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Castle Hill, the longtime hub of the Hills District, has been one of the major beneficiaries of Sydney's Metro expansion, with improved connectivity helping drive continued population growth, development and buyer demand across the Hills District.

But despite that growth, the suburb has seen relatively few major new apartment projects brought to market over the past 18 months.

Hills District developer Reve Group is looking to fill that gap with <a href="https://www.apartments.com.au/new-apartments/nova-r-ve-castle-hill-2-garthowen-crescent-castle-hill-nsw-2154">Nova Rêve</a>, a major new mixed-use precinct on the corner of Garthowen Crescent and Old Castle Hill Road, a short walk from Castle Hill Metro Station and Castle Towers.

[smartcode_project:default project_id=152737 project_image_fid=377679]

The project will comprise three residential towers alongside a hotel, restaurants, cafes and a skybar, more than 1,600 sqm of ground-floor retail and almost an acre of landscaped gardens.

It represents the largest project undertaken by Reve Group, the development arm of the Kassis family, which has been building across the Hills District for more than 30 years through Kassis Homes.

[smartcode_project:default project_id=152737 project_image_fid=377675]

Nova Rêve also represents a significant step up from the family's first apartment development, Grand Rêve, which was delivered nearby on Garthowen Crescent.

Grand Rêve introduced larger, house-like apartment layouts and premium inclusions including Wolf and Sub-Zero appliances to the Castle Hill market.

Nova Rêve takes that approach to a precinct scale, combining the residential component with hospitality, retail and substantial public and resident landscaping.

[smartcode_project:default project_id=152737 project_image_fid=377685]

Reve Group Managing Director Sam Kassis said the project reflected the family's three decades of building in the Hills, which has evolved from trophy homes on quarter-acre blocks to larger-scale apartment development.

"Grand Rêve was our first apartment project here and it showed us what this pocket of Castle Hill could be. Nova Rêve is the refinement of that idea: not just apartments, but a place the whole suburb can use," Kassis said.

A key part of that approach is the hotel, which has been designed to operate as an amenity for the wider Castle Hill community rather than solely hotel guests.

It will include restaurants, cafes, skybars and all-day dining, alongside conference and event facilities catering to business functions, community groups and private events.

At ground level, more than 1,600 sqm of shops and cafes will open onto the surrounding streets and landscaped areas.

Almost an acre of gardens designed by Land and Form Studios will run through the precinct, incorporating pathways, seating, barbecue areas and children's play spaces.

[smartcode_project:default project_id=152737 project_image_fid=377680]

Reve Group's Romio Georges said creating an active ground plane had been central to the planning of Nova Rêve.

"There are gardens with pathways, barbecues, seating and play areas, shops and cafes opening onto the street, and a hotel with restaurants and a skybar that anyone in Castle Hill can walk into," Georges said.

The project's elevated position on one of Sydney's highest ridgelines will also provide apartments with outlooks toward the Sydney skyline, surrounding parkland and the Blue Mountains.

More than 80 per cent of the apartments will occupy corner positions, with Turner responsible for both the architecture and interiors.

&nbsp;

[smartcode_project_cta:default project_id=152737]

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Joel Robinson

Nova Rêve arrives as Reve Group bets on Castle Hill's next growth phase

A collection of just 25 large-format apartments and penthouses overlooking Goodwin Park is entering the Coolangatta market, with <a href="https://www.apartments.com.au/new-apartments/marea-residences-coolangatta-27-27a-dixon-street-coolangatta-qld-4225">Maréa Residences</a> combining a low-density, residential-only approach with uninterrupted park and Pacific Ocean outlooks.

Located at 27 Dixon Street, Maréa comprises three and four-bedroom residences alongside a limited number of dual-level penthouses, with the project positioned between Goodwin Park and <a href="https://www.apartments.com.au/developments/coolangatta-qld-4225">Coolangatta</a>’s coastal precinct.

Construction has commenced, with completion currently estimated for late 2027. Three-bedroom residences are priced from $1.8 million.

[smartcode_project:default project_id=150999 project_image_fid=374005]

The project has been designed around its northern outlook across the park, with the building’s architecture, landscaping and material palette intended to establish a connection with the neighbouring green space. The residences have been configured to maximise natural light and views across Goodwin Park towards the ocean.

Inside, the material palette incorporates timber, stone and brushed brass, complemented by curved detailing and ambient lighting. Kitchens and bathrooms carry the same natural material approach, while residences also include basement parking, storage and lift access.

Maréa’s penthouses are arranged over two levels and include private pools, adding another layer to the project’s focus on larger-format apartment living. Across the development, residences are configured with three or four bedrooms rather than the broader mix of smaller apartment types commonly found in larger projects.

[smartcode_project:default project_id=150999 project_image_fid=374010]

Resident amenity is concentrated at rooftop level, where landscaped entertaining terraces and pools take advantage of elevated views across Coolangatta and the Pacific Ocean.

The project has so far been particularly well received by local owner-occupiers and downsizers, according to Urban Activation Property Sales and Marketing Director Matt George, with the residential-only format, construction quality and northern park outlook among the features resonating with purchasers.

“The uninterrupted northern aspect overlooking Goodwin Park has been a key point of difference, with buyers attracted to the sense of serenity and open space the park provides, while still enjoying easy access to the ocean and being within walking distance of the lifestyle and amenities Coolangatta has to offer,” George said.

[smartcode_project:default project_id=150999 project_image_fid=374002]

“The combination of high-quality construction, a residential-only building, park outlook and proximity to the beach has resonated strongly with the local downsizer market.”

The Dixon Street address is within walking distance of Coolangatta Beach and the broader southern Gold Coast coastline, including the surf breaks at Snapper Rocks and Kirra. Coolangatta’s cafés, restaurants and retail are nearby, while Gold Coast Airport is also within close proximity.

[smartcode_project_cta:default project_id=150999]

Maréa Residences brings parkside apartments to Coolangatta

Melbourne developer PDG has secured Victorian Government approval for its $1.5 billion Southbank development <a href="https://www.apartments.com.au/new-apartments/the-one-1-queens-bridge-street-southbank-vic-3006">The One</a>, clearing the way for the long-dormant riverfront site opposite Crown to finally be developed.

The Minister for Planning has approved the project at 1-29 Queens Bridge Street, with the Department of Transport and Planning issuing the planning permit following its assessment.

The approval will allow PDG to develop the prominent 5,059 sqm site with a major mixed-use tower comprising premium apartments, including branded residences, a luxury hotel and boutique office space.

PDG acquired the site in late 2024, with its position directly opposite Crown's main entrance and near Melbourne's Arts Precinct making it one of Southbank's most significant remaining development opportunities.

<img alt="PDG" data-entity-type="file" data-entity-uuid="3933013e-6332-4386-b9be-089df05caf17" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-08-27%20at%209.29.22%E2%80%AFAM.png?VersionId=sITIgBqDL0N3VNSMwWEmF5UA.uvcsRyu" />

Designed by COX in collaboration with ODO and PDG, the tower's architecture draws on the movement of the Yarra River, with six vertical pleats running the height of the sculpted facade.

The project will also see the heritage-listed Queens Bridge Hotel restored and incorporated into the development&nbsp;with new hospitality and public uses, including a rooftop venue.

A significant component of The One will be its residential amenity.

More than 5,000 sqm of resident facilities will be delivered across a single level, making it one of the largest consolidated residential amenity offerings proposed in an Australian apartment development.

The planning approval also incorporates a major upgrade of Queensbridge Square, which PDG will deliver in partnership with the City of Melbourne.

<img alt="PDG" data-entity-type="file" data-entity-uuid="73167fcd-1031-4b6f-a408-a064cfe45ed1" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-08-27%20at%209.29.17%E2%80%AFAM.png?VersionId=Pf1AEWxw6SNmBqR0zQW5lyEze.MtxgFp" />

The existing square will be revitalised as a new civic and pedestrian space along the Yarra River, strengthening the connection between the project, Southbank and the riverfront.

PDG Founder and Managing Director Vince Giuliano said the approval represented a major milestone for a site which has remained largely underutilised for more than 15 years.

“This is the most significant Planning Permit approval Melbourne has seen in recent years,” Giuliano said.

“For more than 15 years, this site has remained underutilised. This approval enables us to deliver a project that will contribute meaningfully to the revitalisation of Southbank, restore and reactivate an important heritage building, and create a new civic and hospitality destination for Melbourne.”

The latest approval follows an earlier planning permit issued by the City of Melbourne covering demolition works across part of the site at 9-29 Queens Bridge Street. Those demolition and early works are already underway.

PDG has also started generating early interest in the residential component from owner-occupiers ahead of a planned public launch in early 2027.

PDG secures approval for $1.5bn Southbank apartment development, The One

Local developer Harridan is seeking to turn its Woolloongabba apartment project into the first stage of a broader transformation of Burke Street, using a new 16-storey mixed-use building to establish a greener pedestrian connection toward the rapidly evolving Boggo Road transport and knowledge precinct.

The South East Queensland developer has filed plans for 154 apartments on the <a href="https://www.apartments.com.au/new-apartments/4-burke-street-woolloongabba-qld-4102">southern side of Burke Street</a>, where its proposal has been designed alongside a wider vision by LatStudios for the street.

That vision positions the southern side of Burke Street for buildings of 15 storeys and above, while envisaging lower-rise development of up to five storeys on the northern side to transition into Woolloongabba's existing character housing. It also proposes wider pedestrian verges, deep planting, new street trees and upgrades to the pedestrian approach to Boggo Road Station.

The Harridan development itself has been designed by Brisbane-based Arqus Design and will comprise 154 apartments across 16 storeys. The mix is weighted heavily toward two-bedroom apartments, with 121 proposed alongside 10 one-bedroom and 23 three-bedroom residences. There will typically be around 14 units per floor.

A lower-ground car park and three podium levels will accommodate 156 resident parking spaces, along with visitor and commercial parking. There will also be 154 resident bicycle spaces and 40 visitor bicycle parks.

&nbsp;

Harridan is a family-owned developer and part of the Holmwood Highgate Group, with more than three decades of development activity across South East Queensland. Its portfolio spans residential, commercial and industrial property, with current residential projects including Riverbank on Byron in Bulimba, Esperance Residences in Carina and The Precinct at Kinross Road in Thornlands.

Wooloongabba has been popular for apartment developers, particularly since the announcement of the 2032 Summer Olympics games in Brisbane.

While there have been a lot of development applications, it has failed to materialize into real supply.&nbsp;

Sarazin has been the major player in the area. They are under construction at Murcia Residences, on the fringe of East Brisbane and Woolloongabba. They have just launched <a href="https://www.apartments.com.au/new-apartments/the-stanley-residences-woolloongabba-8-trafalgar-street-woolloongabba-qld-4102">The Stanley Residences</a>, in Woolloongabba on Trafalagar Street. They also have Nuage coming soon on the nearby <a href="https://www.apartments.com.au/new-apartments/nuage-woolloongabba-14-wellington-road-woolloongabba-qld-4102">Wellington Road</a>.

First look: Harridan plans Burke Street transformation beside Boggo Road transport hub

IN BRIEF

<ul>
	<li>
	Just three double-storey Sky Homes sit at the top of The Waterline, each with its own private marina berth and rooftop terrace.
	</li>
	<li>
	Construction on The Waterline is complete, with the first residents expected to move in from mid-October.
	</li>
	<li>
	Sky Homes range from 282 sqm to 367 sqm and are priced from $3.65 million.
	</li>
</ul>

<hr />
Lewis Land has opened the first completed sky home for inspection at Harbour Shores, giving buyers their first opportunity to step inside one of just three double-storey residences crowning The Waterline.

Each sky home comes with its own private marina berth, rooftop terrace and Broadwater views, combining the scale of a larger home with direct access to the boating lifestyle that underpins the wider <a href="https://www.apartments.com.au/new-apartments/harbour-shores-biggera-waters-564-oxley-drive-biggera-waters-qld-4216">Harbour Shores</a> masterplan.

[smartcode_project:default project_id=113271 project_image_fid=366708]

Lewis Land Head of Development Michael Long said the inclusion of a berth with every Sky Home had become increasingly valuable as marina access across the Gold Coast tightened.

“Marina berths are becoming increasingly difficult to secure across the Gold Coast, so including one with every Sky Home makes this a genuinely rare offering,” Long said.

“The private 70-berth marina will accommodate boats up to 12 metres in length and is positioned just 2.5 kilometres from the Broadwater, placing the open ocean only 15 minutes away.

“Being able to step out of your home onto your boat is a rare luxury, and it’s something residents here can look forward to when it opens later this year.”

[smartcode_project:default project_id=113271 project_image_fid=366709]

The display opening comes as construction completes on The Waterline, with the first residents expected to move in from mid-October.

The three Sky Homes range from 282 sqm to 367 sqm and each feature three bedrooms, three bathrooms, multiple living zones, expansive kitchens with butler's pantries and large balconies taking in the Broadwater outlook.

Each residence also has three secure basement car spaces and additional storage.

“This is the first opportunity the Gold Coast has had to step into Harbour Shores and see, touch and feel what we’re bringing to life here,” Long said.

“There are only three Sky Homes within The Waterline, ranging in size from 282sqm to 367sqm, with each residence featuring three large bedrooms, three bathrooms, multiple living zones, expansive custom-built kitchens with butler’s pantry, and large balconies capturing Broadwater views.”

<img alt="Harbour Shores" data-entity-type="file" data-entity-uuid="bab65e10-4fab-45e1-92d8-fc56e2ab98ff" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-08-25%20at%202.00.16%E2%80%AFPM.png?VersionId=XT8q76LsPkw3cYTsvN3JfFDaPLud90PN" />

Residents of The Waterline will have access to a private pool, along with Harbour Shores' wider collection of amenity including a lagoon pool, social clubhouse, tennis court, gym, yoga facilities and sauna.

Lewis Land partnered with Studio Collective to furnish the completed display, with the interiors designed to demonstrate how the residences could function as permanent homes rather than simply as show apartments.

Studio Collective Director Melissa Park said the surrounding waterways informed the interiors, but in a more restrained way than a traditional coastal scheme.

“We drew inspiration from the canals and coastal surrounds, but our approach was to interpret that subtly through layered materials and a grounded palette of earthy tones, rather than literal coastal references,” Park said.

“We introduced hero moments of green and teal to reference the surrounding waterways, while mirrored elements help reflect natural light.

“The result is a residence that feels elevated yet comfortable, somewhere buyers can genuinely imagine themselves living, entertaining and unwinding.”

Sky Homes are priced from $3.65 million.

Lewis Land is also offering private marina berths with The Residences, its limited collection of three and four-bedroom villas positioned directly along the Harbour Shores waterfront boardwalk.

Three-bedroom villas are priced from $2.99 million, while four-bedroom residences start from $3.19 million.

Harbour Shores is being marketed by Colliers International.

[smartcode_project_cta:default project_id=113271]

Lewis Land opens sky home display as The Waterline completes at Harbour Shores

Economy

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Note: This is the second part of Peter Chittenden's 2015 outlook. 
To read Part 1, <a href="/expert-insights/buying/the-residential-property-outlook-for-the-year-ahead">click here</a>.
Looking further into prospects for 2015: currently, the collapse of commodity prices is making hard work of local economic policy settings.
An interest rate cut looks to be more firmly on the agenda and employment prospects look shaky. Consumers are hesitant, but there is good news at the petrol bowser.
Beyond these leading factors, the residential market and in particular the demand for new apartment projects may slow at the margins in 2015, while remaining strong in key areas.
While the health of the wider economy will have an impact, there are a number of specific policy areas that will more directly influence demand. These include a review of taxation policy, the delivery of major infrastructure projects and planning policy. The falling dollar may, however, act as an incentive for off-shore buyers. This time last year, the AUS$ to US$ exchange rate was $0.89. Today it’s $0.81. Although this is a four and a half year low, the Reserve Bank has suggested the possibility of a greater fall, with the dollar valued closer to US$0.75.
Looking towards 2015, it appears that everything financial will have an impact on the residential property market.
The influence of lower rates for anyone with a home loan or looking to finance will be positive. However, with more caution now apparent in the market, lower rates are not likely to push up demand and hence prices.
What lower rates will do is make it easier to service loans, and as history shows, people tend to use lower rates to boost their mortgage repayments. Cheaper home loans may help to boost spending in other areas, and so benefit the wider economy. Currently, bad residential mortgage loans are at historic lows, which further reinforces how cautious and conservative this market is.
Henry &amp; Murray
In 2010 we had the Henry Review of the Taxation System. Now we have had the Murray Review of the banking system, and it appears that 2015 will at last be a time to act. The Murray Review was wide ranging, but areas impacting superannuation, competition and the taxation system may hold particular focus for the residential market.
While an increase to the GST does not look to be an immediate prospect, the reality is that an increase in the GST would lead to almost irresistible pressure to reduce other taxes, such as stamp duty, which for NSW has delivered a wind-fall in revenue this year.
Already the Federal Government has signaled such a structural change is not possible, given the state of the Federal budget.
However, the Murray report does create pressure for tax reform, that may well involve changes to negative gearing and how superannuation is taxed. Changes here would impact the residential market. Buyers would, of course, welcome a reduction of stamp duty, but any changes to negative gearing could cause investors some pain.
The growth in self managed super funds, and the flow of funds into property, in part highlight the sensitivity of this sector. There are some concerns that over-regulation could have the long-term affect of reducing the pool of savings people can access in their old age.
I think there is a natural tendency for many people to be anxious to manage the fate of their own investments, and so property will remain a popular choice with this group of retirees.
While the banking and tax systems have been under the spotlight, I wonder if there is room in the housing and development market for even more creative forms of finance?
Peer to Peer lending is a new financial tool that is only starting to emerge with some areas of personal finance. Could such ideas spread to the housing market? Could we one day see a Bitcoin revolution in housing finance?
Outside of these policy areas, supply will remain a key issue, supply in some markets is still to catch up with demand, and so this will keep pressure on prices, but this is not a universal trend. Investors are also less geographically focused on their own backyard, and so capital will flow to the stronger markets.
For developers, another emerging reality is that development sites have increased in value and demand remains very strong and competitive. Eventually, high site costs have to be absorbed into the final cost of apartments delivered to the market.
This article continues on the next page. Click below.
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Infrastructure &amp; Planning
In 2015, there needs to be an acceleration of infrastructure delivery, moving from what can at times appear to be endless planning.
Major projects are now more visible across Sydney, for example, and urgency might accelerate as both the State Government and Federal Governments look to election in March 2015 and early 2017 respectively.
In any election setting, activity on the ground is what counts. Activity means jobs, and delivery of infrastructure is an important goal as construction investment in the mining industry continues to fall.
However, beyond any political will to accelerate the delivery of infrastructure, the other reality is that values and demand are also impacted as areas associated with these works become more attractive to buyers.
Across Sydney there’s now a growing list of major projects underway including the South West and North West Rail links, the light rail to the Inner West already in operation, and the CBD and East light rail, plus the West Connex. Areas near these projects will see further growth in the demand for project sites.
The NSW state Government has also now released its vision for Sydney in an expansive document, <a href="https://www.strategy.planning.nsw.gov.au/sydney/" target="_blank">A Plan For Sydney</a>. The plan includes an important step as it applies to the 41 local government areas and sets up a new body to deliver the vision. Planning issues are always central to the delivery of new homes and apartments, and so it is to be hoped that the policies outlined in the document become a reality.
Quality To Improve
Finance, taxation, infrastructure and government policy are all factors that impact the residential market, but in a more immediate way, there is also a continued trend towards an ongoing improvement in the design and quality of projects.
As buyers approach the apartment market more as a long-term home, and investors also look for quality, we are seeing some inspirational new projects emerge.
This quest for quality and innovation will continue throughout 2015, as will demand for projects with access to established local services and facilities, including transport.
The market in 2015 looks complex than it did this time last year. The current bull run has been with us since mid 2013, so there is a need to remain alert, as possible changes to interest rate settings and taxation policy may yet hold surprises. The resilience of the local economy will be key.
To read Part 1 of Peter Chittenden's 2015 outlook, <a href="/expert-insights/buying/the-residential-property-outlook-for-the-year-ahead">click here</a>.
 
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pchittenden-eLqUUC8TWW

My residential outlook for the year ahead: Part 2

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The combined capital city housing markers have seen values increase by 7.0% over the first 11 months of 2014. 
Throughout the whole of 2013, capital city home values increased by 9.8% indicating that the rate of home value growth is likely to be lower this year than last.  On an annualised basis, combined capital city home value growth peaked at 11.5% in April of this year and has slowed to 8.5% over the 12 months to November 2014. 
As we enter 2015 it is our expectation that the housing market will see another year of home value growth, but not likely at the same pace as experienced over the 2014 or 2013 calendar years.  Although this is our base-case scenario, there will still be plenty of potential headwinds to watch out for that may impact on the housing market.
<h3>Unemployment</h3>
The national unemployment rate was recorded at 6.3% in November 2014 which is the highest unemployment rate since September 2002.  The Mid Year Economic and Fiscal Update (MYEFO) was released earlier this week by the federal government.  In the document the government revised up its forecast of the unemployment rate to 6.5% at the end of the current and the next financial year.
It isn’t just the high rate of unemployment which remains a concern.  Over the past year, the majority of new employment has been part-time positions which have increased by 2.5% over the year compared to a 0.7% increase in full-time employment.  The data also showed that in November 2014 the underemployment rate had increased to 8.6% which was its highest on record.  This is reflective of the strong growth in part-time employment, many working part-time would probably like to be working more hours or in full-time employment.
With comparatively high rates of unemployment and growing underemployment it has the potential to impact on housing demand.  If employees become concerned about job security they will be less inclined to commit to purchasing a home.  Furthermore, if employees can work as much as they like and subsequently earn as much as they’d like they may also not be able to purchase a home.
<h3>New APRA steps to reinforce sound residential mortgage lending practices</h3>
Last week APRA (the Australian Prudential Regulation Authority) wrote to all Australian authorised deposit-taking institutions (ADIs).  The letter highlighted further steps that will reinforce sound lending practices. 
Although the note didn’t indicate that any macroprudential tools would be formally implemented, the letter noted that APRA will be increasing supervisory surveillance to reinforce sound lending practices.  This is in response to specific prudential concerns which are detailed below:
<ol>
<li>
Risk profile – higher risk lending such as high loan to income and high loan to valuation ratios, interest-only lending to owner occupiers for lengthy periods and long term lending are of specific concern. APRA is concerned about lenders undertaking larger than normal volumes of lending in these areas. 
</li>
<li>
Investor lending – fast or accelerating credit growth in this space can be a key indicator of growing risk. APRA highlighted that annual investor credit growth that was materially above 10% per annum will be an indicator of increased risk. 
</li>
<li>
Serviceability assessments – APRA is of the view that mortgages should have a serviceability buffer of at least 2% above the loan product rate and with a minimum floor assessment rate of 7%</li>
</ol>
Through these guidelines they have advised the ADIs of the lending environment they expect.  Although there have been no blanket macroprudential tools, the letter is pointed and notes that ADIs that do not adhere to these rules will be under review to stricter lending limits. These guidelines are likely to have an impact on the residential housing market. 
Firstly the very strong growth in investor housing demand over the past two years will likely taper to a more moderate pace.  Secondly, some borrowers who are stretching themselves financially to enter the market may find accessing home loans increasingly difficult due to the new serviceability guidelines.
<h3>Household income growth</h3>
While home values have increased by 8.5% over the 12 months to November 2014, real household incomes have increased by just 0.8%. One wonders how long home value growth can continue to outpace household income growth.  
Over the 10 years to September 2014 nominal home values have increased 52.4% compared to real household income growth of 36.4%.  These two figures are not significantly different and real home value growth has actually been lower than growth in household incomes.  This would seemingly suggest that the current surge in home values, which has started to slow, cannot continue all that much longer without income growth.
Article continues on the next page. Please click below. 
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<h3>Consumer sentiment</h3>
According to the Westpac and Melbourne Institute’s monthly measure of consumer sentiment, consumers have been more pessimistic than optimistic for 10 consecutive months.  To put that in perspective, consumers haven’t been this consistently gloomy since the depths of the financial crisis in 2008 and early 2009. 
Further highlighting the consumer gloom the data shows that when respondents were asked about the wisest place for savings 40.3% chose a banks, building societies and credit unions.  This was the highest reading since September 2012. 
Over the past 15 years, an average of 27.5% of respondents have chosen this segment, highlighting the heightened sense of consumer anxiety.  The level of consumer anxiety is more confronting when you consider that those with savings in a financial institution are currently earning virtually no interest with the cash rate sitting at 2.5%.
Consumer sentiment is closely correlated with housing demand.  If consumers are feeling less confident about the overall economic conditions, they are going to be much less likely to make high commitment decisions such as taking out a new mortgage.
<h3>Housing finance commitments</h3>
We have already highlighted that APRA is concerned with the heightened level of investment lending and have provided stricter guidelines for Australian ADIs regarding to this segment of the market.  Housing finance data shows that investors are currently the primary driver of housing demand.
In October 2014, there were $11.7 billion in housing finance commitments to owner occupiers for new loans, $5.4 billion to owner occupiers for refinancing purposes and $12.1 billion to investors. 
Year-on-year, owner occupier new loan commitments are 0.8% higher, owner occupier refinances have risen 18.1% and investment loan commitments are 19.8% higher. Owner occupier new loans and investor loans are a much larger driver than refinances. 
With the new APRA guidelines it looks as if lending to the investor cohort will slow in 2015.  It is unlikely this can simply be replaced by lending to owner occupiers for new loans.  In fact, new lending to owner occupiers has been trending lower since it peaked at $12 billion in lending in November 2013.
If lending to investors slows as owner occupier lending is already doing, it seems that there will be less mortgage demand and subsequently less property transactions.  In turn, this is likely to result in lower levels of capital growth across the housing market.
<h3>Dwelling approvals</h3>
Dwelling approvals have lifted significantly throughout the past two years, providing a significant pipeline of new construction. 
Although dwelling approvals have eased over recent months, over the 12 months to October 2014 there were 197,529 dwelling approvals which is hovering around the highest annual number on record.  On a monthly basis dwelling approvals peaked in January 2014 and although they remain high, they have trended lower.
An important feature of dwelling approvals is that the number of multi-unit dwellings being approved is at near record highs.  There is growing demand for inner city units however, a unit development is typically a riskier development proposition than a detached house and ultimately multi-unit dwelling approvals are less likely to proceed into the construction phase.
If growth in home values slows throughout 2015 along with a slowdown in housing transactions, we may see some of the pipeline of approvals, particularly unit approvals, not actually make it to construction. 
In order to commence construction developers typically require a certain level of pre-sales to begin.  If sales slow, achieving a sufficient level of presales may become more difficult and may potentially jeopardise some of the progress of these projects.
<h3>Recommendations for new foreign investment rules</h3>
The House of Representatives Standing Committee on Economics recently released its findings and recommendations following a review of foreign investment. 
The four key findings of the report were:
<ol>
<li>Recognising there is no accurate or timely data that tracks foreign investment in residential real estate, the Committee recommended the establishment of a national register of land title transfers that records the citizenship and residency status of all purchasers of Australian real estate. 
</li>
<li>Improving the inner workings of the Foreign Investment Review Board (FIRB). 
</li>
<li>Bolstering the compliance and enforcement regime of the foreign investment rules. 
</li>
<li>Recommending an application fee of $1500 for each approval application made to FIRB by non-resident foreign investors in order to fund improved administration and monitoring of the foreign investment rules undertaken by FIRB.</li>
</ol>
The report also recommends the following civil penalties for breaches of the foreign investment framework:
<ul>
<li>Financial penalties to be calculated as a percentage of the property value, rather than restricted to $85,000 as is currently the case; and 
</li>
<li>The regime applies to both foreign investors and any third party who knowingly assists a foreign investor to breach the framework.</li>
</ul>
Although these are just recommendations at this stage, one would hope that the committee’s recommendations do get implemented.  More timely, accurate and reliable data about foreign buyers would certainly seem to be valuable and penalties for those who skirt the rules seems appropriate. 
Importantly, it is unlikely that any of these recommendations would act as a disincentive to foreign investment rather they would result in improved transparency about such investment.
This article continues on the next page. Please click below. 
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<h3>Australian dollar</h3>
In Australia we generally like to compare our currency to the US dollar.  After the end of month peak in the exchange rate of $1.08 in February 2012, the exchange rate has now fallen to $0.849 at the end of November.  Importantly, most of the fall has occurred recently, six months earlier the exchange rate was $0.93.
The fall in the trade weighted index (TWI) has not been as large as the fall relative to the US dollar.  The TWI was recorded at 68.2 at the end of November, down from 71.5 six month ago and a peak of 79.2 in February 2012.  Nevertheless the Australian dollar has weakened.
The lower dollar should provide some support for the Australian economy, making our exports more attractive and providing heightened demand for the struggling manufacturing sector.
We suspect that demand from foreign buyers has grown over recent years.  Furthermore, if the Australian dollar continues to depreciate, it is likely that Australian residential property will potentially become even more attractive for overseas buyers as the relative cost improves.
<h3>Interest rates</h3>
Official interest rates were recorded at 2.5% in December 2014, with no meeting of the Reserve Bank’s board in January they will remain at that level until at least February.  The average standard variable mortgage rate is currently 5.95%, discounted variable rates are 5.1% as are three year fixed rates.
The RBA has repeatedly stated that they believe a period of interest rate stability is the most prudent course.  In an interview with the Australian Financial Review last week Glenn Stevens remarked that any change in interest rates would have to help boost confidence while a cut may do the opposite. 
Nevertheless, over recent months there have been a growing number of economists predicting the next movement in rates would be lower as the overall economic performance slows.  The cash rate futures market is now also pricing in a 25 basis point rate cut to interest rates by June next year.
A lower interest rate would seemingly make investment in housing even more attractive as returns on cash savings reduce further.  Of course, if this were to occur it would likely take place in the face of slowing growth in housing demand and limits on just how much Australian ADIs can lend to the investment segment of the market. As the RBA has previously stated, there are limits to what monetary policy can do. 
Given this, a further 25 basis points cut to official interest rates may make little material difference to the residential property market….of course it could also make a substantial difference.
<h3>Conclusion</h3>
At CoreLogic we are of the view that home value growth will continue in 2015, albeit at a more moderate pace than what we have seen in 2014.  As the above analysis shows there are plenty of factors which will impact on the housing market in 2015, not to mention potentially hundreds of other factors which could impact on the direction of the market. 
It will be important to keep track of the broader economic trends and consider how that may impact on your property in 2015.
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The economic factors to watch that may impact the housing market in 2015

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GUEST OBSERVATION
"<a href="https://www.newcriterion.com/articles.cfm/Herb-Stein-s-law-7531" target="_blank">If something can’t go on for ever, it won’t.</a> – Herb Stein, chief economic adviser to former US president Richard Nixon.
China’s economic rise has been a good news story for Australia. According to most economic policymakers and commentators, the growing middle classes of China and the rest of Asia will ensure Australia continues to flourish over coming decades.
Treasurer Joe Hockey, for example, recently <a href="https://jbh.ministers.treasury.gov.au/speech/024-2014/" target="_blank">argued</a>: "China’s middle class of around 150 million people is expected to reach one billion in just 16 years … This rising middle class of Asia wants what comes from Australia’s farms and our gas fields. They want to come here as tourists, attend our universities and they need our financial sector to manage their wealth and plan their retirement."
Reserve Bank economist Alexandra Heath also <a href="https://www.rba.gov.au/speeches/2014/sp-so-211114" target="_blank">contends</a>: "Even if the sustainable growth trajectory for the Chinese economy gradually declines over the medium term, the economy is much larger than it was and is still growing. This implies there will continue to be a huge appetite for commodities of many kinds."
They could be right, and if you judged future opportunities based on past performance you’d be reasonably confident. But what if they’re wrong? Is Australia prepared if the optimistic scenario doesn’t eventuate? Do we need a plan B?
Australia is now the most China-dependent economy in the world. Australian exports to China have grown from <a href="https://www.treasury.gov.au/PublicationsAndMedia/Speeches/2014/CEDA-27112014" target="_blank">8.5% of the total in 2003-04</a> to <a href="https://dfat.gov.au/publications/tgs/index" target="_blank">32.5% in 2013-14</a> – and they continue to grow.
Australia’s dependence on its top three export destinations has also increased over the past ten years. The top three accounted for 33.7% (Japan 15.7%, US 9.5% and China 8.5%) in 2003-04, rising to 55.1% (China 32.5%, Japan 15.8% and South Korea 6.8%) by 2013-14. The top five now account for 63.7%, up from 47.7%.
More worryingly, not only is Australia more China-dependent, but so is most of the rest of Asia. This means that a China slowdown (or worse) will also hit Australia’s exports to Japan and South Korea – our second and third-largest export destinations.
Let us hope that the dreamers are right about China’s long-term progress and that the doomsayers are wrong. But remember also that all of this export growth to China occurred without the free trade agreement that Australia and China have <a href="https://www.pm.gov.au/media/2014-11-17/landmark-china-australia-free-trade-agreement" target="_blank">concluded negotiating</a>. It’s possible that the agreement will help to diversify Australia’s export mix to China – <a href="https://www.smh.com.au/business/the-economy/who-wins-in-australiachina-free-trade-agreement-20141117-11ojvd" target="_blank">more agriculture, more services</a> – but it might also just make us more vulnerable down the track as Australia becomes even more dependent on China for earning foreign exchange.
Current policy settings aim to reinforce Australia’s strengths. While this has worked well for us over recent years, Australia’s long-standing economic vulnerabilities remain. These include our vulnerability to falls in the demand for – and prices of – <a href="https://www.theaustralian.com.au/business/news/iron-ore-price-resumes-downwards-trend/story-e6frg906-1227142842905" target="_blank">resources</a>, and high levels of <a href="https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/rp1415/Quick_Guides/AustForeignDebt" target="_blank">foreign</a> and <a href="https://www.propertyobserver.com.au/https://www.abc.net.au/news/2014-05-07/household-debt-the-big-threat-to-australian-economy/5435844" target="_blank">household</a> debt.
This leads us to the big question: does Australia need a Plan B? And what would that be? A Plan B would involve a realisation that while resources have helped to make Australia rich, they’re not enough to sustain our prosperity over time. Australia needs active policy efforts to diversify the economy away from a reliance on resources and on buying and selling houses.
Policymakers need to reconsider industry policies and think of ways to develop new industries rather than just support old ones in ad hoc ways. Efforts to extract greater rents from Australia’s <a href="https://www.miningaustralia.com.au/news/foreign-ownership-dominates-mining-industry-rba">80% foreign-owned</a> mining sector are also necessary – that is, through mining taxes. Encouraging the development of renewable technologies through a carbon price should also be a no-brainer for Australia.
In other words, the two policies that the Abbott government <a href="https://www.news.com.au/national/budget-what-did-the-abbott-government-achieve/story-fncynjr2-1227144981800">trumpets as successes</a> are anything but.
The continuing transformation of the Australian political economy is likely to cause ongoing political volatility as Australian governments deal with the electoral consequences of structural changes and economic vulnerabilities.
The best way to ease the pain and avoid resistance to necessary structural reforms is to ensure a fairer distribution of Australian prosperity and a fairer distribution of the pain when the current period of economic growth ends. There are no guarantees of political success, but a fairer political economy is likely to underpin support for economic openness and flexibility. Both are vital preconditions for a more productive economy.
Improvements in productivity – the efficiency of labour and capital – and an egalitarian distribution of the fruits of that productivity are what matters for long-term prosperity. Getting Australia’s policymakers and the wider population to realise that the two are not contradictory is the short-term challenge.
Both good and bad things can come from political processes but we cannot remove politics from the equation. It is worth remembering that Australia is a <a href="https://theconversation.com/income-and-wealth-inequality-how-is-australia-faring-23483">wealthy and relatively equal country</a> because of political interventions, not despite them. Australia needs to utilise its luck to lessen its vulnerabilities.
If policymakers simply believe that China will sustain Australia’s prosperity over the next 20 years, then many Australians will think there’s no reason to change tack – until it’s too late.
Tom Conley is senior lecturer, School of Government and International Relations at Griffith University.
This article was originally published on <a href="https://theconversation.com" target="_blank">The Conversation</a>.
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po-LsXgBTHBmX

Australia’s China dependence: Do we need a Plan B?

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GUEST OBSERVATION
Pop quiz: in 2014 the quantity of Australian iron ore demanded by China has: a) fallen sharply, b) fallen modestly, c) remained the same, d) increased modestly, e) increased sharply?
The answer in just a moment.
Last week the Australian Bureau of Statistics (ABS) told us that the economy is suffering from an <a href="https://www.abs.gov.au/AUSSTATS/abs@.nsf/ProductsbyReleaseDate/52AFA5FD696482CACA25768D0021E2C7?OpenDocument" target="_blank">income recession</a>. Our exports aren’t fetching the prices they used to – the terms of trade are down by around 9% for the year - and that means we can’t afford to buy as much from overseas as before.
Growth in China has also <a href="https://www.afr.com/p/world/china_growth_slows_from_rail_to_GPWU3X58iAOG5SvvMgNi9L" target="_blank">slowed</a> and the construction industry there is in the middle of a major funk. Moreover, China’s economy is rebalancing away from growth led by resources-hungry investment.
<a href="https://www.smh.com.au/world/chinas-slump-will-hurt-australian-incomes-and-the-pain-is-likely-to-linger-20141205-11zy1z" target="_blank">Joining the dots</a> is proving irresistible. But there’s a problem with this story, and it’s a big one.
The answer to the above question is unambiguously option e. In the September quarter – that’s the same quarter Australia shifted into an income recession - exports of iron ore to China were <a href="https://www.bree.gov.au/files/files//publications/crq/westpacbree-crq-201411.pdf" target="_blank">up 33% from a year earlier</a>, according to Westpac and the Bureau of Energy and Resources Economics (BREE). This followed a 32% jump the first quarter and a 36% leap in the second.
These are extraordinary numbers and we should not be at all surprised when they start to slow. But, for now, Chinese demand continues unabated.
In a sense this is not difficult to understand. The law of demand says that when the price falls, the quantity demanded will increase. The price of iron ore is down nearly 50% since the beginning of the year.
And while growth in China is now 7.3%, the slowest pace in five years, that’s coming off an ever-larger base. In terms of the number of dollars being added to the economy each year, 7.3% growth now is more than a match for 8% a couple years ago.
Watch the miners
If the price has fallen and the quantity traded has increased, there can be only one culprit – a dramatic increase in supply. And so there has been: BHP Billiton alone is in the midst of a 65 million tonne per annum <a href="https://www.bhpbilliton.com/home/investors/reports/Documents/2014/141006_IronOreBriefingandWesternAustraliaIronOreSiteTour.pdf" target="_blank">expansion</a> of its Western Australian iron ore operations.
Treasurer Joe Hockey may be worried about falling iron ore prices but BHP Billiton certainly isn’t. Even with iron ore prices sitting as they are between A$70 and $80 per tonne, the business remains hugely profitable. Its current cost of supply is around A$27 per tonne and the target is less than $20 in the medium term. Producers in other sectors of the economy would kill for those sorts of margins.
While it’s become popular to dismiss the projections for Chinese demand from the miners themselves as being overly optimistic – why exactly is not clear. Remember, it’s their billions of investment dollars on the line - and <a href="https://www.treasury.gov.au/~/media/Treasury/Publications%20and%20Media/Publications/2014/Long%20run%20forecasts%20of%20Australias%20terms%20of%20trade/Documents/PDF/long_run_tot.ashx" target="_blank">forecasts</a> offered by the Commonwealth Treasury in May based on an analysis of demand and supply fundamentals are proving remarkably accurate. In reference to iron ore they concluded that “… supply will increase at a much faster rate than demand…” and that “The shift of production to the flatter section of the supply curve is expected to cause a rapid fall in the real price…”
These dynamics will play out until 2017-2018. From then on, the price will stabilise at a touch above $70 per tonne. There’s little to worry about here.
The bottom line in all of this is that the impact of China on the Australian economy remains a tremendously good news story. According to the latest <a href="https://www.propertyobserver.com.au/https://www.abs.gov.au/ausstats/abs@.nsf/mf/5368.0">trade data</a> from the ABS, the value of our exports to China is more than double that to our second-largest customer, Japan. This ratio holds true across the board - agriculture, fuels and minerals, services and even manufactured goods.
None of this is expected to change any time soon. China is the world’s second-largest economy and the International Monetary Fund continues to <a href="https://www.imf.org/external/pubs/ft/weo/2014/02/">forecast</a> that it will grow by 7.4% this year and 7.1% next year. That growth in 2015 is more than double that predicted for the US and nearly nine times that for Japan. There’s always room to quibble about the exact numbers but few would disagree that China will continue to outperform other major economies.
For the Australian economy it doesn’t get much better than that.<img src="https://counter.theconversation.edu.au/content/35243/count.gif" alt="The Conversation" width="1" height="1" style="line-height: 1.3em;">
James Laurenceson is deputy director and professor, Australia-China Relations Institute (ACRI) at University of Technology, Sydney.
This article was originally published on <a href="https://theconversation.com">The Conversation</a>.
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China-Australia doomsayers overlook strong fundamentals

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Finder.com.au’s co-founder Fred Schebesta has urged Australia’s banks to become more accountable and independent.
Speaking about the Financial System Inquiry report released over the weekend, he said that we welcomes the inquiry, which makes clear that Australian banks are not even close to being globally competitive.
“Australian banks are not even close to being globally competitive in so many ways. This is insular thinking from an insular country that needs to think about actually being globally competitive for any future chance of expanding,” Fred Schebesta said.
He went on to say that Australia needs to “stop being a little island”.
“Start earning profits not just from Australia but from all around the world. Australia could become the new global Switzerland of finance with global banks around the world,” he said.
“Comparatively, the Australian financial system is a joke – we’re isolated and currently pretty terrible at integration. There’s some huge risks, for example the big four banks are so similar in business structure that it’s crucial they take on more capital – if something comes along and cripples our economy, we’re going to see all four crumble in the exact same way.”
He said that the Inquiry is a wake up call for Australia with one of the main issues being a lack of transparency.
“It’s great to see that a key message from the Inquiry was the need for more transparency. It’s about time it was seriously recognised that guidance and disclosure needs to be improved, especially in general insurance,” he said.
“It’s not fair that some institutions purposefully hide who they are owned by because they don’t want people to know that they favour or conflict with the provider. Institutions need to understand that hiding their identity makes them untrustworthy to the public.”
He said that all financial and any advice from comparison sites, brokers, financial institutions and others in Australia should disclose their ownership structure. He also said that more disclosure around pricing is necessary.
“This will give consumers a much clearer perspective on the incentives that are driving the decisions of that entity,” explained Schebesta.
“I think consumers will start getting more independent advice which will mean better financial outcomes for Australians.”
You can read <a href="/expert-insights/finance/how-mortgage-comparison-websites-make-money">Property Observer’s analysis of how comparison websites make money here</a>.
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jduke-EHk3XBmHkn

Australian financial system is “a joke”: Finder.com.au

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GUEST OBSERVATION
Having enjoyed continuously increasing prosperity since the Second World War, Australians have come to expect that each generation will live a better life than the last.
But this steady progress may be at risk. As shown in Grattan Institute’s latest report <a href="https://grattan.edu.au/">The wealth of generations</a>, today’s young Australians may end up with lower living standards than their parents at the same age.
Young Australians will bear the costs of fiscal decisions made by past and present governments. The cost of rising government spending on older households and repaying government debt will fall most heavily on today’s young.
Younger Australians have always been net contributors to the budget. Under the generational bargain, people of working age pay more in taxes than they receive in government benefits and services. They then become net takers from the budget in retirement. Strong income growth allowed each generation to take out more from the budget that they put in. But the generational bargain is now at risk.
Many expect incomes will rise more slowly in coming decades, making transfers to older households less affordable. Affordability concerns are compounded by the growing size of net benefits received by older Australians. In 2010, governments spent A$9400 more per household headed by someone above 65 than they did in 2004.
<img src="https://62e528761d0685343e1c-f3d1b99a743ffa4142d9d7f1978d9686.ssl.cf2.rackcdn.com/files/66722/width668/image-20141209-32162-12u017d.jpg" alt="">
This increase in net benefits for older households was a result of increased spending on health, higher Age Pension payments and lower income taxes.
Spending on pensions increased most with the Howard government’s changes to the pension asset test and the Rudd government’s 10% increase in the base pension rate. On the tax side, concessional superannuation tax arrangements now allow individuals above 60 to materially reduce their income tax liability, by up to $5000 a year. The <a href="https://www.ato.gov.au/Calculators-and-tools/Senior-Australians---pensioner-tax-offset/">seniors and pensioners tax offset</a> can also reduce tax payable by up to $1600.
Spending on health has risen particularly fast. Health spending per person has increased for all age groups but it increased most in dollar terms for those above 60. Increased use of services, rather than population ageing has been the main driver. For example, technological improvements allow more medical procedures to be performed safely and successfully on those who are older.
<img src="https://62e528761d0685343e1c-f3d1b99a743ffa4142d9d7f1978d9686.ssl.cf2.rackcdn.com/files/66723/width668/image-20141209-32146-vmgi8e.jpg" alt="">
Population ageing will magnify the cost of growing transfers to older households. As the baby boomer generation reaches the “draw down” phase of the generational bargain, Age Pension and government health spending will substantially increase. For example, the Productivity Commission estimates that state and Commonwealth government health spending will increase from 6.5% of GDP in 2011-12 to almost 11% in 2059-60.
Over the last six years, the increased spending on older households was funded through deficits. The cost of the increase in payments to households above 65 was about $22 billion a year. This was a substantial contribution to Commonwealth budget deficits which have exceeded $40 billion per year for four of the last five years.
The cost of these deficits will be worn by younger generations. To repay the accumulated debt, they will pay higher taxes or receive fewer government services. An annual deficit of $40 billion a year implies an additional future tax burden of around $10,000 for each younger household.
<h3>Prevention is better than cure</h3>
Government policy choices have contributed to the size of the future burden on young Australians. Other policy choices would reduce the risk of the next generation being worse off.
Targeting the Age Pension, reducing superannuation tax concessions and increasing asset taxes (such as taxes on land) could reduce the transfers between today’s younger taxpayers and older retirees. These reforms would fall most on those who have benefited from government largesse and paying lower taxes while deficits accumulated.
These reforms would also significantly contribute to solving government budget problems. Even if all the Commonwealth government’s stalled budget reforms were passed, they will be nothing like enough to bridge the budget gap. Larger scale tax and spending reforms are needed.
If government expenditures on health, pensions and superannuation concessions are cut because budgets cannot sustain them, this will also disadvantage younger Australians. Younger generations, on the wrong side of the drawbridge after the policies change, will have paid for benefits they will never get to enjoy. This strengthens the case for reforming these policies sooner rather than later, and limiting the scope of “grandfathering” provisions.
The generational bargain has served Australia well. Yet it will be undermined if some generations are asked to do more than their fair share. Reforms to pensions, superannuation tax concessions and asset taxation are needed to ensure the sustainability and fairness of the tax and transfer system. Without them, there is a real risk that our children and grandchildren will not enjoy the fruits of Australia’s prosperity as much as their parents.
John Daley is chief executive officer at Grattan Institute.
Danielle Wood is fellow, Australian Perspectives at Grattan Institute.
<img src="https://counter.theconversation.edu.au/content/35250/count.gif" alt="The Conversation" width="1" height="1">This article was originally published on <a href="https://theconversation.com" style="line-height: 1.3em;">The Conversation</a>.
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Young Australians set to pay for government policy mistakes

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GUEST OBSERVATION
The federal budget balance is expected to deteriorate.
The reasons are numerous but, in a lengthy statement, the government sums it up in terms of two key factors. These are: the softer economic outlook; and unresolved issues inherited from the former government.
The economy is going through a transition. A decline in resources investment will be offset by a recovery in the non-resources sector. It seems the decline in resources investment may be sharper than previously forecast while the recovery in the non-resources sector may be more gradual.
Thus, with real gross domestic product growing at a slower rate, hence “a softer economic outlook”, revenue from taxation will also be less. The result is a higher budget deficit.
The previous Labor government can apparently be blamed for many “legacy” items, but one is rather curious. Our central bank, the Reserve Bank of Australia, has to receive A$8.8 billion to compensate it for losses incurred to its foreign currency reserves during the period when the Australian dollar appreciated.
The choices faced by the government
Given the deficit prospect, the government faces three choices:
<ol>
<li>Run a bigger deficit,</li>
<li>Raise taxes, or </li>
<li>Cut government spending.</li>
</ol>
The government has already embraced choice three – cut spending. With regard to choice two, it abolished the carbon tax and the minerals resource rent tax, and thus moved in the wrong direction.
Perhaps the government will cut public spending further in areas it finds attractive. After cutting funding to the CSIRO, ABC and SBS, the staff of the federal public service, and funds available to the states for health, education and transport, not to speak of the universities, there are surely more possibilities.
Incidentally, over 20 non-statutory bodies have been abolished or rationalised. The underlying (or even explicit) philosophy is to reduce the size and responsibilities of government. This is in tune with United States conservative attitudes.
What the government should consider is raising taxes rather than further spending cuts. This is a very serious proposal. Yet, compared with the US approach, it may be more in tune with traditional Australian attitudes, which expect a great deal from governments.
Why the federal government should raise taxes
To understand the argument behind the need to raise taxes, it is important to understand what can be described as Howard’s Gift.
Under the Howard government, beginning around 2003, there was a boom in the form of rising export prices of iron ore and coal. As a result, revenue from corporation tax increased sharply.
This led the Howard government to cut personal income taxes on no less than five occasions. Also, superannuation concessions were extended. The details can be found in <a href="https://www.lowyinstitute.org/publications/beyond-the-boom" target="_blank">John Edwards’ Beyond the Boom</a>.
This was John Howard’s gift to the taxpaying middle and upper classes. It was clearly a response – perhaps understandable – to the export boom.
The trouble was it had the effect of increasing budget deficits in later years when tax revenues declined. In particular, budget deficits in the Labor (Gillard) years were increased by Howard’s Gift. Even now it has an adverse effect on the government’s budget balance.
However, as the mineral export boom in the Howard years turned out to be temporary, the income tax cuts that were motivated by the boom should also be temporary. In other words, they should now be reversed.
Personal income tax rates should be increased to where they were before the boom. Usually opposition parties oppose tax increases. Prime Minister Tony Abbott ran a very effective campaign against the carbon tax when in opposition.
So this proposed tax increase needs to have bipartisan support. If Labor gets into government later, they will be glad to have a decent revenue base for their budgets.
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Reform required for our tax system
At the same time some other improvements should be made to the income tax system. These ideas all come from the famous <a href="https://taxreview.treasury.gov.au/content/Content.aspx?doc=html/home.htm">Henry Report</a> on the Australian tax system.
The aim would be to simplify the system and, above all, to remove special concessions and deductions that principally benefit the better-off. These are the favourable concessions that affect the superannuation earnings of people on high incomes.
All remuneration should be measured as wages. Capital gains tax rate concessions and various concessions available to primary producers should also be removed.
In addition to increasing income tax rates to their earlier levels, more revenue needs to be obtained from the GST. This tax has to rise if sufficients funds are to be generated for the states’ vital functions.
There is no doubt the GST is a relatively efficient tax, but it would be more efficient and easier to collect if goods and services of all kinds faced the same GST rate. Exemptions should be avoided and, probably, the rate increased closer to comparable international rates.
However, the real problem with broadening the GST or raising the rate has to do with equity. This tax is a bigger burden for persons with low incomes than for the well-off. But equity within society is more effectively achieved with a progressive income tax and social security system than through exemptions from the GST. This means that some of the GST revenue gain should be returned to households in the form of increased social security payments and a more progressive personal income tax schedule.
It is clear that Australia’s entire taxation system needs major improvements. This is clearly shown in the Henry Report, which is a valuable guide for reform.
No doubt these matters will be discussed in the government’s prospective white paper on taxation. The government needs to raise more revenue while making limited improvements to income tax and the GST. The basic aim, above all, should be to avoid further damaging government spending cuts.
And what about a recession?
The government believes there is a “softer economic outlook”, which means we might face a recession. It is impossible to predict at this time whether this will happen. However, if there is any possibility of a recession, then it is not the time to cut government spending nor to raise taxes.
However, the government does need to implement long-term structural reform of the tax system and expand its revenue base. In the face of a recession, the RBA will need to lower interest rates and stimulate the economy and also depreciate the Australian dollar. Such stimulus would, as a by-product, partly reduce the budget deficit.
Max Corden is professorial fellow in the department of economics at University of Melbourne.
This article was originally published on <a href="https://theconversation.com">The Conversation</a>.
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Australia needs higher taxes, not spending cuts

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GUEST OBSERVATION
Treasurer Joe Hockey <a href="https://www.theaustralian.com.au/national-affairs/politics-news/joe-hockey-pleads-with-consumers-not-to-let-santa-down/story-fn59nqld-1227141876441">called on shoppers</a> this week to “not let Santa down” and asked them to spend up big at the stores this Christmas. Unfortunately, the latest retail and consumer confidence data indicate his calls are falling on deaf ears.
Westpac’s <a href="https://www.westpac.com.au/about-westpac/media/reports/australian-economic-reports/">Consumer Confidence Index</a> shows pessimists outnumber optimists. This has been the case for the last nine months. The index was up 1.9% in November, but still well below its level a year ago.
The last time consumer sentiment was in negative territory prior to Christmas was 2011. Shoppers are more focused on saving and continuing to pay down debt while interest rates remain low.
The latest Westpac/Melbourne Institute survey also recorded <a href="https://www.theaustralian.com.au/business/economics/consumer-sentiment-still-in-doldrums/story-e6frg926-1227120284756">nine consecutive months</a> of net negative consumer sentiment.
While Hockey disputed the findings of this survey and instead referred to credit reporting firm Dun and Bradstreet as the “authoritative data on consumer confidence”, it would appear he wasn’t comparing apples with apples. The Westpac-Melbourne Institute Consumer Sentiment Survey reports consumer confidence and Dun and Bradstreet surveys <a href="https://dnb.com.au/Header/News/Business_Expectations_Survey_Sentiment_outstrips_results/indexdl_11088.aspx">business sentiment</a>. While the two surveys are inevitably entwined, each measures different points of view.
Yet even the Dun and Bradstreet survey released this week points to a potentially difficult time for Australian businesses this Christmas. The report highlights businesses are failing to meet their own projected earnings due to slower economic growth. The number of businesses reporting an increase in sales fell from 43% to 38% in the third quarter. The number of businesses reporting reduced sales was also 11% higher than expected.
Why is spending and consumer confidence important?
Consumer confidence indicates the optimism shoppers feel about the overall state of the economy and importantly their personal finances. If consumers are confident, they are more likely to spend on household items, buy a new car, even upgrade to a new home. In contrast, if confidence is lower, shoppers will save more, pay down debt and spend less.
In principle, Hockey’s request to spend up big this Christmas makes sense. Manufacturers, banks and governments use consumer confidence indices for planning purposes.
Manufacturers and retailers who anticipate shoppers will spend more will increase their inventories, put on more staff and invest in new projects. Banks will prepare for increased lending activities and credit card use. Builders will plan for a rise in home construction and put on apprentices. Hockey is also hoping for improved tax revenues based on this increased spending.
All of the pleas to spend more assume shoppers will spend here and not via online overseas retailers. If they choose the latter option there will be no net benefit to the Australian economy. The <a href="https://business.nab.com.au/online-retail-sales-index-in-depth-report-october-2014-8955/">NAB Online Retail Sales Index</a> released this week shows online spending grew by 12% over the past year. However, out of the $16 billion Australian shoppers spent online during this period, over three-quarters of purchases were actually from Australian retailers.
Are Australians likely to take Hockey’s advice and spend?
The Westpac-Melbourne Institute Consumer Sentiment Survey asks shoppers to indicate their projected Christmas spending each November. Alarmingly, <a href="https://www.smh.com.au/business/the-economy/consumer-pessimism-heralds-disturbing-christmas-sales-westpac-survey-shows-20141112-11ktug">38% of shoppers</a> say they plan to spend less on gifts this Christmas.
This should have alarm bells ringing in retail corporate head offices everywhere. The results also indicate that 50% of shoppers will spend about the same as last year, and only 12% plan to spend more. So where might they be shopping this Christmas?
Retail winners and losers this Christmas
According to the <a href="https://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/8501.0Main%20Features3Sep%202014?opendocument&amp;tabname=Summary&amp;prodno=8501.0&amp;issue=Sep%202014&amp;num=&amp;view=">Australian Bureau of Statistics</a>, there will be a split retail market of winners and losers this Christmas.
Australians are buying more alcohol and are eating out more. So cafes, restaurants, fast-food operators and liquor stores will again be big winners this festive season.
Supermarkets remain reasonably strong <a href="https://www.news.com.au/national/nielsen-research-shows-supermarket-prices-are-down-but-our-grocery-bills-are-up/story-fncynjr2-1226810733558">despite strong price discounting and a deflationary market</a>. Price discounting on key lines this festive period is likely to continue as the supermarkets battle for market share. <a href="https://www.news.com.au/finance/business/coles-flybuys-program-lures-online-shopping-giants-including-ebay-and-apple/story-fnkgdftz-1227138750739">Loyalty programs</a> will also be changed and relaunched to capture more shopping data this season.
Discretionary spending remains tight and clothing stores are unlikely to see an increase in sales. Newsagencies and book stores are feeling the heat from online channels and downloads. There may be an eReader under the Christmas tree this year but probably not a book or magazine subscription. United Kingdom retailer WH Smith may, however, breathe some life into the sector as the company <a href="https://www.opi.net/news/wh-smith-to-acquire-supanews">increases its local presence</a>.
Australians are also spending more on hardware and gardening. Bunnings and Masters will do well, as will consumer electronic goods retailers like Harvey Norman and JB Hi-Fi. However, the Myer and David Jones department stores will struggle as a majority of their sales are tied to footwear and clothing. Shoppers should expect to see the big post-Christmas sales event pulled forward and more discounting throughout December.
While retailers around Australian will applaud Hockey’s pleas for shoppers to spend up big this Christmas, most consumers still appear cautious about handing over their credit cards this season.
<img src="https://counter.theconversation.edu.au/content/34961/count.gif" alt="The Conversation" width="1" height="1">Gary Mortimer is senior lecturer at QUT Business School at Queensland University of Technology.
This article was originally published on <a href="https://theconversation.com" target="_blank">The Conversation</a>.
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Sorry Joe, consumer spending will disappoint Santa this Christmas

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GUEST OBSERVATION
“At present, we are stealing the future, selling it in the present, and calling it GDP.” — Paul Hawken
Imagine if a corporation used Gross Domestic Product (GDP) accounting to do its books: it would be adding all its income and expenses together to get a final number. Nobody would think that’s a very good indication of how well that business was doing. Herman Daly, a former senior economist at the World Bank, said that, “the current national accounting system treats the earth as a business in liquidation.” He also noted that we are now in a period of “uneconomic growth”; where GDP is growing but societal welfare is not.
The good news is that there are several alternatives to GDP being actively developed, discussed, and used. One of these is the <a href="https://genuineprogress.net/genuine-progress-indicator/" target="_blank">Genuine Progress Indicator</a> (GPI).
GPI starts with personal consumption expenditures — a major component of GDP — and adjusts it using 25 components. These adjustments include incorporating the negative effects of income inequality on welfare; adding positive elements not considered in GDP, such as the benefits of household work, volunteer work, and higher education; and subtracting environmental costs and social costs like the costs of crime, unemployment, and pollution. In doing so, it paints a more accurate picture of how far we’ve come over the last three decades.
Regional level
In the United States, the states of Maryland and Vermont officially report their GPI annually. In 2010, Maryland was the first state to officially adopt the GPI as an alternative to GDP. The state’s goal was “to measure whether or not economic progress results in sustainable prosperity”.
Since its beginning, Maryland governor Martin O'Malley has <a href="https://www.dnr.maryland.gov/mdgpi/" target="_blank">actively implemented policies to encourage the increase of GPI</a>. The media has also taken up the challenge of shedding light on the true picture of societal welfare, with media coverage now regularly reporting on changes in GPI.
In 2012, the state of Vermont passed legislation mandating the calculation of GPI. Since then, GPI has been estimated for other states including Colorado, Hawaii, Massachusetts, Michigan, Ohio, Oregon, and Utah, while 10 others have expressed interest in developing their own studies.
This movement towards GPI is part of an international trend, and GPI has been calculated in around 20 countries worldwide. The international research community has begun to develop what is being called “GPI 2.0”. GPI 2.0 seeks to improve standardization and robustness of the current GPI.
National level
GPI is not the only new measure of societal welfare being adopted around the world. The Kingdom of Bhutan began using <a href="https://www.grossnationalhappiness.com/" target="_blank">Gross National Happiness</a> (GNH) as an alternative to GDP in 1972 after fourth King, Jigme Singye Wangchuck, stated that “Gross National Happiness is more important than Gross National Product.”
GNH is estimated using a survey that takes approximately seven hours per person. In 2013, it was taken by more than 10% of the Bhutanese population. The Bhutanese government also established the GNH Commission to assess all new policies for their impact on the “happiness” or well-being of the population.
The Australian Bureau of Statistics also began moving in this direction with the <a href="https://www.propertyobserver.com.au/https://www.abs.gov.au/ausstats/abs@.nsf/mf/1370.0" target="_blank">Measures of Australia’s Progress</a> (MAP) initiative. MAP was established to address the question, “Is life in Australia getting better?” MAP provides Australians with 26 indicators related to society, economy, environment, and governance. Unlike the GPI, it does not aggregate the indicators into one overall measure, but allows viewers to make their own assessment regarding the well-being of the Australian population based on the individual indicators. However, funding was discontinued for MAP in early 2014.
<h2>Global effort</h2>
Currently, no global consensus exists regarding alternatives to GDP. However, there is growing agreement that the continued use of GDP as a proxy for overall well-being is not appropriate. A range of national indicators exist and are being used around the world
<a href="https://62e528761d0685343e1c-f3d1b99a743ffa4142d9d7f1978d9686.ssl.cf2.rackcdn.com/files/65809/area14mp/image-20141128-9764-1kqiz3c.png"><img src="https://62e528761d0685343e1c-f3d1b99a743ffa4142d9d7f1978d9686.ssl.cf2.rackcdn.com/files/65809/width668/image-20141128-9764-1kqiz3c.png" alt=""></a>
The <a href="https://www.un.org/millenniumgoals/" target="_blank">Millennium Development Goals</a>, which are ending in 2015, look primarily at health, poverty, and education. To replace them, a UN-led initiative has developed a set of 17 <a href="https://sustainabledevelopment.un.org/focussdgs" target="_blank">Sustainable Development Goals (SDGs)</a>. These new goals have a broader agenda that includes the environment, inequality, and sustainable and equitable economic growth, amongst other aspects.
Although metrics are being developed for each of the 17 goals and their sub-goals, as of yet, no overall indicator has been developed to assess the overall success of the SDGs.
Robert F. Kennedy once said that a country’s GDP measures “everything except that which makes life worthwhile”. The only way to dethrone GDP from its current role, is to start measuring all those things that do “make life worthwhile”.
Ida Kubiszewski is senior lecturer at Crawford School of Public Policy at Australian National University.
This article was originally published on <a href="https://theconversation.com" target="_blank">The Conversation</a>.
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Beyond GDP: are there better ways to measure well-being?

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Australia's close links to Asia, the fastest growing part of the world economy, was reason to be confident of the economy's future strengths, according to Philip Lowe, Deputy Governor of the Reserve Bank of Australia.
He noted exports to Asia are up by around 30% over the past five years in his address to the recent Australian Business Economists' annual dinner.
Speaking on factors affecting the national psyche and weigh on the national economic mood, Lowe stressed the Australian economy does have the foundations for a successful and prosperous future.
"How well we take advantage of those foundations depends increasingly on investment not in physical capital, but in human capital."
"I sense a degree of nervousness about our future among some commentators who sometimes ask: what happens to Australia after this mining boom is over?; how can Australian businesses compete internationally given our high costs?; and, where will the jobs come from in the future?
"These are all good questions," he said adding uncertainty was normal. 
"Given this, it is important that we guard against the possibility that this uncertainty mutates into chronic pessimism – that is, for it to become normal for us to think that our prospects are limited.
"If this were to become our normal mindset, then we would be well on the way to finding ourselves in the very world that we feared.
"We certainly have a number of strong foundations that provide the basis for this optimism. The question is how well we can use those foundations over the years ahead," adding he wanted to focus on the people-to-people relationship.
"Currently, around 8% of the Australian population was born in east and south-east Asia or India (Graph 1 below).
"This is up from less than 1% of the population around the time that I was born.
"In comparison, in the United States, only around 3½% of the population was born in Asia and for most European countries the figure is below 2%."
Graph 1
<a href="https://www.rba.gov.au/speeches/2014/images/sp-dg-251114-graph1.gif" target="_blank" title="Link, opening in a new window, to larger image."><img src="https://www.rba.gov.au/speeches/2014/images/sp-dg-251114-graph1-small.gif" alt="Graph 1: Population Born in Asia" title="Graph 1: Population Born in Asia" width="373" height="322"></a>  <a class="displayNone" href="https://www.rba.gov.au/speeches/2014/images/sp-dg-251114-graph1.gif" target="_blank" title="Link, opening in a new window, to larger image.">Click to view larger</a>
"There are also large numbers of students from Asia studying in Australia," Lowe said.
"Currently there are around 150,000 Chinese student enrolments at Australian educational institutions, more than double the number a decade ago (Graph 2 below).
"There are also large numbers of students from India, South Korea, Malaysia, Thailand, Vietnam and Singapore.
"All up, there are more than a quarter of a million Asian students studying here.
"In time, these students will add to the already vast network of our alumni across the region."
Graph 2
<a href="https://www.rba.gov.au/speeches/2014/images/sp-dg-251114-graph2.gif" target="_blank" title="Link, opening in a new window, to larger image."><img src="https://www.rba.gov.au/speeches/2014/images/sp-dg-251114-graph2-small.gif" alt="Graph 2: Chinese Student Enrolments" title="Graph 2: Chinese Student Enrolments" width="373" height="311"></a>  <a class="displayNone" href="https://www.rba.gov.au/speeches/2014/images/sp-dg-251114-graph2.gif" target="_blank" title="Link, opening in a new window, to larger image.">Click to view larger</a>
"The strong people-to-people linkages can also be seen in the broader data on international short-term arrivals (Graph 3 below)," he noted.
"At the moment, more than 250,000 citizens from Asia are travelling to Australia every month, with arrivals from China reaching nearly 80,000 a month.
"As is evident from the graph, these figures have grown very strongly over recent years.
"There has, of course, also been very strong growth in the number of Australians travelling to Asia for both business and leisure."
Graph 3
<a href="https://www.rba.gov.au/speeches/2014/images/sp-dg-251114-graph3.gif" target="_blank" title="Link, opening in a new window, to larger image."><img src="https://www.rba.gov.au/speeches/2014/images/sp-dg-251114-graph3-small.gif" alt="Graph 3: Short-term Overseas Arrivals to Australia" title="Graph 3: Short-term Overseas Arrivals to Australia" width="374" height="288"></a>  <a class="displayNone" href="https://www.rba.gov.au/speeches/2014/images/sp-dg-251114-graph3.gif" target="_blank" title="Link, opening in a new window, to larger image.">Click to view larger</a>
"Taken together, this deep and growing people-to-people engagement is an increasingly important national asset," he said.
"It helps us better understand the most dynamic part of the global economy.
"It promotes goodwill and can help identify cross-border business opportunities.
"Some of the students studying here will hopefully become ‘champions’ for our country when they return home.
"Others will remain here and use their knowledge and relationships in their country of birth to build new and stronger business ventures between our countries," he noted in the aim of achieving a highly productive, globally competitive economy that is operating close to, or at, full employment.
"Such an economy would be characterised by: a national currency with sustainably high purchasing power; sustainably high real wages; and sustainably high real returns on capital.
"High purchasing power and high wages mean that for each hour that we work we are able to buy more goods and services.
"And high returns mean that savers get rewarded when they take a risk or defer their spending and save for the future," Lowe noted.
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