlooking Snapper Rocks, the residence includes three bedrooms, three bathrooms, a powder room and views stretching north along the coastline towards Surfers Paradise.

Pezet Matheson Residential principal Mitchell Lambert said buyers continued to prioritise quality beachfront apartments in tightly held locations.

"Flow Residences offers a rare combination of elevated beachfront positioning, architectural excellence, comprehensive resident amenity and premium finishes, which is exactly what discerning purchasers are seeking," Lambert said.

"The transaction further reinforces Rainbow Bay's reputation as one of Australia's premier coastal lifestyle destinations, where limited supply and growing demand continue to support strong market performance."

Pezet Matheson originally marketed and sold out Flow off the plan, making the latest transaction a return to one of the project's original buyers.

Paul Gedoun is selling his third project, <a href="https://www.apartments.com.au/new-apartments/radia-rainbow-bay-271-boundary-street-coolangatta-qld-4225">Radia Rainbow Bay</a>, after recently completing, and selling out, <a href="https://www.apartments.com.au/buildings/esprit-217-227-boundary-street-coolangatta-qld-4225">Esprit</a>. He has plans for a <a href="https://www.apartments.com.au/news/qld/first-look-s-s-projects-proposes-88-apartment-wellness-tower-at-coolangattas-boundary-street">fourth building</a>, 88 apartments on <a href="https://www.apartments.com.au/new-apartments/209-213-boundary-street-coolangatta-qld-4225">Boundary Street</a>.

Rainbow Bay apartment doubles in price since off the plan sale during pandemic

Economy

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GUEST OBSERVATION
The OECD’s <a href="https://www.oecd.org/economy/growth/going-for-growth-australia-2015.pdf" target="_blank">Going for Growth report</a> released this week is a good reminder of why Tony Abbott wants to be remembered as “the infrastructure Prime Minister”.
The OECD argues addressing infrastructure service shortfalls will help productivity performance and sustainable growth, and in the 2014-15 Australian federal budget, <a href="https://www.budget.gov.au/2014-15/content/glossy/infrastructure/html/index.htm" target="_blank">spending on infrastructure</a> was planned to increase substantially, compared to the last budget of the Rudd government.
The focus carried through to the Brisbane G20 meeting. It saw a commitment to use infrastructure spending, along with other measures such as free trade agreements, as a lever to improve productivity and help deliver the additional 2% of GDP growth over five years targeted by the G20.
How is Australia performing?
Australian contributions to the G20 target, in terms of infrastructure investment, are outlined in the <a href="https://g20.org/wp-content/uploads/2014/12/g20_comprehensive_growth_strategy_australia.pdf" target="_blank">Comprehensive Growth Strategy</a>.
Two proposals are highlighted. First, there is a commitment  “to achieve better project prioritisation, selection and coordination by providing greater transparency through cost benefit analysis of major projects and improving the operation of Infrastructure Australia (the body that assesses major infrastructure projects). Rigorous appraisal processes will help ensure that high-quality projects that create the most benefit will be prioritised.”
Things have not started well. For example, The 2014-15 budget provides funding for 36 major named infrastructure projects but, as a <a href="https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/BudgetReview201415/Infrastructure">report</a> by the Australian Parliamentary Library notes, only four have been assessed by Infrastructure Australia, and only seven appear anywhere on the priority list.
Sydney’s WestConnex motorway is one of the infrastructure projects named in the budget but not prioritised by Infrastructure Australia. The federal commitment comprises a grant of A$1.5 billion to the New South Wales government, and a A$2 billion concessional loan. In December 2014 the New South Wales Auditor-General reported that the government’s Major Projects Assurance Framework had not been implemented and that, as a consequence, there were deficiencies in the analysis of the risks, cost and benefits of the project. Clearly this falls short of the G20 commitment.
Asset recycling
The second proposal is the <a href="https://theconversation.com/asset-recycling-no-dream-for-hockey-but-efficiency-boost-likely-28802">asset recycling initiative</a>. State governments that sell assets will receive 15% of the net sale proceeds as a grant from the Commonwealth, provided the funds are reinvested in infrastructure. Proposals must pass evaluation and approval before 1 July 2016, with construction to commence before 1 July 2019.
The Australian Competition and Consumer Commission this week <a href="https://www.afr.com/p/national/accc_warns_on_asset_recycling_XfHInVjskCpfCIfCm5AdEP" target="_blank">flagged concerns</a> about the scheme, warning of the risk of governments taking action that could lessen competition due to the lure of incentive payments.
At A$5 billion, the initiative accounts for only 10% of federal infrastructure spending commitments over the next ten years. However, the government forecast the incentives it provides will leverage an additional A$33 billion of infrastructure investment, making a major contribution to the proposed boost in infrastructure spending.
Asset privatisation was a central issue in the recent Queensland election. Of the estimated A$37 billion proceeds from the sale of energy and port assets, the Newman government proposed to allocate A$3.4 billion to a “cost of living” fund and A$25 billion to pay off state debt. New infrastructure investment of A$8.6 billion would attract a Commonwealth recycling incentive of A$1.3 billion, making A$9.9 billion in total.
Queensland voters rejected these proposals. Should the same result emerge from the New South Wales election next month the asset recycling initiative will effectively lapse.
An alternative approach
Where investment in long-lived productive infrastructure is involved, attaching the label <a href="https://www.dailytelegraph.com.au/news/nsw/prime-minister-tony-abbotts-speech-from-the-national-press-club-in-canberra-on-february-2/story-fni0cx12-1227204983604?nk=2ddb61facd9133e0d55d3bac5bbf4287" target="_blank">“intergenerational theft”</a> to government borrowing is clearly misleading – the generations who benefit from the investment also service the debt.
If the asset recycling initiative fails to meet its targets, alternatives are possible. The first requirement would be to live up to the commitment made to the G20 for stringent and transparent project evaluation by Infrastructure Australia. Second, think carefully about ways to improve efficiency in state-owned assets. Then, given that the yield on 21-year bonds is currently less than 3%, the government could pursue its infrastructure agenda by borrowing long-term and investing through the states in the same way as in the past.
Implementation of this strategy would require a more mature political discussion about fiscal deficits, debt, and long-lived infrastructure. Relying on slogans like “debt and deficit disaster” is unlikely to achieve positive outcomes.
Graeme Wells University Associate, School of Economics and Finance at University of Tasmania
This article was originally published on <a href="https://theconversation.com">The Conversation</a>.
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po-LsXgBTHBmX

PM’s infrastructure plan failing growth and cost-benefit goals: Graeme Wells

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The Westpac Melbourne Institute Index of Consumer Sentiment increased in February, a much stronger result than Westpac chief economist Bill Evans had expected.
"It represents the first time since February last year that we have seen a majority (albeit miniscule) of optimists over pessimists," said Evans.
"It is also the highest level of the Index since January last year."
<img src="/images/2015/02/11/westpac-feb-11-one.png" alt="">
Evans suggested the rate cut was not the only reason behind the big boost to confidence.
"Lower petrol prices and a surging sharemarket also appear to have had an impact."
The importance of these last two factors was highlighted by the "surprisingly modest 0.7% increase" in the confidence level of those respondents holding a mortgage – a group that is typically the most sensitive to interest rate changes, much lower than the over all increase of 8% in February.
The index tracking views on ‘time to buy a dwelling’ jumped by 9.7% to reach its highest level since February 2014.
<a href="/images/2015/02/11/westpac-feb-11-two.png" target="_blank"><img src="/images/2015/02/11/westpac-feb-11-two.png" alt=""></a>
Similarly, the index of house price expectations jumped by 6.9% to reach its highest level since September 2014.
Noting the Reserve Bank Board next meets on 3 March, Evans suggested for now, "we are comfortable to maintain our original call for a follow up move in March".
"However we recognize that a perfectly respectable case can be made for the Bank to pause for a month or two to assess developments in the housing market.
"The most important point is that February is not the end of this rate cut cycle with another cut extremely likely over the next three months." Evans concluded.
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jchancellor-FAypfDUnLy

Confidence up with strong improvement in time to buy dwelling sentiment: Westpac

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GUEST OBSERVATION
The Australian economy is well placed for the medium to long term. But we face risks as we transition back to broad-based growth.
Australia’s resources boom lasted a decade. Iron ore, coal, gas, gold - you name it. If we could dig it up, China was ready to buy it at record prices.
But adapting to a boom is hard. The boom increased demand for the Australian dollar, increasing the exchange rate (which is just the price of an Australian dollar). This hurt non-commodity exporters and led to a two-speed economy. The resource centres of Western Australia and Queensland boomed while the manufacturing and services centres of Melbourne and Sydney hit the wall.
We adapted. It was tough.
However, mining booms are temporary. As exploration and development expands supply, the prices inevitably drop. Our mining boom has ended. We have seen massive falls in <a href="https://www.smh.com.au/business/mining-and-resources/iron-ore-tipped-to-fall-below-us40-this-year-20150206-138235">iron ore</a>, coal, <a href="https://www.theweek.co.uk/business/oil-price/60838/oil-price-yo-yo-continues-as-traders-jockey-to-find-bottom">oil</a> and gas prices in recent years. It was fun while it lasted, but the inevitable has occurred and now the Australian economy is adjusting back again.
<a href="https://62e528761d0685343e1c-f3d1b99a743ffa4142d9d7f1978d9686.ssl.cf2.rackcdn.com/files/71427/area14mp/image-20150209-13704-159mbzh.png"><img src="https://62e528761d0685343e1c-f3d1b99a743ffa4142d9d7f1978d9686.ssl.cf2.rackcdn.com/files/71427/width668/image-20150209-13704-159mbzh.png" alt=""></a>
It’s good the boom is over
This is a good thing. A mining boom is like a boozy party. Great while it lasts, and it may lead to a <a href="https://www.propertyobserver.com.au/https://www.abc.net.au/news/2015-02-07/house-passed-in-at-auction-after-million-dollar-price-dive/6077724">short-term hangover</a>. However, so long as our economy can adapt back to the “new normal” of a lower exchange rate and more balanced growth driven by broad trade with our Asian neighbours, the end of the boom will lead to a new period of economic prosperity. The key is adaptability.
The end of the boom doesn’t mean that our earnings from mineral exports are back to 2000 levels. The development of new projects means that we will keep exporting and <a href="https://www.businessinsider.com.au/australian-iron-ore-exports-are-still-making-plenty-of-money-for-the-government-2014-12">earning more</a>. Put simply, quantity matters as well as price.
<a href="https://62e528761d0685343e1c-f3d1b99a743ffa4142d9d7f1978d9686.ssl.cf2.rackcdn.com/files/71423/area14mp/image-20150209-13719-f1ta6v.jpg"><img src="https://62e528761d0685343e1c-f3d1b99a743ffa4142d9d7f1978d9686.ssl.cf2.rackcdn.com/files/71423/width668/image-20150209-13719-f1ta6v.jpg" alt=""></a>
Further, as the end of the boom leads to a fall in the Australian dollar, this hurts consumers as the price of imports rise. But Australian companies that compete with imports will find life easier. There will be more growth and jobs in these areas.
Similarly, the drop in the exchange rate helps our non-commodities exporters. Australian farmers, tertiary educators, high-end manufacturers and other service exporters should all have big grins on their faces. They will be expanding over the next few years as the rest of the world finds that they are much cheaper.
So the end of the boom will mean a return to more sustainable, balanced long-term growth across our economy. Asia is still growing and we are still well placed to benefit from that growth.
<a href="https://62e528761d0685343e1c-f3d1b99a743ffa4142d9d7f1978d9686.ssl.cf2.rackcdn.com/files/71424/area14mp/image-20150209-13713-3f98zz.jpg"><img src="https://62e528761d0685343e1c-f3d1b99a743ffa4142d9d7f1978d9686.ssl.cf2.rackcdn.com/files/71424/width668/image-20150209-13713-3f98zz.jpg" alt=""></a>
What are the short-term risks?
The biggest risk is that the federal government will panic. Transition means that unemployment will increase as workers fly-out of the mining centres and move back to the south eastern states. Federal tax revenue will also temporarily fall as profits decrease in the resource sector but are yet to rise in other sectors. This means that there will be an increasing budget deficit. Fortunately, we have low levels of government debt by international standards, interest rates are at historic lows and our government can easily borrow to both cover the deficit and invest in infrastructure that will assist the transition.
Our federal government should not party like it is 2010 again. But there is no budget crisis.
The second biggest risk is that state and federal governments will fail to continue the necessary long-term reform needed in areas such as taxation, health, education, transport and energy. The outcome of the Queensland state election has undermined reform. It shouldn’t. The evidence is clear that reforms, including privatisation, but particularly reforms that sensibly <a href="https://theconversation.com/privatisation-in-australia-as-the-accc-opens-a-can-of-worms-what-are-the-lessons-on-government-ownership-and-regulation-21752">introduce competition</a> where it can work, have benefited people in the states that have had the leadership to push forward.
There is still plenty of <a href="https://www.erawa.com.au/cproot/12778/2/Final%20Report%20-%20Inquiry%20into%20Microeconomic%20Reform%20in%20Western%20Australia.PDF">scope for reform</a>. Congestion charging on urban roads with funds being used to improve public transport, is a no-brainer. Removing impediments to the sharing economy, such as the regulations that protect vested interests but undermine platforms like Uber and Airbnb, will mean better and cheaper choice for families. Requiring government infrastructure projects to have independent cost-benefit analysis will reduce political boondoggles that help marginal electorates but cost the broader community. Moving to real-time pricing in electricity and using smart grids to give consumers more control over their power bills, will reduce energy use and carbon emissions while saving money for households.
There is a long list of reforms that governments should be pursuing. These reforms are necessary to maintain our economic flexibility. But with any reform there will be winners and losers. Governments need to have the guts to implement reforms, but the compassion to reform in a way that protects the most vulnerable in the community.
Finally, our governments need to remember the compact that has underpinned Australia since federation. We do not leave people behind. There has long been a series of transfers, through the grants commission and through the distribution of the GST, from the richer states to the poorer states and from the cities to the bush. These transfers help guarantee that all Australians can gain from long term economic growth. These transfers need to continue. But they also <a href="https://theconversation.com/bandaids-on-broadband-has-turnbull-got-what-it-takes-to-fix-the-nbn-36913">need to be transparent</a>. And states need to remember that <a href="https://economics.com.au/?p=8726">today’s winners can be tomorrow’s losers</a>. The transfers are like a national insurance policy that protect us all.
So, the economic future is looking bright for Australia. Sure, the economic winds have changed. But so long as we can adapt and “change tack”, and governments do not get in the way, the next ten years for Australia are likely to be even better than the last ten.
Stephen King is professor at the Department of Economics at Monash University.
This article was originally published on <a href="https://theconversation.com">The Conversation</a>.
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Turning headwinds into tailwinds - the economy can correct course: Stephen King

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At last Monday’s do-or-die Press Club speech Prime Minister Tony Abbott claimed jobs growth in 2014 was triple the rate in 2013, with 4,000 new jobs a week. 
Treasurer Joe Hockey said the same thing on AM on Wednesday, refashioning the figure as 600 new jobs a day.
It’s a claim that seems counterintuitive amid headlines about the PM abandoning as unachievable his pre-election pledge to create a million jobs within five years. Unemployment jumped above 6% last year, the resources bust is on us, and consumer and business confidence has stalled.
A walk-through the figures from the Treasurer’s office confirms the calculations are ridgy-didge, as far as they go, being based on simple averages of the total persons employed column of the most recent Australian Bureau of Statistics labour force data. The government is only making one debatable assumption: that the labour market performance through 2013 can be properly attributed to the previous government, even though the Coalition was in power for the last three months of the year, while the 2014 stats are credited to the current government. The Treasurer’s office says assuming a three month lag before its policies take effect is perfectly plausible, and let’s not quibble there.
On average in 2013 there were 5,063 jobs created each month, while in 2014 there were 17,823 a month — more than 4,000 a week or 600 a day.
The ABS data doesn’t break out employment by industry sectors but construction is reckoned to be the stand-out performer in jobs growth last year. Given how toppy property markets are looking, particularly in Sydney and Melbourne, it would be a brave policymaker who counted on a housing-led recovery in employment continuing on and on — even with lower interest rates.
But if the ABS data is right and jobs growth has tripled, why are we so gloomy about our job prospects and security? One problem with it is the official data fails to take account of population growth, as was highlighted in this <a href="https://www.google.com.au/url?sa=t&amp;rct=j&amp;q=&amp;esrc=s&amp;source=web&amp;cd=2&amp;cad=rja&amp;uact=8&amp;ved=0CC0QFjAB&amp;url=http%3A%2F%2Finsidestory.org.au%2Faustralia-today-a-million-new-adults-just-385000-new-jobs&amp;ei=twjUVNTHGaPJmAXX2oI4&amp;usg=AFQjCNFsu1-W8Q3M00TaKp2CXc-WXJJFmA&amp;sig2=E-mbSaUTIv-Bvmh_PvwBfQ">terrific article</a> by former Age economics editor Tim Colebatch. Over the three years to December 2014, the economy created 385,000 new jobs for every million new adults, his analysis shows, well down on the 690,000 new jobs created for every million new people over the past 30 years. Colebatch points at the high immigration rate — particularly employers using 457 visas to employ cheap cooks, for example — and argues the labour market simply can’t generate enough work for everybody.
People are simply dropping out of the workforce. The problem is highlighted in the following chart, which shows that, excepting Tasmania, the ratio of employment to population has tanked since the financial crisis.
<a href="https://media.crikey.com.au/wp-content/uploads/2015/02/employmentpopulation.jpg"><img class="aligncenter size-full wp-image-479203" src="https://media.crikey.com.au/wp-content/uploads/2015/02/employmentpopulation.jpg" width="513" height="445"></a>
South Australian Senator Nick Xenophon, whose office provided the chart, told Crikey he has railed for years about the official employment figures and queries the government’s jobs claim: “I think that needs to be deconstructed, it needs to be forensically looked at. What percentage of those new jobs is someone working three, six, eight hours a week, particularly given anyone is counted as employed if they work as little as an hour a week?”
Data quality aside, the most pressing question is, given the tough job of transitioning out of the resources boom, where is future jobs growth going to come from? The Treasurer’s office points to “green shoots” such as last month’s ANZ job ad survey, which <a href="https://www.theaustralian.com.au/business/economics/anz-survey-shows-job-ads-rising-for-seventh-month-in-row/story-e6frg926-1227182042074">showed</a> jobs ads had risen for the seventh month in a row, and this week’s Dunn &amp; Bradstreet business expectations survey for the next quarter, which <a href="https://www.smh.com.au/business/expectations-surveys-show-business-sector-optimistic-about-employment-20150202-1342fs">shows</a> a jump in the hiring intentions of business for the next quarter.
Unfortunately for the government neither survey, on a close reading, is optimistic. ANZ’s job ads survey was a reliable leading indicator when print dominated, and although it now includes online ads it does not include social fora like LinkedIn, so it is still finding its feet in the digital economy. ANZ chief economist Warren Hogan commented: “The good news is that the economy continues to produce new employment opportunities. The bad news is that this has not been quite enough to counteract the flow of new workers into the economy plus the on-going loss of jobs in certain sectors”.
Hogan told Crikey ANZ had revised its forecasts for 2015 down, like most economists and expected unemployment to peak later this year: “We’re expecting jobs growth in certain key services such as real estate, IT and telecommunications and construction.
“The $64,000 question is whether or not broader business services industries can increase their headcount again — banking, accounting and the legal profession have been subdued at best for the last half-decade and they are big employers”.
Headlined “outlook cools”, Dunn &amp; Bradstreet’s survey is also less than confidence inspiring: firstly, although the survey has shown a jump in hiring intentions since the last election, and a big jump in January’s one-month survey, actual hiring has consistently tracked below expectations. Whether the jump in intentions translates into new jobs is unclear.
D&amp;B adviser Stephen Koukoulas told Crikey there was no suggestion we were headed for the precipice: “The labor-intensive parts of economy are retail and construction. Both are doing pretty well. House building and construction is pretty strong, really encouraging, and unlike mining, which is not very labor-intensive. The other one is retail, as we move from the mining boom to the dining boom, if we’re spending more money in cafes and restaurants , that employs a lot of people. So there’s a compositional shift in growth towards those sectors.”
Koukoulas is also not too gloomy about the future of manufacturing: “If you’re a manufacturer and you’ve survived last few years, with the Australian dollar now below US80c and probably staying there, you’re going to start doing well.”
Hockey’s office nominate three industries as source of future jobs growth: financial services, infrastructure and high-tech manufacturing — pointing for example to the Sydney firm that makes RODE microphones, recently <a href="https://www.joehockey.com/media/transcripts/details.aspx?s=621">toured by the Treasurer</a>. The recent free trade agreements will help manufacturers too, Hockey’s office says.
A microphone-led recovery seems unlikely, but niche manufacturing stories are always like that. Most concerning for the likes of Xenophon (and Victorian independent Senator John Madigan, who let rip on submarines on Q&amp;A on Monday) is looming self-inflicted job catastrophes in industries like car manufacturing and shipbuilding, particularly if our next submarine is going to be built offshore.
Says Xenophon: “We are looking at a tsunami of unemployment with the auto sector in next few years. [The subs decision] will have a massive multiplier effect in terms of unemployment.”
Xenophon points to growth industries like food manufacturing, medical technology and backs calls for relief on penalty rates for small businesses in the hospitality sector. ”I think we should be looking in advanced manufacturing, taking head-on the dumping that occurs that kills jobs — we take a very narrow approach to the WTO rules. We need to have a strategic approach to infrastructure, and smart manufacturing. We need to make sure our subs are built here and I think we need to have incubators for SMEs to drive jobs growth — miniature silicon valleys in our capital cities.”
It’s not exactly a comprehensive jobs plan, but it’s better than cutting industry assistance, abolishing the carbon tax and praying — which seems to be the nub of the government’s strategy to date.
This story originally appeared on <a href="https://www.crikey.com.au/2015/02/06/where-are-all-these-jobs-abbott-is-supposedly-creating/">Crikey</a>.
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Where are all the jobs Abbott is supposedly creating?

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Investors have been told rent inflation was slowing, consistent with the increase in vacancy rates over recent years, according to the February Reserve Bank of Australia (RBA) meeting monetary statement.
The pace of national housing price growth slowed too noticeably in early 2014 but, looking through the volatility, appeared to have changed little since then, the RBA board meeting was told on Tuesday.
"Notwithstanding this, growth of housing prices remained strong over recent months, particularly in Melbourne and Sydney," the minutes said.
"At around 8%, housing price growth remains well above the growth rate of household incomes.
"Survey measures of housing price expectations declined in the December quarter and remain below the levels reached in late 2013.
"Most non-price indicators of housing market activity remain consistent with strong conditions in the established market, which should provide further support to consumption in the near term."
It noted the nationwide rental vacancy rate "has been gradually drifting up since the mid 2000s".
"Accordingly, rental price inflation has slowed, which, combined with strong housing price growth, has resulted in rental yields continuing to fall," the statement read.
HSBC Noted today's official statement from the RBA saw them revise down their GDP growth forecasts to 1.75-2.75% for 2015, from 2-3% previously. Growth is still expected to pick-up in 2016, to 2.75-3.75% (previously 2.50-4%). Underlying inflation is expected to remain around 2.25% in H1 2015, and they continue to expect it to be 2-3% beyond that, in line with their target objective. The statement was generally more down-beat about the pace of the ongoing rebalancing of growth, which appears to have been the reason for this week's rate cut.
The monetary statement noted consistent with the strong growth in housing prices, low interest rates and above-average population growth, there has been considerable growth in dwelling investment, which increased by 7% over the year to the September quarter.
It noted timely leading indicators point to further growth in dwelling investment in the December and March quarters.
"Dwelling approvals, particularly those for higher density homes, have stayed at a high level recently.
"Loan approvals for new dwellings increased by 5% over the year to November and the number of first home owner grants paid for new dwellings has continued to trend higher, increasing by 22% over the past year.
"Inflation in the housing-related components of the CPI remained moderate overall in the December quarter.
"Inflation in the price of new dwellings remained above the average of recent years, consistent with strong residential building activity.
"The RBA's liaison suggests that the upswing in residential construction activity has allowed some builders to increase margins over the past year or so.
"Combined with an increase in the cost of building materials, this has contributed to higher inflation in the prices for new dwellings.
"In contrast, rents inflation remained slow in the quarter, consistent with the increase in vacancy rates over recent years. Utility prices increased slightly, after falling in the September quarter due to the repeal of the carbon price."
The statement offered forecasts for consumption assuming that wealth effects continue to operate as they have done in the past and that there will be a further gradual decline in the household saving ratio.
"Consumption growth could be stronger than anticipated if conditions in housing markets strengthen, particularly in parts of the country that have seen less growth in house prices of late.
"If this is associated with a significant increase in leverage or a decline in lending standards, it could pose some risk to macroeconomic stability.
"However, another possibility is that ongoing buoyant conditions in housing markets will have less of an effect on consumption than previously.
"In particular, in recent years fewer households appear to have been utilising the increase in the value of their dwelling to increase their leverage or trade up.
"This possibility would imply that the saving ratio will be higher and consumption growth a little lower than expected based on historical experience.
"In addition, there is significant uncertainty around the size of the effect that the large changes in commodity prices, particularly oil prices, will have on household saving and consumption behaviour."
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Investors warned national rental vacancy was drifting: RBA February statement

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GUEST OBSERVATION
This week’s Reserve Bank interest rate move surprised virtually everyone, bringing the cash rate to 2.25%, yet another historic low.
Despite Australian Treasurer Joe Hockey suggesting the rate cut means “the shackles are off the Australian economy,” the cut is unlikely on its own to kick Australia’s GDP growth rate back to trend level. But with a little help from friends offshore and a light touch from APRA, the rate cut just might work.
Let us review for a moment how a lower cash rate can boost the economy – the so-called “transmission channels” for monetary policy. There are three. First, rate cuts change asset prices, including foreign exchange rates. Second, rate cuts should reduce the cost of capital, all else being equal. Third, rate cuts should increase the availability of credit from banks’ balance sheets. All three elements are important considerations in yesterday’s move.
Asset prices moved according to expectations, with the ASX rallying 1.4% on the news. The main game, however, was the exchange rate.
Pushing the dollar down
Many commentators have focused their attention on the AUD-USD exchange rate, which fell by 1.5 cents immediately after the rate cut. Was this the RBA’s main target? The AUD had already depreciated significantly against the US dollar, with the AUD-USD as of 2 February already 15% below its average over the first half of 2014. At AUD/USD0.7769 as of 2 February, the benchmark rate of exchange was very near the level that RBA Governor Glenn Stevens had indicated was desirable.
What had not moved perhaps as much as the RBA might have liked was the trade-weighted index, which measures the AUD against a basket of the exchange rates of our major trading partners. The TWI had declined only 10% relative to its average rate across the first half of 2014, making the AUD the unwilling strong man in a world of “currency wars” depreciation. The ECB’s decision in late January to engage in its own version of quantitative easing - which sent the AUD back up above the AUD-EUR0.70 level, may have been one of the straws that broke the camel’s back and contributed to this early rate decision.
As of Tuesday, the TWI had dropped to below 63 for the first time since July 2009. This is welcome relief. But it can only last so long as other major central banks outside the US co-operate by avoiding further easing of their own.
What is likely to prove more important - and more durable - is a lower cost of capital and the potential to spur investment through greater availability of banking credit to the economy. Here, too, the RBA needs help – from the Abbott government and APRA.
Getting credit flowing to business
There is not a great deal of evidence to date that a lower cost of capital – with a historically low 2.5% cash rate already in place for a year – has induced an increase in investment in the Australian economy outside the property sector. Capital expenditure by firms has been largely limited to the resources sector, and is now petering out.
The household savings rate remains high, while the debt-to-asset ratio has fallen. This suggests households are electing to increase their equity in current investments rather than using leverage to expand their investment portfolios.
<img src="https://62e528761d0685343e1c-f3d1b99a743ffa4142d9d7f1978d9686.ssl.cf2.rackcdn.com/files/71164/area14mp/image-20150205-28601-3e6u3t.png">
Within the property sector, credit continues to grow at a relatively rapid pace, with <a href="https://theconversation.com/infographic-how-exposed-are-australian-banks-30272" target="_blank">credit growth</a> for investment properties far outpacing the expansion of credit for other purposes - whether household or business. In 2014, credit to purchase investment properties appears to have accounted for about 35% of all new credit creation in the economy. No wonder critics worry that the RBA’s rate cut has the potential to stoke excessive leverage in the property market.
The question becomes whether there are other triggers that can be pulled to encourage more credit to flow into other types of investment in the Australian economy. Ideally, that would be a renewed expansion of business credit to support increased capital expenditure, and eventually business activity and employment.
<img src="https://62e528761d0685343e1c-f3d1b99a743ffa4142d9d7f1978d9686.ssl.cf2.rackcdn.com/files/71165/area14mp/image-20150205-28578-egik59.png">
The RBA cannot dictate that looser monetary policy be directed toward the business sector. But the Abbott government and APRA have in hand the tool to provide a not-so-gentle nudge.
Will the government act on Murray’s advice?
We are merely weeks away from the deadline for final feedback to the <a href="https://fsi.gov.au/" target="_blank">Financial System Inquiry</a>, led by David Murray. A key recommendation of the inquiry was to raise banks’ average internal ratings-based risk weights on mortgages to narrow the difference between the mortgage risk weights used by authorised deposit-taking institutions and the “standard” risk weights used by other institutions.
In shorthand, this recommendation would force the Big 4 banks to hold more capital against their mortgage books, making the mortgage-writing business relatively more expensive (and less attractive) from a capital perspective.
This recommendation makes sense. The post-2008 boom in investment property has been driven in part by investor demand – but also in part by the Big 4 banks being willing underwriters of residential real estate. This willingness has in turn been driven, at least in part, by the regulatory setting that makes mortgages one of the least capital-intensive – and therefore cheapest to produce – lending products in the Australian market.
Reducing this regulatory incentive to lend into the property market holds the potential to increase the appetite among the Big 4 for other types of lending, including business credit. It is a reform that the Abbott government and APRA can hang their hat on in 2015.
Amy Auster is deputy director at Australian Centre for Financial Studies.
This article was originally published on <a href="https://theconversation.com">The Conversation</a>. 
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AmyAuster-LX8uHdhTjE

How to multiply the rate cut impact and unshackle the economy: Amy Auster

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GUEST OBSERVATION
Ever since commodity prices and the mining investment boom peaked three or four years ago there has been a constant chorus of doom regarding the Australian economy: the reversal of the mining boom will knock the economy into recession, house prices will crash and banks will tumble.
This view was particularly prevalent amongst foreign commentators who seemed to think that resource extraction was the only thing Australians do.
While this tale of doom has not happened, the economy has been a bit lacklustre: growth has been sub-par, wages growth has fallen to record lows, unemployment has drifted up and confidence readings have remained poor.
Against this background, the RBA has rightly cut interest rates again.
Interest rates and the economy
There are good reasons for the RBA to be cutting rates further:
<ul class="link-list">
<li>Growth is too low, running at around 2.75% through last year, which is well below potential (of around 3-3.25%) and the level needed to prevent a rise in unemployment. 
</li>
<li>Confidence is subdued, having well and truly given up the post 2013 Federal election boost.</li>
</ul>
<img src="https://www.ampcapital.com/AMPCapitalGlobal/media/contents/Blog/olivers-insights/2015/February/4/chart-1.PNG" alt="Confidence remains subdued">
Source: Bloomberg, AMP Capital
Partly reflecting this, consumers have started to become more focused on paying down debt again, which is a sign of increasing caution and will threaten spending if sustained.
<img src="https://www.ampcapital.com/AMPCapitalGlobal/media/contents/Blog/olivers-insights/2015/February/4/chart-2.PNG" alt="Australia's becoming a bit more cautious again">
Source: Westpac/Melbourne Institute, AMP Capital
<ul class="link-list">
<li>Prices for iron ore and energy have collapsed resulting in a bigger hit to national income than expected a year ago.</li>
</ul>
 
<img src="https://www.ampcapital.com/AMPCapitalGlobal/media/contents/Blog/olivers-insights/2015/February/4/chart-3.PNG" alt="Iron ore and the terms of trade has fallen more than expected">
Source: Bloomberg, AMP Capital
<ul class="link-list">
<li>Outside the US the predominant trend globally is still towards monetary easing and this is putting pressure on the RBA. Massive quantitative easing programs in Europe and Japan are forcing smaller countries to ease unless they want to see their currencies go higher. This should really be characterised as “easing wars” as opposed to “currency wars”. To the extent it is forcing monetary easing around the world, it adds to confidence that sustained deflation can be avoided. Australia is not immune. As the RBA wanted to see a continued broad based decline in the value of the $A it had to re-join the easing party lest the Australian dollar rebounded. Our interest rates are still high globally. 
</li>
<li>Finally, benign inflation provides flexibility for the RBA.</li>
</ul>
The main risk in cutting rates again is that it further inflates the residential property market. However, strong property price gains are largely concentrated in Sydney and the RBA sees this as more of an issue for the prudential regulator, APRA.
Overall, we see the RBA’s cut as justified and, given that there is rarely just one move, we expect another 0.25% cut taking the cash rate to 2% in the months ahead.
Reasons for optimism
However, it’s not that I am bearish on the economy. Rather it makes sense for the RBA to be taking out some insurance to make sure growth holds up and improves. There are several reasons for optimism that growth will improve:
<ul class="link-list">
<li>Borrowing rates are at generational lows. This is bad for bank depositors but the latest rate cut will save someone with a $300,000 mortgage roughly an additional $15 a week. In total Australian households have $850 billion in bank deposits but owe $2,050 billion in debt so the household sector is a net beneficiary of lower interest rates.</li>
</ul>
<img src="https://www.ampcapital.com/AMPCapitalGlobal/media/contents/Blog/olivers-insights/2015/February/4/chart-4.PNG" alt="Record or near record low interest rates">
Source: RBA, Bloomberg, AMP Capital
<ul class="link-list">
<li>The fall in the Australian dollar is removing a major drag on growth. It needs to go down some more but this is very positive for sectors such as manufacturing, tourism, higher education, services, farming and mining. 
</li>
<li>The collapse in oil prices has delivered huge savings to businesses and households. If petrol prices hold around current levels it means the average household will save around $19 a week from mid last year on their petrol bill.</li>
</ul>
 
<img src="https://www.ampcapital.com/AMPCapitalGlobal/media/contents/Blog/olivers-insights/2015/February/4/chart-5.PNG" alt="Weekly petrol bill for a typical Australian household">
Source: AMP Capital
<ul class="link-list">
<li>Stronger export volumes from completed resource projects will provide a partial offset to lower commodity prices.</li>
</ul>
Overall, we see growth picking up gradually as the year progresses to a 3-3.5% pace through next year, but the RBA’s latest rate cut and one more to come provide confidence that this will occur.
Article continues on the next page. Please click below. 
<hr class="system-pagebreak">
Implications for investors
There are several implications for investors. First bank term deposit rates are becoming even less attractive and will remain low at least into next year. As a result, there is an ongoing need to consider alternative sources of yield and return.
<img src="https://www.ampcapital.com/AMPCapitalGlobal/media/contents/Blog/olivers-insights/2015/February/4/chart-6.PNG" alt="Not a lot of value in Australian term deposit rates">
Source: RBA, AMP Capital
Second, remain cautious on the Australian dollar. While the Australian dollar is nearly back to the US$0.75 level that marks fair value on the basis of relative prices, past experience tells us it can overshoot and it hasn’t fallen nearly as much against the Euro and Yen putting more pressure on for further weakness against the US dollar.
The RBA has indicated “a lower exchange rate is likely to be needed”, and it is likely to ease further till it gets this. The Australian dollar is oversold short-term and so could have a short-term bounce, but expect a fall to US$0.70 by year end. So continue to favour unhedged over hedged global shares.
<img src="https://www.ampcapital.com/AMPCapitalGlobal/media/contents/Blog/olivers-insights/2015/February/4/chart-7.PNG" alt="The A$ back to around fair value on relative prices">
Source: RBA, ABS, AMP Capital
Third, overweight Australian versus global bonds. While Australian bond yields are low they are high by global standards and likely to provide better returns than global bonds as the global search for yield results in ongoing convergence of Australian bond yields with the lower rates seen globally and as further RBA easing pulls down local bond yields. This should also benefit Australian corporate debt relative to global.
Finally, with low interest rates growth assets providing decent yields will remain attractive. This includes commercial property and infrastructure but also Australian shares which continue to offer much higher income yields relative to bank term deposits.
<img src="https://www.ampcapital.com/AMPCapitalGlobal/media/contents/Blog/olivers-insights/2015/February/4/chart-8.PNG" alt="Australian shares offering a great yield v bank deposits">
Source: RBA, Bloomberg, AMP Capital
<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.
He also provides economic forecasts and analysis of key variables and issues affecting, or likely to affect, all asset markets.
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The RBA was right to cut rates and should do so again: Shane Oliver

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Will lower oil prices mean improved economic growth?
The answer is both yes and no, depending upon which country you live in.
Recently, the Australian Financial Review reported an analysis by Oxford Economics, which predicted the likely effect upon GDP during 2015-16 of oil being at US$40 v US$84 per barrel.
A quick summary of that is included below.
<img src="https://commercialpropertymadeeasy.com/assets/2015/01/Oil-GDP.jpg" style="display: block; margin-left: auto; margin-right: auto;">
As far as Australia is concerned, ANZ's chief economist Warren Hogan says:"The $1 a litre petrol currently being pumped in Sydney bowsers is akin to half a 0.25 percentage interest cut."
Clearly, those oil-producing countries around the world will suffer. However, one country's loss is another country's gain.
The World Bank feels windfall savings (through price reductions) will lead to improved global economic demand — particularly, in those countries which rely upon foreign oil. And in return, this will help address the present imbalance in economic growth.
Furthermore, the World Bank predicts China's current account surplus could add between 0.4-0.7% to its GDP, during 2015 alone.
For Australia
Therefore, not only will our economy and consumers benefit from lower oil (ie: petrol) prices, but our major trading partners — China, US, India and Japan — will also enjoy advantages from lower oil prices as well.
As such, this should translate into a fourfold benefit for Australia
<ul>
<li>A decline in the present inflation rate; 
</li>
<li>Improved consumer confidence at home; 
</li>
<li>A sustained lower dollar to help exporters; and 
</li>
<li>Improved demand for what our exporters produce over the next 12 to 18 months.
</li>
</ul>
Bottom line: According to CBRE research, 2014 saw a record $26.8 billion in commercial property deals.
Office sales represented over half that total; and 23% of purchases were made by foreign investors.
With most industry experts expecting 2015 to be another strong year, improved confidence among local buyers could provide some welcome competition to those overseas purchasers.
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How lower oil prices could affect Australian commercial property: Chris Lang

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Luci Ellis, the head of Financial Stability Department at the Reserve Bank of Australia (RBA), had her thoughts presented to the World Economic Forum at Davos last month.
She noted Australia's prevalence of variable rate mortgages was seen as stabilizing because it encourages rapid amortization, beyond what the loan contract requires.
But she also noted the use of fixed rate loans is regarded as stabilizing in German-speaking countries. 
Attendees at the World Economic Forum at Davos were told both 1929 and 2008 were financial landmarks, but they were not unique, according to an analytic report prepared by the <a href="https://www3.weforum.org/docs/WEF_Emerging_Horizons_Real_Estate_Profile_Prescriptions_Proposals_report15.pdf" target="_blank">Steering and Advisory Committees of the Emerging Horizons in Real Estate – Asset Price Dynamics Initiative</a>. 
"Institutional settings that have been regarded as sources of vulnerability in some cases can be sources of stability in others, depending on the context," Ellis wrote in the report's foreword.
"For example, restrictions on building are seen as exacerbating the 1970s cycle in office property in the United Kingdom, but more recently in Ireland, tighter restrictions might have helped to prevent the geographic misallocation of construction activity.
"Similarly, the use of fixed rate loans is regarded as stabilizing in German-speaking countries, whereas in Australia the prevalence of variable rate mortgages is seen as stabilizing because it encourages rapid amortization, beyond what the loan contract requires."
She observed that many of the recent boom-bust episodes were sparked, at least in part, by financial deregulation.
"Freed of past quantitative restrictions, banks eased their lending standards and expanded credit beyond levels that could be reasonably serviced once the market turned down," wrote Ellis.
"But this shift necessarily only happens once.
"It remains to be seen if these episodes could repeat themselves in the same countries.
"Yet memories fade, and the lax lending standards that characterized some of the boom phases described in this collection have re-emerged in some cases.
"The stance of prudential supervision seems to be important here, in that “light touch” regulatory regimes have frequently failed to prevent excessive risk-taking by financial institutions or their customers."
Ellis noted tax systems that encourage leverage and prudential regulatory regimes that do not effectively curtail imprudent behaviour seem to be common factors in many of the episodes analysed in these case studies.
Another common factor relates to the price of credit: where fixed exchange rate regimes or currency union membership result in interest rates being out of line with the needs of the domestic economy, capital flows and credit supply can fuel a speculative boom in domestic asset markets, particularly property.
"The overarching lesson for policy-makers from the collected experiences is that the social costs of the busts can be large enough to justify preventative policy action," Ellis wrote.
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RBA's Luci Ellis tells World Economic Forum boom-bust cycle fueled by financial deregulation

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There was little consensus on what the next move for interest rates in Australia was.
Several economists have changed their predictions from flat or rising rates through 2015 to forecasts of declines, while others maintain that the next shift will be up.
A key financial market indicator, <a href="https://www.sfe.com.au/content/prices/rtp15SFIB" target="_blank">the ASX 30 Day Interbank Cash Rate Futures</a> February 2015 contract, on 27 January revealed a 38% expectation of an interest rate cut to 2.25% at the RBA’s board meeting on 3 February. But, with the release of higher than anticipated inflation data for the final quarter of 2014 on 28 January, the indicator dropped sharply to 16%, suggesting much lower expectations of a rate cut in February.
Click to open in new window:
<a href="/images/2015/01/30/zoe-jan-30-onem.jpg" target="_blank"><img src="/images/2015/01/30/zoe-jan-30-onem.jpg" alt=""></a>
Source: global-rates.com, Property Observer research.
Some economists, including HSBC Bank’s chief economist for Australia and New Zealand Paul Bloxham, say the latest inflation figure means interest rates are now more likely to remain on hold through 2015 than be cut.
The RBA bases its interest rate decisions on a wide range of economic drivers. Local inflation figures are a critical component. But global economic factors such as falling oil prices and uncertainty in the economic outlook for Australia’s trading partners and other countries also have an influence.
Property Observer had a look at what central banks in other countries are doing with their official interest rates.
The RBA bases its interest rate decisions on a wide range of economic drivers. Local inflation figures are a critical component. But global economic factors such as falling oil prices and uncertainty in the economic outlook for Australia’s trading partners and other countries also have an influence.
Trading partners
China is Australia’s biggest two-way trading partner so its economic health is vital to Australia. China’s economy has been slowing and in November 2014 its central bank cut interest rates for the first time in two years in move to improve the situation. Its official interest rate is now at 5.6%, down from 6% in November.
Australia’s second largest trading partner is Japan. The Japanese economy has been in a poor state for years. Its official interest rate is just 0.1%.
The Federal Reserve, the central bank of Australia’s next biggest trading partner, the USA, has been vocal about its intentions to keep rates low for the near term. Its interest rate has been at 0.25% since December 2008, when the Fed slashed rates from 1%.
The table below shows the current interest rates of several major countries, the previous interest rate and the date of the most recent change.
As the table shows, many countries have been lowering interest rates. Most recently, at the end of January, Canada surprised markets by cutting rates, while Switzerland further lowered its negative interest rate, so customers must pay more to the central bank for holding their money.
Only a handful of countries have boosted rates in recent months, one being New Zealand, which is another of Australia’s top 10 trading partners. New Zealand lifted its interest rate in July last year to 3.5%.
While many countries manage monetary policy through interest rates, Singapore, another of Australia’s most important trading partners, manages its foreign exchange rate instead. On 28 January, the Monetary Authority of Singapore surprised the market by saying it would take measures to slow the rise of its dollar. This could be considered its version of cutting interest rates.
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