<p>One of North Sydney's best-known commercial buildings could become hundreds of new homes, with insurance giant Zurich Australia lodging a State Significant Development Application (SSDA) to transform 5 Blue Street into a mixed-use residential development above North Sydney Station.</p>

<p>Rather than demolishing the existing building and starting again, Zurich is proposing an adaptive reuse project that would convert the landmark office building into a 15-level residential development delivering 62 apartments, 86 affordable co-living dwellings, activated retail and significant upgrades to the Blue Street Plaza.</p>

<p>The proposal reflects a growing trend of commercial property owners repositioning ageing office assets into residential housing as Sydney grapples with housing supply shortages and changing workplace demand.</p>

<p><img alt="Zurich" data-entity-type="file" data-entity-uuid="0bba7d12-06dc-4375-aad7-238c94b21ac5" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-22%20at%2010.42.05%E2%80%AFAM.png?VersionId=NJl5oLAEBDGuPmY3RnyliKODjMc8lvRh" /></p>

<p>Located directly above North Sydney Metro and train station, the 3,051 sqm site occupies one of the most strategically positioned parcels of land on Sydney's Lower North Shore.</p>

<p>Designed by fjcstudio, the proposal seeks to retain and adapt much of the existing structure while creating a contemporary residential address that better connects with the public domain surrounding North Sydney Station.</p>

<p>The application proposes two basement levels, ground floor retail, affordable co-living accommodation across the podium levels, and apartments above, while preserving and enhancing the publicly accessible Blue Street Plaza.</p>

<p>Rather than pursuing maximum apartment numbers, Zurich has opted for a housing mix heavily weighted towards larger owner-occupier residences.</p>

<p>The proposal includes 62 build-to-sell apartments comprising 12 one-bedroom, 19 two-bedroom, 29 three-bedroom apartments and two premium penthouses. It also incorporates 86 affordable co-living dwellings, which would be managed in perpetuity by a Community Housing Provider.</p>

<p>That balance between traditional apartments and affordable housing reflects the NSW Government's push to increase housing diversity around major transport infrastructure.</p>

<p>The proposal has been lodged concurrently with a rezoning application, with Zurich arguing the site is ideally positioned to support additional housing given its immediate proximity to public transport, employment and services.</p>

<p>"The proposal aims to respond to the housing challenges facing Sydney through the delivery of diverse housing types in a highly accessible location," the design report by fjcstudio states. It also seeks to improve pedestrian amenity through upgrades to Blue Street Plaza while creating a high-performing residential building that responds to the surrounding context.</p>

<p><img alt="Zurich" data-entity-type="file" data-entity-uuid="36082e15-c636-4481-bb68-5a5f6443fe39" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-22%20at%2010.41.36%E2%80%AFAM.png?VersionId=5P6VD.fvmqjQfIG3TWWMRXxQWiQBjeFB" /></p>

<p>Rather than replacing the commercial building, fjcstudio has developed a design that works with the existing structural framework above the rail corridor, an approach that significantly reduces demolition while allowing the site to be repositioned as a mixed-use residential precinct.</p>

<p>The existing structural constraints have informed much of the building's design, including its relationship with Blue Street and surrounding public spaces.</p>

<p>The building has been designed as a slender tower rising above a clearly defined podium, with vertically expressed façades intended to reduce the perceived bulk while reinforcing North Sydney's emerging skyline.</p>

<p>According to fjcstudio, the architectural language responds directly to the surrounding commercial towers while maintaining a finer grain expression more closely aligned with the neighbouring Lavender Bay streetscape.</p>

<p>The tower incorporates articulated façade elements, landscaped podium edges and recessed upper levels to soften its appearance and improve pedestrian amenity below.</p>

<p>A significant component of the proposal is the revitalisation of Blue Street Plaza.</p>

<p>The existing public space has long served as one of the primary pedestrian connections between North Sydney Station, Greenwood Plaza and Blue Street, yet its role is expected to become even more important following the opening of Sydney Metro.</p>

<p>Zurich's proposal seeks to strengthen that role by improving landscaping, introducing new retail frontages, enhancing pedestrian permeability and creating more active edges throughout the day and evening.</p>

<p>Ground floor retail would wrap the plaza, while separate residential and co-living entries have been designed to improve wayfinding without reducing street activation.</p>

<p>Landscape design has been integrated throughout the podium and public realm, softening what is currently one of the most heavily urbanised parts of North Sydney.</p>

<p>&nbsp;</p>

<p>&nbsp;</p>

<p>fjcstudio has carefully oriented apartments towards Sydney Harbour and the CBD while using privacy blades and articulated façades to minimise overlooking between neighbouring buildings.</p>

<p>Large framed openings along the western elevation maximise harbour outlooks, while the eastern apartments have been angled towards the south-east to improve privacy from neighbouring development.</p>

<p>The project forms part of the continuing transformation of North Sydney from a predominantly commercial CBD into a genuine mixed-use city centre.</p>

<p>Since the completion of Victoria Cross Metro Station, developers have increasingly shifted their attention towards residential projects capable of leveraging the area's unparalleled transport connectivity.</p>

<p>&nbsp;</p>

<p>FiveX recently lodged plans for a 61-storey, 490-apartment tower that would become one of the tallest residential buildings in North Sydney if approved.</p>

<p>Aqualand continues to expand its Lower North Shore presence following the completion of AURA on Walker Street and its recent St Leonards and Roseville proposals.</p>

<p>Developers are also progressing projects throughout Walker Street, Miller Street and the Victoria Cross precinct as demand for well-located owner-occupier apartments continues to strengthen.</p>


Joel Robinson

First look: Zurich targets North Sydney office conversion with 148-unit proposal above Metro station

<p>Busy developer Aqualand Prestige has formally taken the next step in its expansion across Sydney's Lower North Shore, lodging a State Significant Development Application (SSDA) for its long-held Archer Street site in Chatswood.</p>

<p>The application covers <a href="https://www.apartments.com.au/new-apartments/51-55-archer-street-chatswood-nsw-2067">51-55 Archer Street</a>, a 1,767 sqm amalgamated site on the eastern edge of the Chatswood CBD, where the developer is seeking approval for a 45-level mixed-use tower delivering 114 apartments, including a significant affordable housing component, alongside retail, commercial space and six basement levels of parking.</p>

<p>The SSDA marks the latest milestone for a project Aqualand has been quietly progressing over the past two years. The developer first secured the site for its Aqualand Prestige platform before undertaking an alternative design excellence process with PTW Architects, ultimately avoiding a formal design competition through the Housing Delivery Authority pathway.</p>

<p>The proposal has evolved considerably from Aqualand's original concept. The revised scheme has been designed around larger owner-occupier product, with an unusually high proportion of three and four-bedroom apartments, targeting the more affluent buyer profile, and downsizer, emerging across the North Shore.</p>

<p><img alt="Archer St" data-entity-type="file" data-entity-uuid="0171204c-5811-41b5-9b09-2335d1b7c3d0" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-22%20at%208.52.48%E2%80%AFAM.png?VersionId=6YTuxfq.puZo7k2wbfgemcO5K3QfXYGQ" /></p>

<p>The 114-apartment mix comprises six studios, 27 one-bedroom apartments, 18 two-bedroom apartments, 50 three-bedroom residences and 13 four-bedroom homes. A quarter of the building will be dedicated to affordable housing, well above the mandated 15 per cent&nbsp;</p>

<p>PTW has structured the building vertically, with affordable housing across levels one to six, premium apartments through levels seven to 31, duplex skyhomes on klevels 32 to 43, a penthouse on level 44, and a rooftop plant level above. Six basement levels will provide resident parking and servicing.</p>

<p>The tower is proposed to reach approximately 154 metres, placing it among a growing collection of residential high-rises transforming Chatswood's skyline.</p>

<p>Rather than competing purely on height, PTW says the design has been driven by creating a slimmer tower capable of delivering significantly larger apartments.</p>

<p>"The primary objective of this project was to create a distinctive building that stands out from the recently approved or built structures in the Chatswood area," the design report states, noting the structural efficiency allows greater investment into apartment quality and resident amenity.</p>

<p>Residents would have access to more than 450 sqm of communal open space including landscaped gardens, swimming pool, rooftop entertaining areas, fitness spaces, community gardens, children's play areas and barbecue facilities.</p>

<p>A major focus of the design has been the public domain.</p>

<p>The ground plane has been opened up through landscaped terraces inspired by Willoughby's sandstone ridges, with native planting, public seating, artwork, retail activation and a series of gathering spaces intended to soften what has traditionally been a hard commercial streetscape.</p>

<p>The landscape strategy references Blue Gum forests once common throughout the area, while incorporating Indigenous storytelling, public art and lighting installations to strengthen the connection to Country.</p>

<p data-end="239" data-start="66">Chatswood has been one of Sydney's busiest apartment markets over the past 12 months, with a steady pipeline of both new project launches and fresh development applications.</p>

<p data-end="442" data-start="241">Hyecorp recently launched Celine, a 122-apartment development just along Archer Street, while Changfa and Huirong Group are progressing The Anderson, an 84-apartment project on Anderson Street.</p>

<p data-end="661" data-start="444">Develotek recently secured approval for a 101-apartment tower on Pacific Highway, while Tian An LFD received the green light for Hammond Greens, its apartment development on the edge of the Chatswood Bowling Club.</p>

<p data-end="909" data-start="663">Commercial property developer FiveX is also making its move into the residential market. Last month it lodged plans for a 61-storey tower with 490 apartments, which, if approved, would become one of the tallest residential buildings in Chatswood.</p>

<p><em>Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-fivex-targets-chatswood-skyline-with-61-storey-tower-after-north-sydney-plans">First look: FiveX targets Chatswood skyline with 61-storey tower after North Sydney plans</a></em></p>

<p data-end="1339" data-start="1019">Aqualand is also expanding its development pipeline following the launch of its luxury residential brand, Aqualand Prestige. The developer has delivered a string of high-end apartment projects across Sydney's affluent suburbs over the past decade, most recently AURA by Aqualand on Walker Street in North Sydney.</p>

<p data-end="1339" data-start="1019">[smartcode_project:default project_id=30959 project_image_fid=292863]</p>

<p data-end="1398" data-start="1341">It has since quietly assembled its next wave of projects.</p>

<p data-end="1805" data-start="1400">Earlier this year Aqualand launched Boronia in Roseville, a boutique 111-apartment development on Larkin Street. The project is one of the first significant apartment developments to launch in the suburb ahead of what is expected to become one of Sydney's most active new housing precincts under the NSW Government's Low and Mid-Rise Housing reforms, which allow greater density around train stations.</p>

<p data-end="1805" data-start="1400">[smartcode_project:default project_id=152095 project_image_fid=373685]</p>

<p data-end="1991" data-start="1807">The developer has also lodged plans for a two-tower, 413-apartment development on Herbert Street in nearby St Leonards, further strengthening its presence across the Lower North Shore.</p>

<p data-end="2303" data-is-last-node="" data-is-only-node="" data-start="1993">Beyond that, Aqualand remains behind the final stage of Barangaroo, where plans will deliver a five-hectare mixed-use precinct comprising new homes, retail, hospitality and community facilities, alongside a new Metro entrance and more than two hectares of public open space, completing the Barangaroo precinct.</p>

<p><em>Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/central-barangaroo-development-takes-big-step-with-concept-proposal-approval">Central Barangaroo development takes big step with concept proposal approval</a></em></p>

<p><em>Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-aqualand-joins-st-leonards-apartment-party">First look: Aqualand joins St Leonards apartment party</a></em><br />
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First look: Aqualand pushes ahead with Chatswood apartment tower as SSDA lodged for Archer Street

<p data-end="492" data-start="327">Mass timber is becoming an increasingly popular construction material in apartment developments, but Adelaide developer <a href="https://www.apartments.com.au/developers/otello">Otello</a> is taking the approach a step further.</p>

<p data-end="843" data-start="497">At its new <a href="https://www.apartments.com.au/new-apartments/flowe-bowden-18-gibson-street-bowden-sa-5007">Flowe Bowden</a> development, the exposed cross-laminated timber (CLT) structure isn't just about reducing the building's environmental footprint. It also forms the foundation of a broader wellness strategy, influencing everything from indoor air quality and natural materials to the way residents move through and experience the building.</p>

<p data-end="1109" data-start="848">The 115-apartment mixed-use development, designed by Melbourne-based architecture practice Fieldwork, will occupy a prominent island site opposite Bowden Village Reserve, combining one, two and three-bedroom apartments with retail and a dedicated wellness destination.</p>

<p data-end="1109" data-start="848">[smartcode_project:default project_id=152022 project_image_fid=375528]</p>

<p>Wellness isn't confined to a gym or shared resident facility at Flowe. Instead, Fieldwork embedded the concept into the building itself.</p>

<p>The development has been split into two residential wings connected by a naturally ventilated central breezeway, replacing traditional enclosed corridors with open-air walkways that improve natural light, encourage cross ventilation and create more opportunities for neighbourly interaction.</p>

<p>"Rather than treating wellness as something that only happens on the ground floor, our response integrates it throughout the building, which led us to ask what it really means to design a healthy building," Fieldwork Director Quino Holland said.</p>

<p>[smartcode_project:default project_id=152022 project_image_fid=375531]</p>

<p>The building's architecture also reflects Bowden's industrial heritage. The lower podium references the area's historic brick and sandstone buildings, while the upper levels transition to exposed CLT, allowing the timber structure to become a defining feature throughout the apartments and shared spaces.</p>

<p>The use of mass timber sits alongside a range of sustainability initiatives, including a fully electric, gas-free design, rooftop solar and a targeted 5 Star Green Star rating.</p>

<p>[smartcode_project:default project_id=152022 project_image_fid=375524]</p>

<p>Inside the residences, the focus remains on natural, durable materials. Blackbutt engineered timber flooring, exposed CLT ceilings, porcelain surfaces and warm timber joinery create a calming interior palette, while low-VOC finishes and responsibly sourced materials have been selected to improve indoor air quality.</p>

<p>Kitchens have been designed as the centrepiece of each apartment, featuring porcelain island benchtops, timber-look cabinetry and brushed steel tapware, with layouts that maximise natural light and ventilation.</p>

<p>[smartcode_project:default project_id=152022 project_image_fid=375530]</p>

<p>The more traditional interpretation of wellness comes in the form of Level Eleven, a two-storey wellness club spanning the ground floor, mezzanine and first floor.</p>

<p>The facility will include a gym, yoga and reformer Pilates studios, Finnish and infrared saunas, magnesium hot and cold plunge pools, and dedicated recovery spaces. Unlike many residential wellness facilities, Level Eleven will also operate commercially, allowing the broader Bowden community to access the venue while giving residents exclusive membership benefits.</p>

<p>The ground floor has also been designed around everyday living. A café overlooking Bowden Village Reserve will activate the street frontage, while a bike workshop with tool storage, co-working space and dog wash has been incorporated to support daily routines and encourage interaction between residents.</p>

<p>"Flowe brings together my two biggest passions, creating places and creating healthier lives," Otello founder Daniel Harris said.</p>

<p>"We wanted to create something Adelaide hasn't seen before, a genuinely healthy building, where the way you live is lifted without even trying."</p>

<p>Flowe is positioned directly opposite Bowden Village Reserve and within walking distance of Bowden Railway Station and the Adelaide Entertainment Centre, placing future residents just minutes from the Adelaide CBD while remaining connected to one of the city's most established urban renewal precincts.</p>

<p>[smartcode_project_cta:default project_id=152022]</p>


Otello launches wellness-focused Flowe Bowden with Adelaide-first mass timber apartment design

<p>Not all apartment amenities are immediately visible.</p>

<p>Swimming pools, gyms, rooftop terraces and residents' lounges have long featured on buyers' wishlists, but as the way Australians live has changed, so too have the features that make apartment living more convenient.</p>

<p>Increasingly, buyers are placing value on the practical aspects of day-to-day life. Fast internet, EV charging, secure bike storage, flexible workspaces and parcel management are becoming just as relevant as lifestyle amenities, reflecting changing habits and expectations.</p>

<p>Online shopping has been one of the biggest drivers of that shift.</p>

<p>Australians spent a record $82.6 billion shopping online in 2025, with almost one in every four retail dollars now spent digitally, making parcel deliveries a routine part of everyday life rather than an occasional convenience.</p>

<p>For apartment residents, however, receiving those deliveries isn't always straightforward.</p>

<p>Without someone home to accept a parcel, deliveries can be redirected to a nearby Post Office, left in building foyers or common areas, or require building management to temporarily store packages. As apartment living continues to grow across Australia's cities, parcel management has become an increasingly important consideration for both residents and developers.</p>

<p>Australia Post's Parcel Locker network is one response to that shift.</p>

<p><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/KPZ9j5FRdsQ?si=Qztc1dNP3ZvEIUhb" title="YouTube video player" width="560"></iframe></p>

<p>Rather than relying on home delivery, eligible parcels can be directed to a nominated Parcel Locker, where they're securely stored until collected. Once a parcel arrives, residents receive a notification through the AusPost app or SMS and can retrieve it using a one-time code or QR code at a time that suits them.</p>

<p>The network has expanded to more than 1,500 locations nationwide, with Parcel Lockers positioned at Post Offices, shopping centres, supermarkets, transport hubs and, increasingly, within or alongside residential developments.</p>

<p>That growing presence reflects a broader change in how apartment buildings are being planned.</p>

<p>Developers are increasingly considering the operational side of apartment living alongside traditional lifestyle amenities. Just as secure mailrooms, bicycle storage and EV charging have become more common inclusions, parcel management is emerging as another feature that supports everyday convenience.</p>

<p>It also helps preserve the arrival experience within a building. Carefully designed lobbies and communal spaces can quickly become cluttered when deliveries accumulate, while secure parcel solutions reduce the likelihood of missed deliveries or parcels being left unattended.</p>

<p>For buyers comparing apartments, these everyday details are becoming part of the decision-making process.</p>

<p>Location, floorplans and finishes remain fundamental, but the features that simplify daily life are carrying greater weight than they once did. As online shopping continues to shape consumer behaviour, secure parcel delivery is increasingly becoming another amenity worth looking for.</p>


Parcel delivery is joining the apartment amenity checklist

<p data-end="471" data-start="164">Inca Property Group has lodged a State Significant Development Application (SSDA) for Dawn, a 53-apartment oceanfront development overlooking Mona Vale Beach.</p>

<p data-end="777" data-start="473">The proposal, at 35-39 Darley Street East, would replace an existing 18-apartment strata building with a new owner-occupier-focused development comprising 53 two and three-bedroom apartments, including nine affordable built-to-rent residences delivered under the State's infill affordable housing scheme.</p>

<p data-end="976" data-start="779">Positioned on a 2,679 sqm elevated site around 280 metres from Mona Vale Beach, the development has been designed to maximise panoramic ocean views while responding to the site's sloping topography.</p>

<p data-end="1119" data-start="978"><a href="https://www.apartments.com.au/developers/inca-property-group">Inca Property Group</a> Managing Director Josh Thompson said the State Significant pathway provided greater certainty for projects of this scale.</p>

<p data-end="1399" data-start="1121">"This State Significant pathway gives the team real certainty to progress <a href="https://www.apartments.com.au/new-apartments/dawn-35-39-darley-street-east-mona-vale-nsw-2103">Dawn</a> through to completion," Thompson said.</p>

<p data-end="1399" data-start="1121">"It allows us to acquire a one-off site, design it carefully and deliver the right offering for the suburb, assessed by the NSW Government's planning department."</p>

<p data-end="1605" data-start="1401">The project is one of the first developments in the area to be assessed under the NSW Government's Low and Mid-Rise Housing policy, with the site sitting on the edge of the policy's designated inner area.</p>

<p data-end="1852" data-start="1607">The proposal includes three basement levels providing 124 car spaces, alongside a range of resident amenities including a swimming pool, gym, sauna, wellness facilities and private plunge pools for selected ground-floor and penthouse apartments.</p>

<p data-end="1852" data-start="1607"><img alt="Dawn" data-entity-type="file" data-entity-uuid="fc1a1daf-0ce4-4f12-9076-b1fa553c7a91" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-21%20at%208.42.11%E2%80%AFAM.png?VersionId=4GZ9h.gpNkTljbxyAET8Jfhv51XUamDm" /></p>

<p data-end="2031" data-start="1854">Thompson said Dawn had been designed specifically for owner-occupiers and downsizers, a buyer profile that has driven demand across Inca's recent Upper North Shore developments.</p>

<p data-end="2299" data-start="2033">"The majority of buyers in our recent North Shore projects have been downsizers, and we are learning exactly what this market is looking for. Beyond the location itself, we have included resort-style amenities to deliver a genuine lifestyle offering," Thompson said.</p>

<p data-end="2588" data-start="2301">Located within walking distance of Mona Vale Beach, the town centre, Mona Vale Golf Club and the Royal Motor Yacht Club, Dawn represents Inca's first Northern Beaches project following the sell-out of Tara on Park in Waitara and Ellis Residences, currently under construction in St Ives.</p>

<p data-end="4143" data-start="3991">Construction will be undertaken by Inca's in-house construction arm, GOP Constructions.</p>

<p data-end="593" data-start="417">Dawn is the latest major apartment proposal for Mona Vale, with the suburb emerging as one of the key beneficiaries of the NSW Government's new Low and Mid-Rise Housing policy.</p>

<p data-end="789" data-start="598">New developer One Living, led by industry veteran Joseph Scuderi, recently secured a site on Mona Vale Road, on the border of Mona Vale and Pymble, where it is planning around 140 apartments.</p>

<p data-end="1053" data-start="794">IPM is also planning its third project in Mona Vale, significantly increasing the scale of its previous developments with an 82-apartment proposal at <a href="https://www.apartments.com.au/new-apartments/159-167-darley-street-west-mona-vale-nsw-2103">159-167 Darley Street West</a>, opposite Bayview Golf Course and less than 800 metres from Mona Vale town centre.</p>

<p data-end="4143" data-start="3991"><em>Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/one-living-enters-sydneys-new-apartment-market-with-northern-beaches-site-acquisition">One Living enters Sydney's new apartment market with Northern Beaches site acquisition</a></em></p>

<p data-end="4143" data-start="3991"><em>Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-ipm-plans-third-mona-vale-project">First look: IPM plans third Mona Vale project</a></em></p>


First look: Inca eyes Mona Vale with State Significant DA for Dawn apartments

Household Debt

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<p>GUEST OBSERVER </p>
<p>Expensive housing and high household debt leave Australian housing vulnerable. But without a recession or much higher interest rates a property crash is unlikely.</p>
<p>However, the surging supply of apartments and the continuing strength of the Sydney and Melbourne property markets pose an increasing risk. Average dwelling prices in these cities are likely to see another cyclical 5-10 percent price downswing around 2018, with unit prices in oversupplied areas likely to decline 15-20 percent.</p>
<p>The combination of high house prices, huge gains in Sydney and Melbourne, low rental yields and a coming surge in the supply of apartments mean property investors need to be careful. Best to focus on undersupplied, less loved parts of the property market. </p>
<p>Housing matters a lot in Australia. Having a house on a quarter acre block is part of the "Aussie dream". Housing is a popular investment destination. And the housing cycle is a key component of the economic cycle and closely connected to interest rate movements.</p>
<p>But in the last 15 years or so it has taken on a darker side as a surge in house prices that started in the late 1990s has led to poor affordability and gone hand in hand with surging household debt. Reflecting this, predictions of an imminent property crash bringing down the Australian economy have been repeated ad nauseam since 2003.</p>
<p>This note looks at the risks of a property crash, particularly given the rising supply of units, implications from the property cycle for economic growth and how investors should view it.</p>
<p>High house prices and high debt</p>
<p>The big picture view on Australian residential property is well known. First, Australian housing is expensive. According to the 2016 Demographia Housing Affordability Survey the median multiple of house prices in cities over 1 million people to household income is 6.4 times in Australia versus 3.7 in the US and 4.6 in the UK. In Sydney it’s 12.2 times and in Melbourne it’s 9.7 times.</p>
<p>The ratios of house price to incomes &amp; rents are at the high end of OECD countries and have been since 2003.</p>
<p>Second, the surge in home prices has gone hand in hand with a surge in household debt, which has taken Australia’s household debt to income ratio from the low end of OECD countries 25 years ago to now around the top. This can be seen in the next chart which shows the deviation in the house price to income ratio against its long term average for Australia against the ratio of household debt to income. The shift to overvaluation and high debt mostly occurred over the 1995-2005 period. </p>
<p><a href="/images/2016/10/13/Screen%20Shot%202016-10-13%20at%209.09.15%20AM.png" target="_blank">Click to enlarge</a></p>
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<p> <span><img src="/images/2016/10/13/Screen%20Shot%202016-10-13%20at%209.09.15%20AM.png" alt=""></span></p>
<p>How did it come to this?</p>
<p>While it’s common to look for scapegoats to blame for high home prices and debt the basic driver looks to be a combination of the shift from high to low interest rates over the last 20-30 years which has boosted borrowing and buying power and the inadequacy of a supply response (thanks to tight development controls, restrictive land release and lagging infrastructure) to suppress the resultant rise in the ratio of prices to incomes.</p>
<p>The following chart shows a cumulative shortfall of over 100,000 dwellings relative to underlying demand had built up by 2014. </p>
<p><a href="/images/2016/10/13/Screen%20Shot%202016-10-13%20at%209.11.08%20AM.png" target="_blank">Click to enlarge</a></p>
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<p>A home price crash remains unlikely</p>
<p>The surge in prices and debt has led many to conclude a crash is imminent. But we have heard that lots of times over the last 10-15 years. Several considerations suggest a crash is unlikely.</p>
<p>First, we have not seen a generalised oversupply and at the current rate we won’t go into oversupply until around 2017-18.</p>
<p>Second, despite talk of mortgage stress the reality is that debt interest payments relative to income are around 2004 levels.</p>
<p>Third, Australia has still not seen anything like the deterioration in lending standards seen in other countries prior to the GFC. In fact in recent years there has been a decline in low-doc loans and a reduction in loans with high loan to valuation ratios. </p>
<p><a href="/images/2016/10/13/Screen%20Shot%202016-10-13%20at%209.12.51%20AM.png" target="_blank"><span>Click to enlarge</span></a></p>
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<p>Finally, it is dangerous to generalise. While property prices have surged 60 percent and 40 percent over the last four years in Sydney and Melbourne, they have fallen in Perth to 2007 levels and have seen only moderate growth in the other capital cities.</p>
<p>But the risks on the unit supply front are a concern</p>
<p>To see a property crash - say a 20% plus average price fall - we probably need to see one or more of the following:</p>
<p>A recession – much higher unemployment could clearly cause debt servicing problems. This looks unlikely though.</p>
<p>A surge in interest rates – but rate hikes are unlikely until 2018 and the RBA knows households are more sensitive to higher rates so it’s very unlikely rates will reach past highs. </p>
<p>However, the risks on the supply front are clearly rising in relation to apartments where approvals to build more apartments are running at more than double normal levels. </p>
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<p><span>Due to the rising supply of units, vacancy rates are trending up </span><span>&amp; rents are stalling, making property investment less attractive.</span></p>
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<p><span>Outlook </span></p>
<p><span>Nationwide price falls are unlikely until the RBA starts to raise interest rates again and this is unlikely before 2018 at which point we are likely to see a 5% or so pullback in property prices as was seen in the 2009 &amp; 2011 down cycles. Anything worse would likely require much higher interest rates or recession both of which are unlikely. However, it’s dangerous to generalise: </span></p>
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<p><span>Sydney and Melbourne having seen the biggest gains are more at risk and so could fall 5-10% around 2018. </span></p>
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<p><span>Price growth is likely to remain negative in Perth and Darwin as the mining boom continues to unwind but this should start to abate next year. </span></p>
<p><span></span><span>The other capitals are likely to see continued moderate growth and a less severe down cycle in or around 2018. </span></p>
<p><span></span><span>But units are at much greater risk given surging supply and this could see unit prices in parts of Sydney and Melbourne fall by 15-20% as investor interest fades as rents fall. </span></p>
<p><span>The property cycle and the economy </span></p>
<p><span>Slowing momentum in building approvals points to a slowdown in the dwelling construction cycle ahead. While this might be delayed into 2017 as the huge pipeline of work yet to be done is worked through, slowing dwelling investment combined with a slowing wealth affect from rising home prices mean that contribution to growth from the housing sector is likely to slow. However, as this is likely to coincide with a fading in the detraction from growth due to falling mining investment and c</span>ommodity prices it’s unlikely to drive a slowing in the economy. </p>
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<p><span>However, a likely decline in rents (as the supply of units hits) will constraint inflation helping keep interest rates low for longer. </span></p>
<p><span>Implications for investors </span></p>
<p><span>There are several implications for investors:<br></span></p>
<p><span>Firstly, over the very long term residential property adjusted </span>for costs has provided a similar return to Australian shares.</p>
<p><span>Its low correlation with shares, lower volatility but lower </span>liquidity makes it a good portfolio diversifier with shares. So there is clearly a role for property in investors’ portfolios. </p>
<p><a href="/images/2016/10/13/Screen%20Shot%202016-10-13%20at%209.23.09%20AM.png" target="_blank">Click to enlarge</a></p>
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<p><span>Secondly, there remains a case to be cautious regarding housing as an investment destination for now. It is expensive on all metrics and offers very low income (rental) yields compared to other growth assets. This means a housing investor is more dependent on capital growth. </span></p>
<p><span></span><span>Thirdly, these comments relate to housing in aggregate and right now it’s dangerous to generalise. Apartments in parts of Sydney &amp; Melbourne are probably least attractive but for those who want to look around there are pockets of value. </span></p>
<p><span></span><span>Finally, investors need to allow for the fact that they likely already have a high exposure to Australian housing. As a share of household wealth its nearly 60%. Once allowance is made for exposure via Australian shares it’s even higher. </span></p>
<p><span><em><span><a href="https://www.propertyobserver.com.au/https://plus.google.com/110172465327488162875?rel=author" target="_blank">SHANE OLIVER</a></span> 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.</em></span></p>
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The Australian housing market - Shane Oliver on the surging unit supply, the economy and what it all means for investors

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<p>Sydney's higher house prices over the past four years has seen many households take on larger mortgages while remaining in their own home.</p>
<p>And it has been high-debt households that have increased their debt by more than low-debt households. </p>
<p>Research by the Australian Housing and Urban Research Institute (AHURI) has suggested the responsive of households to house price growth has been greatest among households with already higher levels of indebtedness.</p>
<p>"These households are the most vulnerable to income shocks, such as unemployment," the report warned.</p>
<p>They found that a $1,000 increase in house values prompted a $240 increase in household debt for home owners. A one percent increase in local house price growth was accompanied by a 0.3 percent decrease on household non-mortgage debt. </p>
<p>They warned the take-up of further mortgage debt exposed them to the risk of significant loss if house prices fall or if interest rates rise.</p>
<p>"This, in turn, may pose a systemic risk for the macroeconomy.</p>
<p>"An economic shock, emanating in either financial, labour or housing markets, may lead to widespread defaults that would cause the shock to spread across markets and threaten the performance of the economy," it said.</p>
<p>Their report noted a general belief in Australia that debt is held by those most able to service it, namely, higher-income and higher-wealth households. </p>
<p>Ofcourse the Organisation for Economic Cooperation and Development has long observed that Australia’s household debt ratios (debt divided by disposable income) are high by international standards.</p>
<p>In the mid-1990s, household debt was around 50 per cent of household disposable income.</p>
<p>This ratio rose to over 150 percent of income by 2007, with housing debt alone accounting for almost 90 percent of this, and has since remained constant.</p>
<p>In Australia we have not seen households reducing their debt burden as witnessed in other countries more severely affected by the GFC.</p>
<p>Instead when these households experienced increases in the value of their housing wealth, they have been quite likely to refinance from their relatively more expensive unsecured non-mortgage debt, by moving debt from credit card to home loan.</p>
<p>The debt escalation is possibly already adding to housing stress and resulting in less money being available for discretionary spending.</p>
<p>We know around 30 percent of home owners have no debt, but evidence on the relationship between house prices and debt is scarce.</p>
<p>There are always links between household debt and work life-cycle. </p>
<p>Any price movements in housing markets has the potential to either promote or dampen labour supply, according to the AHURI research paper, House prices, household debt and labour supply in Australia authored by Kadir Atalay, Garry Barrett and Rebecca Edwards. </p>
<p>Higher housing debt-to-income levels are associated with longer working hours especially for middle aged and older men along with for younger and older women.</p>
<p>But throw in the positive wealth effect of good house price growth and it leads to a reduction in labour supply for older women via early retirement and for young partnered men and women who move to carer activities.</p>
<p>Households typically smooth any fluctuations in current income by accumulating wealth. They achieve this by saving when income is relatively high and by drawing on that wealth when income is relatively low. Anticipated changes in wealth are built into consumption plans, but unemployment shocks aren't.</p>
<p>It was interesting to see more borrowers are falling behind on repayments, according to credit ratings agency Fitch this week.</p>
<p>Despite low interest rates, the appreciating housing market and falling unemployment, Fitch believes the worsening arrears may be due to the emerging trend of higher underemployment.</p>
<p><em>This article was first published in the Saturday Daily Telegraph.</em></p>
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Underemployment could be weak link in growing household debt

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<p><span>Australian households are saddled with more debt in relation to the size of the economy than any other country, according to a new report published by LF Economics.  </span></p>
<p><span>In a piece written for <em>The Guardian</em>, Philip Soos from LF Economics said Australia's household sector has accumulated massive unconsolidated debt compared with other countries and as of the third quarter of 2015 has become the world's most indebted household sector relative to GDP.</span></p>
<p><span>"Denmark long held this unholy accomplishment, but has been slowly deleveraging over the last several years as its housing bubble peaked and burst during the GFC," he said.</span></p>
<p><span>"The latest debt-financed boom in Sydney and Melbourne<a class=" u-underline" href="https://www.theguardian.com/australia-news/2015/jul/23/sydney-house-prices-jump-22-in-one-year-to-reach-1m-median-report-says" data-link-name="in body link" data-component="in-body-link"> </a>has resulted in Australia now overtaking Denmark, a comparison of official figures from Australia and Denmark has shown.</span></p>
<p><span>"Australia has around $2 trillion in unconsolidated household debt relative to $1.6 trillion in GDP. Australia’s ratio is 123.08%, while Denmark’s fell slightly to 122.99% in the third quarter of 2015, a marginal difference of 9 basis points. Although Denmark holds the record in terms of peak debt of 140.14% in the last quarter of 2009, as Australia continues to leverage and Denmark deleverages the current gap between the two will widen."</span></p>
<p><span>He said a</span><span style="line-height: 1.3em;">part from Switzerland, which with Denmark has a negative interest rate, no other country is close in terms of having such extreme household sector debts. </span><span style="line-height: 1.3em;">The UK ratio is 85.9% while in the US it is 79.1%.</span></p>
<p><a href="/images/2016/01/19/CYue0tBUsAADkVH.jpg-large.jpeg" target="_blank"><span>Click to enlarge</span></a></p>
<p><span><img src="/images/2016/01/19/CYue0tBUsAADkVH.jpg-large.jpeg" alt=""></span></p>
<p>Soos, <em>the co-author of Bubble Economics: Australian Land Speculation 1830-2013 and co-founder of <a class=" u-underline" href="https://www.lfeconomics.com/" data-link-name="in body link" data-component="in-body-link">LF Economics</a>, says o</em><span>ver the last two decades, Australia has been beset by rampant housing price inflation.</span></p>
<div id="dfp-ad--inline1" class="js-ad-slot ad-slot ad-slot--dfp ad-slot--inline ad-slot--inline1" data-link-name="ad slot inline1" data-test-id="ad-slot-inline1" data-name="inline1" data-mobile="1,1|300,250" data-mobile-landscape="1,1|300,250" data-tablet="1,1|300,250" data-node-uid="27">
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<span>"Since 1996, prices have outpaced fundamentals such as inflation, incomes, construction costs, rents and GDP, making it difficult for potential first home buyers to enter the market "</span><a class=" u-underline" href="https://www.theguardian.com/australia-news/2016/jan/14/melbourne-rent-hits-record-high-as-agents-report-high-demand" target="_blank" data-link-name="in body link" data-component="in-body-link">while lower income households and marginal groups struggle to afford decent shelter.</a>"</div>
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<p>He calculates between 1996 and 2015, housing prices (adjusted for inflation and quality) have boomed by 141%, "without a large and obvious downturn."</p>
<p>"Contrary to the analyses of the vested interests, the data clearly establishes Australia is in the midst of the largest housing bubble on record," he concludes.</p>
<p><span>"Only a couple of housing market metrics is needed to identify a bubble, and are now considered commonplace: nominal price to inflation, price to income and price to rent. </span></p>
<p><span>"On all three, Australia is both historically and internationally at or near the top."</span></p>
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po-LsXgBTHBmX

Soos in The Guardian: How Australian households became the most indebted in the world

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<div>The latest AMP.NATSEM Household Debt report showed that the average household debt in Australia has increased to a new high of $245,000, continuing a prolonged run-up which has seen the average debt per household increase by a factor four since 1988, up from $60,000.</div>
<div> </div>
<div>While the bulk of the rise in mortgage debt has been driven by 30 to 50 year olds, the over 65s cohort also accounts for a fair proportion of the increase in household debt, with more Australians than ever before taking liabilities into retirement.</div>
<div> </div>
<div>Despite this, the latest Australian National Accounts implied that interest serviceability has continued to become easier.</div>
<div> </div>
<div>There are a thousand possible ways to measure this, nine of which is satisfactory: the blue points on the chart below denote interest paid on dwellings as a percentage of total employee compensation minus income tax, while the red points show total interest paid inclusive of consumer debt (excluding unincorporated enterprises) as a percentage of gross household income.</div>
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<div><a href="/images/2015/12/14/Interest.jpg" target="_blank">Click to enlarge</a></div>
<div><img src="/images/2015/12/14/Interest.jpg" alt=""></div>
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<div>You could spend forever debating what should or should not be included in household income (imputed interest on dwellings, benefits receivable etc.) or backed out of gross household income (e.g. other taxes, transfers, insurance premiums etc.) but the results tend to be broadly similar. </div>
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<div>Of course the results generally appear to be "too low" due to the significant number of debt free households. The important thing to note is the trend, which shows that while the mining boom was in full swing the aggregate mortgage interest repayment burden was tending towards excruciating levels by September 2008 (when the official cash rate was still as high as 7 per cent). but since that time serviceability has become relatively speaking very easy.</div>
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<div><strong><span style="text-decoration: underline;">Buffers at record highs</span></strong></div>
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<div>The Reserve Bank of Australia (RBA) has noted in its Financial Stability Review that indicators of household financial stress are presently low, with households pushing ahead on repayments to the extent that aggregate mortgage buffers - as measured by balances in offset and redraw facilities - remain at around 16 per cent of outstanding loan balances, or the equivalent of well over two years of scheduled repayments at current interest rates. </div>
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<div><a href="/images/2015/12/14/Buffers.gif" target="_blank">Click to enlarge</a></div>
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<div>Loan arrears and mortage delinquencies data are also tracking at historically low levels, with favourable delinquency developments having cascaded lower since the 2008 book year. </div>
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<div>A crude comparison the aggregate interest paid to the total stock of outstanding housing credit implies that the average mortgage rate is well under 5 per cent, suggesting in turn that Australians have taken advantage of the very generous fixed rates available through 2015.</div>
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<strong><span style="text-decoration: underline;">The outlook</span></strong><br><br><div>The first chart above shows the sensitivity of household finances, and especially mortgage repayments, to the unpredictable changes in interest rates. Mortgage repayments are on average clearly very affordable now, but may not be so if interest rates rise sharply.</div>
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<div>The AMP.NATSEM report found that the highest typical debt repayment burdens are to be found in the outer suburbs of our capital cities.</div>
<div> </div>
<div>If interest rates were to rise by 2.5 percentage points - essentially the equivalent of ten interest rate hikes - then the most indebted households could see mortgage repayments rise from 42 per cent of household income to a stress-inducing 58 per cent, while perhaps unsurprisingly the most indebted low income households would be the hardest hit of all.</div>
<div> </div>
<div>An increase in interest rates of 2.5 percentage points would also see repayments for the typical first homebuyer rising from 21 per cent to 30 per cent of household income, or a shade over an extra $8,000 per year.</div>
<div> </div>
<div>There are few indications that the official cash rate is set to move materially higher any time soon, although shifts in capital requirements and funding costs may be another matter. </div>
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<div><strong><span style="text-decoration: underline;">Fragile markets</span></strong></div>
<div> </div>
<div>Unemployment rates have generally been trending down since January 2015, although unemployment rates in Western Australia and the Australian Capital Territory are in an uptrend, and the housing market in Darwin looks exceptionally fragile.</div>
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<div><a href="/images/2015/12/14/UERATE.jpg" target="_blank">Click to enlarge</a></div>
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<div>Although household financial stress is currently low, it seems likely that there will be some vulnerable housing markets in 2016, which may include;</div>
<div> </div>
<div>-resources regions and markets, with the terms of trade crunch likely to result in multiple mass lay-offs to add to the winding down of capital investment;</div>
<div> </div>
<div>-suburbs and sub-regions which are experiencing extensive over-building of apartments. particularly inner city high-rise stock, and those areas with already elevated and rising vacancy rates; </div>
<div> </div>
<div>-off-the-plan developments which will be adversely impacted by APRA's tougher deposit measures; and</div>
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<div>-outer suburban fringe locations in Sydney which saw a massive spike in investor activity and rapid price growth in 2015.</div>
<div> </div>
<div>I'd include a generic entry here for "mining towns", but many have been so utterly smashed already, leading to investor defaults and bankruptcies, since not only were prices unsustainable, so too were rents, and even tenancies. </div>
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<div><strong><span style="text-decoration: underline;">Auctions</span></strong></div>
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<div>Sydney's preliminary auction clearance rate rebounded a bit to 55.2 per cent this week, with outer suburban markets looking particularly dormant, The strongest auction market was a resurgent inner west, with a strong preliminary auction clearance rate of 74.6 per cent (<em>CoreLogic-RP Data</em>).</div>
<div> </div>
<div>This month's Labour Force data showed that New South Wales economy has generated a seasonally adjusted +176,000 jobs over the past year, for an outrageous employment growth rate of +4.9 per cent (trend +160,000 jobs, or +4.4 per cent). The Detailed Labour Force figures, which provide more colour by city, region and industry will be released on Thursday. So stay tuned for that and more this week. </div>
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<p><span><em>PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.</em><br></span></p>
<p><em>His latest book is <a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>.</em></p>
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