<p>Perth’s new apartment market recorded its strongest quarter of sales since Q4 2021, with 412 apartments sold in Q1 2026 and a record quarterly sold value of $537 million, according to Urbis’ latest Apartment Essentials results.</p>

<p>Urbis said the March quarter result reflects strong, highly product‑specific demand across both ends of the market, from more attainable projects delivering at scale, through to premium stock being absorbed by equity‑rich downsizers.&nbsp;</p>

<p>David Cresp, Partner at Urbis, said the key story in Perth is not demand, it is the market’s ability to convert demand into delivered housing.&nbsp;</p>

<p>“This is the strongest sales quarter since Q4 2021, and it reinforces that demand in Perth is real and it’s local,” David Cresp said. “But the task now is delivery, turning that demand into projects that can actually be built and completed.”&nbsp;</p>

<p>[smartcode_project:default project_id=110291 project_image_fid=302785]</p>

<h2>Affordable product leads, premium demand remains resilient</h2>

<p>Sales in Q1 were led by more affordable projects, with The Boulevard (SKS Group) recording 115 sales in the quarter, the presentation noting this is only the second time a single project has surpassed 100 quarterly sales. The project was able to offer more affordable housing product right next to a train station.&nbsp;</p>

<p>Palmyra West (Finbar) also delivered strong results with 28 sales in Q1, following 84 sales in Q4, with an average price of under $800,000, underscoring depth of demand for well‑located, attainable new stock.&nbsp;</p>

<p>At the premium end, Urbis said downsizer demand is continuing, with the results highlighting Romeo (Applecross, Finbar) recording 75 sales and reaching almost 50% sold in one quarter.</p>

<p>Jual (Shenton Park, Celsius Property) also posted a strong quarter with 28 sales, reaching 39% sold in one quarter.</p>

<p>Urbis noted that Perth apartment demand is not speculative, not investor‑led, and not uniform, describing it as localised, often equity‑driven and highly product‑specific, a pattern reflected in the polarisation between strong “attainable” performers and premium downsizer product.&nbsp;</p>

<p>[smartcode_project:default project_id=148957 project_image_fid=364102]</p>

<h2>Prices underpinned by costs, and the delivery risk is growing</h2>

<p>Urbis said pricing pressure is cost not demand‑driven: construction costs and delivery risk are now a central constraint, with the results noting build costs remain elevated and volatile, and that energy, fuel and labour uncertainty weigh on feasibility.</p>

<p>David Cresp said a growing challenge for private Build‑to‑Sell developers is simply securing a builder in the current environment.</p>

<p>“Developers are really feeling the pressure from a building market that was operating at capacity and securing a builder is challenging,” David Cresp said, adding that even where a builder can be secured, “trying to get to the price that makes the development financially viable is incredibly challenging in the current market.”&nbsp;</p>

<p>Urbis’ broader WA commentary also notes that industry remains at or above capacity with lot and housing creation, and that many builders are limiting new sales to manage stretched workforces and fixed‑price contract pressures, conditions that flow directly into apartment feasibility and delivery timing.</p>

<p>[smartcode_project:default project_id=108869 project_image_fid=317905]</p>

<h2>Supply: improving later, but still constrained, and Perth lags eastern benchmarks</h2>

<p>While near‑term supply remains constrained, Urbis’ forecast shows completions lifting “Supply is forecast to be back above 1,500 apartments per annum for the first time since 2019”, with 1,775 completions forecast for 2026, and volumes remaining above that level over the following years.&nbsp;</p>

<p>Looking further ahead, completions are forecast to reach 2,500 in 2028, with the report noting 32% of that total is social/affordable, reflecting the role of government‑supported delivery in rebuilding the pipeline.&nbsp;</p>

<p>However, Urbis said Perth remains behind comparable markets on pipeline scale. In a national comparison of projects under construction, the report shows under construction Perth Build‑to‑Sell (BTS) at 3,446 apartments versus the Gold Coast at 7,922. Mr Cresp said “The challenge for Perth is how to we grow the delivery pipeline”.</p>

<p>Urbis’ conclusion is that Perth’s market is increasingly defined by product discipline and delivery certainty, with the research identifying “delivery certainty is key” and calling out builder risk and procurement models as core success factors, alongside “timing and staging”.&nbsp;</p>


Joel Robinson

Perth apartment sales hit strongest pace since late 2021 as builder capacity tightens

<p><a href="https://www.apartments.com.au/developers/sammut-developments">Sammut Group</a> has secured development approval for its latest Brisbane apartment project, marking the Sydney developer’s next step in expanding its Queensland pipeline following the success of its debut Gold Coast development, Coast.</p>

<p>The approved project at <a href="https://www.apartments.com.au/new-apartments/44-glen-road-toowong-qld-4066">44 Glen Road, </a><a href="https://www.apartments.com.au/developments/toowong-qld-4066">Toowong</a> will deliver a 15-storey riverfront apartment building with 42 residences, significantly increasing the scale of the site’s previous approval for a smaller luxury scheme. Designed by Bureau^proberts, the development will comprise a mix of predominantly four-bedroom and two-bedroom apartments positioned to maximise Brisbane River and city views.</p>

<p>Sammut Director Julian Sammut said the group had been actively searching Brisbane for several years before identifying Toowong as the right fit.</p>

<p>“Brisbane was the right step for Sammut,” Sammut said.</p>

<p>“With the success of Coast we thought we should definitely look to do more in Queensland alone. We then pushed up to look at Brisbane. We've been looking for I'd say two to three years actually and it was hard to find the right location.”</p>

<p><img alt="Sammut makes Brisbane apartment play" data-entity-type="" data-entity-uuid="" src="https://res.cloudinary.com/dz9xllyip/image/fetch/f_auto,c_limit,w_1440,q_75/https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/field/image/Screenshot%202025-12-23%20at%203.27.14%E2%80%AFPM.png?VersionId=dYAVIL7qdcGA8ojvkslSrLjczXFejSSx" /></p>

<p>Sammut said suburbs including New Farm and Teneriffe were considered before the group ultimately focused on Toowong due to its strong downsizer demographic and limited supply of developable riverfront land.</p>

<p>The site was acquired off-market after what Sammut described as a lengthy negotiation and planning process, with the developer pursuing an uplift to the original approval.</p>

<p>“We are DA approved now which is very exciting,” Sammut said.</p>

<p>“We've had our change approval come through and we've obviously doubled the height, 15 storeys plus rooftop. We've got 42 amazing apartments that are going to be coming to market soon.”</p>

<p><img alt="Sammut makes Brisbane apartment play" data-entity-type="" data-entity-uuid="" src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,dpr_2.0,q_auto:good/https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202025-12-23%20at%203.27.26%E2%80%AFPM.png?VersionId=ohkRkY0dIZlqdfME2EZePsCQavRiBadE" /></p>

<p>Bureau^proberts said the design responds to Toowong’s evolving urban character, balancing contemporary apartment living with the area’s established residential identity.</p>

<p>“A place where traditional Queensland living has taken place for centuries; Toowong is seeing a shift of contemporary influence, commercial and retail hubs mixed with well-considered residential offerings – all the while maintaining its character and charm,” the architect noted in planning documents submitted to Brisbane City Council.</p>

<p>The architecture practice said the project’s form was shaped by its riverfront setting, flood considerations, neighbouring building scales, and view corridors.</p>

<p>“They said the mix of four and two-bedroom apartments capture the ‘fundamental qualities of Queenslander living,’ translated into the context of a contemporary subtropical building.”</p>

<p>The development sits just off Coronation Drive within walking distance of Toowong’s retail precinct and the upgraded Regatta ferry terminal, while also benefiting from proximity to the incoming green bridge connection to West End. Sammut said the accessibility and amenity offering were central to the site’s appeal.</p>

<p>The approval adds to growing residential activity along the Toowong riverfront, joining nearby projects including Consolidated Properties’ Monarch Residences and Spyre Group’s ARC Residences.</p>


Sammut secures approval for debut Brisbane apartment development in Toowong

<p>Developer Lanevick is heading back into Sydney’s apartment market after focusing more heavily on the luxury townhouse and terrace sector in recent years.</p>

<p>Lanevick, founded and directed by Steve Maroun, is expecting to receive approval in the coming months for a new apartment development in Gladesville, with the aim to launch it to the market later this year.</p>

<p>The 51-apartment project, designed by Studio Johnston, will comprise a mix of one-, two-, and three-bedroom apartments positioned toward the Hunters Hill downsizer market.</p>

<p>“Traditionally it’s been difficult for people in that market to downsize because there just hasn’t been the right product available,” Maroun said.</p>

<p>“We’re targeting buyers who might have 30 to 40 per cent of their house value sitting in the bank after downsizing.</p>

<p>“They still want good spacious entertaining areas, they still want quality design, but they also want flexibility and the ability to enjoy life a bit more after working hard for a long time.”</p>

<p>The project sits near Boronia Park and within close proximity to the Parramatta River foreshore, an area Maroun says offers more of a Hunters Hill lifestyle than a traditional apartment precinct.</p>

<p>“From a lifestyle perspective, it’s really more Hunters Hill than Gladesville,” Maroun said. “You’re close to the foreshore, close to parklands, and still connected back into the village precinct.”</p>

<p>From level four and above, apartments will capture water views&nbsp;toward Sydney Harbour. Communal amenity will include rooftop entertaining areas, wellness spaces, and a gym tailored toward owner-occupier buyers.</p>

<p>“We’ve really designed these apartments around that buyer coming from the Hunters Hill LGA and what they’re actually looking for in their next chapter.”</p>

<p>The proposed development has also been designed to respond to the changing character of the broader Gladesville town centre, where a growing number of mixed-use and residential proposals are expected to emerge over the coming years.</p>

<p>“Gladesville presented a rare opportunity to deliver a genuinely design-led residential project within an evolving lifestyle precinct, just moments from the growing Gladesville town centre, and we’ve approached the project with a strong focus on architecture, liveability and long-term community value,” Maroun said.</p>

<p>Maroun said Lanevick saw a first-mover advantage within the precinct as planning controls continue to evolve to accommodate greater housing density.</p>

<p>“We think there’s a real opportunity there that hasn’t really been serviced properly yet,” he said.</p>

<p>“There’s going to be a broader evolution of the whole Gladesville village precinct over time, particularly with more activation and mixed-use outcomes.”</p>

<p>The Venus Street proposal will include a commercial and retail component at ground level designed to contribute to that evolving streetscape activation.</p>

<p>“A big part of the thinking was how do you activate that area properly and create more vibrancy and amenity, which is what Hunters Hill has been looking for,” Maroun said.</p>

<p>Lanevick’s focus since 2020 has largely been on smaller-scale luxury townhouse and terrace developments. The developer recently completed Royale Randwick, also designed by Studio Johnston, where prices reached $3.65 million. The project was featured in the UDIA NSW 2026 Professional Development Prospectus and was also named a finalist for Development of the Year.</p>

<p>&nbsp;</p>


Lanevick to cater for Hunters Hill downsizers with new Gladesville apartment development

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


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

<p>It's been several years since there's been an opportunity to buy a brand new townhome in Melbourne's coastal suburb of Mordialloc. Even apartment developments in recent times have been few and far between in the area.</p>

<p>Local developer LDS Property identified the gap in new housing, securing a site on White Street, directly opposite&nbsp;Woodlands Golf Club Mordialloc. They've recently launched&nbsp;<a href="https://www.apartments.com.au/new-townhouses/wm-residences-mordialloc-102-white-street-mordialloc-vic-3195">WM Residences</a>, just 13 townhouses which they have already started building.</p>

<p>Projects by Buxton Director Heath Thompson, who is selling WM Residences, says the townhouses x that perfect middle ground be</p>

<p data-end="683" data-start="511">"Mordialloc residents have had limited options to downsize within the suburb, often forcing them to look elsewhere despite long-standing ties to the area," Thompson says.</p>

<p data-end="882" data-start="690">"With very little comparable new supply coming to market, projects like WM Residences are well placed, particularly as buyers look to capitalise on current conditions amid constrained supply."</p>

<p data-end="882" data-start="690">[smartcode_project:default project_id=134646 project_image_fid=6109]</p>

<p>The development, designed by regarded architecture firm&nbsp;<a href="https://www.apartments.com.au/architects/ewert-leaf">Ewert Leaf</a>,&nbsp;adopts a deliberately restrained architectural approach, focusing on simplicity, durability and liveability rather than overt design gestures.</p>

<p>The boutique scale is central to the offering. With only 13 three-bedroom residences, each home is configured to prioritise functional layouts and everyday use, supported by private terraces and secure two-car garages.</p>

<p>Ewert Leaf’s design response leans into a calm, neutral material palette. Interiors are defined by oak flooring, white walls and soft finishes, creating a consistent and understated backdrop. The approach avoids trend-driven detailing in favour of longevity, with an emphasis on natural light and spatial clarity.</p>

<p>[smartcode_project:default project_id=134646 project_image_fid=6110]</p>

<p>Beyond aesthetics, the homes are designed to meet contemporary performance expectations. Each residence targets a minimum 6-star energy rating, incorporating double glazing, comprehensive insulation and all-electric Bosch appliances.</p>

<p>The project’s location supports a walkable coastal lifestyle, sitting within close proximity to Mordialloc’s foreshore, Main Street retail strip and the train station. Local cafés and dining venues, including Suburbia Deli and Hendriks Café, are within a short walk, reinforcing the area’s established neighbourhood character.</p>

<p>[smartcode_project:default project_id=134646 project_image_fid=6116]</p>

<p data-end="247" data-is-last-node="" data-is-only-node="" data-start="0">While <a href="https://www.apartments.com.au/developments/mordialloc-vic-3195">Mordialloc</a> is often defined by its beach and pier, the project taps into other areas of day to day living, offering easy access to local food, casual dining and transport, rather than positioning itself purely as a lifestyle retreat.</p>

<p>WM Residences reflects a continued trend across Melbourne’s coastal suburbs towards smaller-scale, design-led townhouse developments, particularly on infill sites where proximity to amenity is already established.</p>

<p>With construction commenced prior to its market entry, the project aligns with a growing preference among buyers for developments with visible progress and defined delivery timeframes.</p>

<p>[smartcode_project_cta:default project_id=134646]</p>


WM Residences fills gap in Mordialloc townhouse market

Housing Market

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<p>Sydney's southern suburbs are showing mixed, but downward trending price outcomes, according to the June report from Herron Todd White.</p>
<p>Like Sydney in general, the southern suburbs have shown mixed results over the first part of the year, generally down overall but with some suburbs showing more resilience than others, the valuation firm advised.</p>
<p>Market activity had slowed and auction clearance rates are down to 61.3% from 70.9% at the same time last year</p>
<p>The region has shown an overall decline in dwelling values, Oatley’s 2018 median house price has increased slightly by 0.5% from 2017.</p>
<p>Engadine however, has shown a drop of 11.1% in its median price compared to 2017, almost nullifying the 15.2% increase it saw in the period from 2016 to 2017.</p>
<p>"A recent example of the declining market is a home, 27 McRaes Avenue, Penshurst (pictured above), located in a well regarded section of the suburb."</p>
<p>"This property sold in September 2016 for $1.5 million and sold again in May 2018 for $1.48 million, highlighting that in some areas, properties are now starting to fall back below late 2016 prices", suggested the valuation firm</p>
<p>27 Prestige suburbs appear to be performing better however again there have been some mixed results as market activity in this section of the market has slowed compared to mid-2017.</p>
<p>Burraneer has experienced a 5% drop in median sale price from 2017 while Sylvania Waters is up by 10.8% according to the June report from HTW</p>
<p>The report notes that, "new units are taking longer to sell with an increasing number of developers offering incentives to purchasers."</p>
<p>The report concludes by noting that, "an oversupply of units is still possible as a large number of new complexes reach completion over the next two years."</p>
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j.ballantyne1990-6AQqhLzZaK

Sydney's southern suburbs are showing mixed, but downward trending results: HTW

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<div class="column">EXPERT OBSERVATION</div>
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<div class="column">Weakness in Australia’s housing market has persisted longer than we expected, and the rate of decline in prices has recently accelerated. </div>
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<div class="column">Auction results are also soft, suggesting we will see a further cooling in prices over the near term at least.</div>
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<div class="column">Additional headwinds are possible, such as the shift away from interest only loans. There could also be further tightening of credit as the impact of the current regulatory focus on mortgages flows through into lender behaviour. All of this suggests that the fall in house prices will be quite a bit larger than we previously expected, with recovery coming later.</div>
<div class="column"> </div>
<div class="column">We will publish revised forecasts for house prices in our upcoming housing chartpack. We do, however, think stabilisation of the market later this year is the most likely outcome – unless the credit tightening materially extends beyond what is happening at present. The fundamentals for the market, low interest rates and continued strong population growth, remain supportive. And the experience of last year was that shifts in the regulatory regime are priced in by the market over the course of months rather than years.</div>
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<div class="column">AUSTRALIA’S HOUSING DATA CONTINUES TO SOFTEN</div>
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<div class="column">CoreLogic’s housing price data show that the aggregate housing market has continued to soften, with dwelling prices down 0.3% m/m in seasonally adjusted terms in May. That is now nine of the past ten months that have seen lower prices, and the decline has persisted longer than we originally anticipated.</div>
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<p><span>Of course, there is not just one housing market in Australia, and the picture is different across the capital cities. Prices in Sydney have been falling for most of the past year, and now sit 4.2% lower than the peak of July 2017. Melbourne was initially more resilient, but has since recorded slightly larger price falls than Sydney in each of the past three months. In contrast, prices are still rising in Hobart and Canberra, while the post-mining boom decline in Perth prices continues to ease. </span></p>
<p><span>As well as the price falls in Sydney and Melbourne lasting longer than expected, the scale of decline in recent months has accelerated somewhat. Sydney recorded declines of 0.2% and 0.3% m/m in each of the first three months of the year, but April and May saw this pick up to falls of 0.4% m/m and 0.6% m/m respectively. Melbourne has transitioned from small price rises in January and February to declines for the past three months. The starting point for these major markets is therefore weaker than we previously expected. </span></p>
<p><span>FURTHER WEAKNESS IS IN STORE </span></p>
<p><span>Our expectation that prices would have begun stabilising by now was based on auction results, which had settled through the end of 2017 and opened 2018 at reasonable levels. Consistent with this, the pace of house price declines had been moderating since a large decline in October. However, this was not sustained, and nationwide auction clearance rates have fallen from an average of 66% in February to just 58% in May. This is the weakest monthly result since the start of 2013, and suggests that prices are likely to come under further pressure over the near term.</span></p>
<p>Click here <a href="https://www.propertyobserver.com.au/images/2018/6/6/figure2.jpg" target="_blank">to enlarge</a></p>
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<p>This weakness is challenging our previous view that prices would stabilise and then recover somewhat to finish the year in positive territory. There are still a number of headwinds that are likely to weigh on prices through the remainder of 2018, including the shift away from interest only loans, and the ongoing tightening of credit availability. It is important to acknowledge that this cycle is being driven by different factors than previous price downturns. Previous periods of falling housing prices (Figure 3) have coincided with increases in mortgage rates and/or mortgage rates hitting elevated levels. Neither is the case this time. Interest rates have increased from their 2016 and 2017 lows, to the tune of 5bp for owner-occupiers and 35bp for investors, but these movements pale in comparison to previous cycles. Nor are interest rates high. Servicing costs are around the long-run historical average, even with mortgages that are much larger than in the past.</p>
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<p><span>The primary driver behind this slowdown in prices is the availability of credit, rather than the cost of credit. Banks have responded to regulatory requirements by implementing a combination of lower loan-to-income ratios, lowering estimates of rental income from investment properties and raising expense estimates. Ongoing changes in this space cannot be ruled out, which is something we will be watching closely. Indeed, the RBA noted in its June meeting that </span><span>“</span><span>there may be some further tightening of lending standards</span><span>”</span><span>. Developments of this nature will continue to apply downside pressure to house prices. </span></p>
<p><span>The key question is how far this pressure will </span><span>extend? We can’t be certain of this given </span><span>the unprecedented factors driving the slowdown. We think developments through 2017 and early 2018 are instructive, however. The additional tightening in credit to investors triggered by the regulator in early 2017 was the catalyst for the weakness through that year, in our view. </span></p>
<p><span>But the impact of this had faded by the end of the year, with the auction clearance rate starting to rise and the pace of decline in house prices easing considerably. This indicates to us that if the fundamentals of the economy remain supportive the impact of credit tightening on house prices is not permanent. </span></p>
<p><span>With this in mind we think the solid fundamentals of the Australian economy mean that by late this year the impact of the current credit tightening will likely be fully priced and the market will have stabilised. We will publish updated forecasts for house prices in our upcoming housing chart pack. </span></p>
<p><span>There is necessarily an element of conjecture in this view. We will need to watch the data carefully to see whether things evolve in this manner.</span></p>
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<p><span><span>Daniel Gradwell is a senior economist at ANZ</span></span></p>
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jrobinson-rf4aSBido9

Housing market weakness challenges ANZ's view on price direction

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<p><em>GUEST OBSERVER</em></p>
<p><em>This is an edited extract from APRA chairman Wayne Byres speech at the recent A50 Dinner.</em></p>
<p>First of all, let me join others before me in welcoming many of you to Australia. It is a long journey, so I hope you’re enjoying the experience now you’re here.</p>
<p>For those of you not familiar with APRA, we’re the prudential regulator of the Australian financial services industry. Our peers include organisations like OSFI in Canada, the UKPRA (although we are not part of the central bank), and a number of the Scandinavian regulators. Our mandate, put simply, is to promote safety within financial institutions, within a stable, open, efficient and competitive financial system. Our supervised flock includes banks and other deposit-takers, insurance companies, and most members of the superannuation industry. Between them, the institutions we supervise hold approximately $6 trillion in assets – at around 3.5x GDP, they represent the bulk of the Australian financial system.</p>
<p>As was the case when I appeared on this panel last year, Australia’s financial system remains fundamentally sound. While we would assert our prudential framework has certainly contributed to that, it’s also reflective of a broader economic environment that’s experienced a long period of relatively steady economic growth. Given that environment, most of our agenda has been, and continues to be, focused on ensuring that soundness is maintained and that we’re building resilience into the system while conditions are conducive to doing so.<span class="Apple-converted-space"> </span></p>
<p><strong>Housing</strong></p>
<p>The other topic that generated some questions last year concerned housing, and so I thought I should say a few words about our actions in that area.<span class="Apple-converted-space"> </span></p>
<p>The broad environment – high house prices, high household debt, low interest rates, and subdued household income growth – hasn’t changed greatly over the past 12 months (although in more recent times house price appreciation has certainly slowed in the largest cities - Sydney and Melbourne). Those conditions are not unique to Australia – a number of other jurisdictions continue to battle with somewhat similar conditions and imbalances. What’s notable for Australia, however, is the relatively high proportion of mortgage lending on the banking system’s balance sheet.<span class="Apple-converted-space"> </span></p>
<p>Against that backdrop, and amidst strong competitive pressures among lenders, the quality of new mortgage lending and the re-establishment of sound lending standards have been a major focus of APRA for the past few years now. We introduced industry-wide benchmarks on (in 2014) lending to investors and (in 2017) lending on interest-only terms. As I have spoken about many times previously, these are temporary measures we have put in place to deliberately temper competitive pressures, which were having a negative impact on lending practices throughout the industry, and help to moderate the volume of new lending with higher risk characteristics. Left unchecked, the drive for growth and market share was producing an adverse outcome as lenders sought ways to accommodate higher risk propositions to grow new lending volumes. Instead of prudently trimming their sails to reflect an environment of heightened risk, lenders were pressured to sail closer to the wind.</p>
<p>Over time, our interventions have served their purpose and we have seen lending standards improve. Our most recent intervention was in relation to interest-only lending. Imposing quantitative limits is not our preferred modus operandi, but over many years we’d seen interest-only loans become easily available, and options for extending or refinancing on interest-only terms allowed borrowers to avoid paying down debt for prolonged periods. Those loans do, however, provide less protection to borrower and lender when house prices soften, and expose borrowers to ‘repayment shock’ when the loan begins amortising (made worse if it occurs at a time when interest rates are rising from a low base).<span class="Apple-converted-space"> </span></p>
<p>Our benchmark of no more than 30 per cent of new lending being on interest-only terms is not overly restrictive for borrowers who genuinely need this form of finance – roughly 1-in-3 loans granted can still be on an interest-only basis – but it has required the major interest-only lenders to establish strategies that incentivise more borrowers to repay their principal. The industry has been quite successful in doing so: recent data for the last quarter of 2017 shows that only about 1-in-5 loans were interest-only, and the number of interest-only loans with high LVRs continued to fall to quite low levels. All of that is positive for the quality of loan portfolios.</p>
<p>While the direction in asset quality is positive, we’re not declaring victory just yet. We still want to see that the improvements the industry has made are truly embedded into industry practice. And we can modify our interventions as more permanent measures come into play. That will include, amongst other things, further strengthening of borrower serviceability assessments by lenders, strengthened capital requirements for mortgage lending imposed by us, and comprehensive credit reporting being mandated by the Government. Through these initiatives, we are laying the platform to make sure prudent lending is maintained on an ongoing basis.</p>
<p><strong>Bank capital</strong></p>
<p>One area that was of interest to this audience last year was the strengthening of banking system capital. On that front, I’m pleased to say we are getting close to the end of the journey.<span class="Apple-converted-space"> </span></p>
<p>As some of you would know, the Australian Government conducted a broad-ranging inquiry into the Australian Financial System in 2014. Amongst other things, that inquiry tasked us with ensuring that Australian banks had ‘unquestionably strong’ capital ratios. In July last year, we published a paper setting out the benchmarks that we considered to be consistent with that goal. At a headline level, this required the four major Australian banks to strengthen their capital ratios, relative to end 2016 levels, by around 100 basis points on average to target CET1 ratio of 10.5 per cent (or about 16 per cent on an internationally comparable basis). We also said we expected that strengthening should be achieved by 2020 at the latest.</p>
<p>As things stand, the major banks haven’t quite hit this target yet, but are well on the way to doing so in an orderly fashion. We set a smaller task for the smaller institutions, and they by and large have it covered already.</p>
<p>That capital build-up is important because, as you’re all no doubt aware, we received a Christmas present from the Basel Committee in the form of the long-awaited package of reforms to finalise Basel III. The changes, in total, represent a significant overhaul of many components of the capital framework<sup>1</sup>. <span class="Apple-converted-space"> </span></p>
<p>We have, however, committed to ensure that changes in capital requirements emanating from Basel will be accommodated within the unquestionably strong target we have set. In other words, given the banking system has largely built the necessary capital, the recent Basel announcement does not have any real impact on the aggregate capital needs of the Australian banks. They will change the relative allocation of capital within the system, but not add to the aggregate requirement beyond what has already been announced.</p>
<p>We’ll begin consultation on the proposed approach to implementing Basel III changes in the next week or two. Our initial public release will include indicative risk weights, but these will be subject to further analysis and an impact study to calibrate the final proposed risk weights and ensure we end up with a capital requirement that is consistent with our assessment of unquestionably strong capital levels. We also have some recent input from the Productivity Commission to feed into our deliberations, which we’ll give consideration to as we work through the consultation process.</p>
<p>In terms of timelines, the Basel Committee has agreed to an implementation timetable commencing in 2022, with further phase-ins after that. As I said earlier, we expect banks to be planning to increase their capital strength to exceed the ‘unquestionably strong’ benchmarks by the beginning of 2020. Whether we implement our risk weight changes in line with Basel timeframes or modify that timeline somewhat, it’s unlikely there will be any need for additional phase-in and transitional arrangements given the industry will be well placed to meet the new requirements.<span class="Apple-converted-space"> </span></p>
<p>And just quickly on the other key components of the Basel reforms, we instituted the Basel liquidity and funding requirements in line with the internationally agreed timetable – the Liquidity Coverage Ratio (LCR) from 2015, and the Net Stable Funding Ratio (NSFR) from the beginning of this year – in full and without any transition. So the adjustment process to the post-crisis international reforms in Australia has the finish line well in sight.</p>
<p><strong>Governance and culture</strong></p>
<p>In addition to improvements in financial strength and asset quality, it’s also critical to the long run health of the financial system that the Australian community has a high degree of confidence that individual financial institutions are well governed and prudently managed. What has become more apparent and pronounced over the past year is that – despite their financial health and profitability – community faith in financial institutions in Australia, as has been the case elsewhere, has been eroded due to too many incidences of poor behaviour and poor customer outcomes. None of these have thus far threatened the viability of any institution, but they have certainly not been without commercial and reputational damage.</p>
<p>While most matters of conduct are primarily the responsibility of our colleagues at ASIC, these issues are nevertheless of great interest to a prudential regulator for what they say about an organisation’s attitudes towards risk. So as with the balance sheet strengthening of the financial system over the past few years, we have also taken a greater interest in efforts to strengthen behaviours and cultures. We can’t regulate these into existence, but we have been working to ensure Australian financial institutions have been giving greater attention to these matters than may have traditionally been the case. On these issues, it’s fair to say the journey continues.</p>
<p>Wayne Byres in the chairman of the <em>Australian Prudential Regulation Authority.</em></p>
<p>You can find the <a href="http://www.apra.gov.au/Speeches/Pages/Remarks-for-Regulators-Panel-09022018.aspx" target="_blank">full speech here.</a></p>
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The broad environment – high house prices, high household debt, low interest rates, and subdued household income growth: APRA chairman Wayne Byres

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<p>The latest RBA Chart Pack that summarises macroeconomic and financial market trends in Australia has been released.</p>
<p><span>It illustrates the data presented to the board ahead of their Cup Day rate </span>decision.</p>
<p>The charts includes the <a href="https://www.rba.gov.au/chart-pack/interest-rates" target="_blank">owner occupier variable home loan rates</a> over the past decade.</p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/11/10/Lending.jpg" alt=""></p>
<p>There were charts showing <a href="https://www.rba.gov.au/chart-pack/household-sector" target="_blank">household finances</a>.</p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/11/10/Household.jpg" alt=""></p>
<p>There's even insights into <a href="https://www.rba.gov.au/chart-pack/world-economy" target="_blank">the Chinese residential property market</a>.</p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/11/10/China2.jpg" alt=""></p>
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Three charts that helped the RBA make its Cup Day decision

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<p>The traditional housing style in Cairns has always been the Queenslander dwelling built on a quarter acre (1,000 square metre) block.</p>
<p>These were typically high set for the extra ventilation and were essentially timber dwellings.</p>
<p>All that started to change around the 1970s with a move to slab-on-ground masonry block construction, the valuation firm, Herron Todd White noted.</p>
<p>"Though driven by lower cost construction, these dwellings also had the advantage of improved cyclone resistance, however at the expense of reduced ventilation.</p>
<p>"Despite the hot tropical climate, air conditioning was a complete rarity in the mainstream Cairns market right through to the 1990s, but now, integrated air con is an essential component of all newly constructed houses across all levels of the market."</p>
<p>HTW said the trend these days is for bigger and bigger houses on smaller and smaller blocks.</p>
<p>"Sub 600 square metre block sizes were unheard of prior to the mid 1990s, but have progressively become part of the urban landscape over the past 20 years.</p>
<p>"The average new estate block size in Cairns is now down to around 670 square metres."</p>
<p>Recent years have seen significant restoration and renovation of original Queenslanders as well as the emergence of some replica Queenslanders in the original Queenslander precincts.</p>
<p>However, outer suburbs are almost exclusively low-set masonry block housing.</p>
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Cairns trending towards smaller housing blocks: HTW

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<p>GUEST OBSERVER</p>
<p>Australian dwelling price growth is continuing to moderate with the recent CoreLogic data showing that home price growth across Australia has slowed to 7.0% over the year to October (annual price growth was running around 10-11% a few months ago). Sydney price growth is rolling over (see chart below). </p>
<p>  <img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/11/2/Diana1.jpg" alt=""></p>
<p>Melbourne home price growth is also moderating, but at a slower pace than Sydney because population growth remains strong in Melbourne.</p>
<p>The latest population data showed that interstate migration remains very high into Victoria and Queensland (see chart below) which suggests that home buyers are seeking alternatives to Sydney given the general lack of home and land affordability.</p>
<p> <img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/11/2/Diana2.jpg" alt=""> </p>
<p>Home price growth is still negative in Perth, but is picking up pace and Hobart has seen a big turnaround in price growth.</p>
<p>The reasons for slowing prices at the moment are due to tighter lending restrictions on banks and higher mortgage rates to enforce APRA rules around investor lending, affordability pressures in Sydney and Melbourne and a big lift in new supply of dwellings (particularly apartments across the east coast).</p>
<p>These pressures are going to continue in the near-term, particularly with a further lift in new dwellings on the market.</p>
<p>So, national home price growth will remain under pressure, especially in Sydney and Melbourne where there is going to be a further big lift in new supply.</p>
<p>While it was necessary to take some steam out of the housing market given the high concentration of investors in the market, slower home price growth is a risk for the consumer spending outlook because households savings have been used up as wealth (related to housing) has boomed.</p>
<p>A rate hike from the Reserve Bank in the near-term would be undesirable as it would put further downward pressure on dwelling prices at a time when wages growth is still soft.</p>
<p id="name"><em><strong>Diana Mousina</strong> is senior economist at AMP Capital.</em></p>
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Australian housing market update: AMP Capital's Diana Mousina

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<p>Treasury secretary John Fraser has welcomed the cooling off in the country's biggest housing markets. </p>
<p>After "rapid" growth in Sydney and Melbourne prices in recent years, Fraser said the market appeared to be slowing.</p>
<p>He told the Citi investment conference they were the early signs the curbs on riskier bank lending were doing their job.</p>
<p>There were also signs homebuyers were responding by moving to lower-priced cities and regional centres.</p>
<p>Fraser acknowledged the build-up in household debt had accompanied strong house price growth in recent years, but signalled he was not "too alarmed" by the trend.</p>
<p>"It's good to see some of the recent moderation in house price growth, and while it's too soon to make a final assessment of the impact of APRA's March 2017 macroprudential measures, the signs at the moment are promising," Mr Fraser said at Citi's investment conference in Sydney.</p>
<p>When asked is he still held the <a href="https://www.smh.com.au/business/the-economy/treasury-boss-john-fraser-fears-about-investment-in-housing-points-to-home-renovation-shows-20150601-ghdx0t">view that Sydney housing was in a "bubble"</a>, as he said two years ago, Mr Fraser referred to "welcome signs of slowing" in the market.</p>
<p>He also emphasised the very different market conditions across the regions, with signs Western Australia's market might be starting to recover after a sharp slump triggered by the mining bust."These things are cycles, and we are perhaps starting to see that cycle playing out," Mr Fraser said.</p>
<p>Fairfax Media reported Fraser also referred to strong growth in the population in regional centres such as Bathurst, Geelong, Dubbo and Ballarat, saying people were responding to the very high cost of housing by moving outside the largest cities.</p>
<p>"I'm getting the feeling that a lot of people are now starting to react to some of the high house prices in the east coast capital cities by thinking about relocating to other capital cities or regional centres," he said.</p>
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The housing shift to cheaper cities is happening: John Fraser

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<p>GUEST OBSERVER</p>
<p>At face value, Australia’s housing market appears to be broadly in balance.</p>
<p>However, we find that this headline result masks the fact that some people are increasingly unable to form new households, primarily due to affordability constraints. As a consequence, we believe a significant level of latent demand for housing still exists in Australia, which will underpin prices and require construction to remain elevated.</p>
<p>Following the release of 2016 Census data, we reviewed our analysis of Australia’s housing balance.</p>
<p>We found the net 780,000 dwellings built over the five years to 2016 has technically been enough to absorb the increase in demand.</p>
<p>This has decreased the shortage of dwellings nationwide.</p>
<p>This is only partially a good news story, however. Since 2011, the headship ratio (propensity of people to form new households) has steadily fallen, with the younger age cohorts the worst affected.</p>
<p>The relative unaffordability of housing, especially in the Sydney and Melbourne markets, means that people are waiting until later in life to form new households, and this artificially lowers demand for housing.</p>
<p>If the headship ratio had not dropped, Australia’s housing shortage would be 117,000 dwellings – much more significant than the 21,000 currently reported.</p>
<p>There are three implications from this finding:</p>
<p>The solid level of underlying demand is likely to provide support to house prices.</p>
<p>Australia’s strong population growth means that construction activity should remain around elevated levels.</p>
<p>There is little to suggest that the affordability picture for potential first-home buyers is going to improve in a meaningful way.  </p>
<p>HOUSING CONSTRUCTION BOOMING, BUT NOT ENOUGH BY ITSELF</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/09/26/Screen%20Shot%202017-09-26%20at%209.10.28%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/09/26/Screen%20Shot%202017-09-26%20at%209.10.28%20AM.png" alt=""> </p>
<p>The five years to 2016 saw Australia’s stock of housing expand strongly, with the net addition (after allowing for demolitions) of 780,000 dwellings since 2011.</p>
<p>The majority of this came from the construction of units and apartments, which now account for a record 27% of Australia’s total housing stock.</p>
<p> This strong increase in supply was necessary, given the rapid population growth in recent years. Until the end of 2012, this was centred in Queensland and Western Australia as the mining boom was in full swing. New South Wales and Victoria have since taken the population-growth baton, with Victoria’s population increase of 2.4% in 2016 the fastest since at least the early 1980s.  </p>
<p>Rapid population growth is not new – it has been persistent over much of the past decade. Over the 20 years to 2005, Australia’s population growth was relatively stable around 218,000 people each year. Since then, it has accelerated rapidly, reaching a peak increase of 460,000 people in the year to December 2008.</p>
<p>While that rate of growth has not been sustained, an increase of 360,000 people in 2016 is still well above historical levels.  </p>
<p>We can see in Figure 2 that housing construction initially failed to keep up with this sustained increase in population growth.</p>
<p>Indeed, the delayed supply response was quite remarkable. It resulted in a significant shortage of dwellings across most of the country.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/09/26/Screen%20Shot%202017-09-26%20at%209.11.36%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/09/26/Screen%20Shot%202017-09-26%20at%209.11.36%20AM.png" alt=""></p>
<p>Although dwelling construction has certainly picked up in recent years, it is largely just playing catch up after a decade of not building enough housing. </p>
<p> The increase in construction since 2013 has helped prevent an even worse shortage of housing.</p>
<p>But changing household formation rates has also been a key factor in shaping our apparent transition toward an apparent housing surplus.</p>
<p>We find that Australians are forming new households later in life mostly because younger people are being ‘priced out’ of the housing market. </p>
<p> AUSTRALIANS ARE WAITING LONGER TO FORM NEW HOUSEHOLDS  </p>
<p>The 2016 Census shows that the ‘headship ratio’1 continued to fall for the younger age cohorts.</p>
<p>This implies that people are forming new households later in life, which lowers the indicated demand for housing.</p>
<p>This trend is a significant factor behind our estimate that the housing market is broadly balanced.</p>
<p> Historical data show that falling headship ratios are not a new phenomenon; the national average has been declining since 2001.</p>
<p>But the pace of change has picked up in the past five years, driven by the key ‘household formation’ age group of 20-34 year olds.       </p>
<p>     Figure 3 shows that the headship ratio for the 20–34 age group has been steadily falling since 2001, and the decline accelerated over the most recent Census period.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/09/26/Screen%20Shot%202017-09-26%20at%209.12.46%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/09/26/Screen%20Shot%202017-09-26%20at%209.12.46%20AM.png" alt=""></p>
<p>In particular, New South Wales has seen a significant decline and now has the lowest household formation rate of the country.</p>
<p>This means that younger people across the country, but especially in New South Wales, are waiting until later in life to create their own households.</p>
<p> LATER HOUSEHOLD FORMATION LOWERS INDICATED DEMAND FOR HOUSING  </p>
<p>The implication of falling headship ratios is that on average, there are more people living in each dwelling.</p>
<p>In turn, this means that the implied demand for dwellings is less. We can quantify the impact of falling headship ratios by running the same analysis, but keeping the headship ratios constant at their 2011 levels.</p>
<p>See Figure 4.</p>
<p> We found that if headship ratios were sustained at their 2011 levels, the added demand for dwellings would imply a much larger shortage at the national level.</p>
<p>In 2017, the shortage would be 117,000 dwellings, compared to the actual result of just 21,000.</p>
<p>The same is true at the state level, where New South Wales and Victoria would have a shortage of 40,000 (instead of 7,000) and 48,000 (instead of 10,000) dwellings respectively. </p>
<p><a href="https://www.propertyobserver.com.au/images/2017/09/26/Screen%20Shot%202017-09-26%20at%209.13.48%20AM.png" target="_blank"> Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/09/26/Screen%20Shot%202017-09-26%20at%209.13.48%20AM.png" alt=""></p>
<p>WORSENING AFFORDABILITY DELAYS PEOPLE FORMING HOUSEHOLDS  </p>
<p>Given the above analysis, it is important to assess why headship ratios have been falling amongst younger people.</p>
<p>We believe worsening housing affordability is the principal cause.  Recent research by the Reserve Bank of Australia supports this view.</p>
<p>It suggests that the ‘generation rent’ phenomenon - where fewer potential first-home buyers (FHBs) enter the housing market - “is a reflection of higher housing prices rather than a shift in preferences.”2 The RBA found that higher house prices have pushed potential FHBs out of the market.</p>
<p>On the other hand, demographic characteristics, such as education or employment status were not found to have changed the probability of someone becoming a FHB between 2008 and 2014. So, much of the delay in forming households (and falling implied demand for housing) is, in a sense, involuntary.</p>
<p> The affordability issue has several root causes.</p>
<p>Clearly the strong house price growth in recent years does not help.</p>
<p>But that has been compounded by a fall in wages growth to the slowest rate on record, and lower returns on savings due to falling interest rates.</p>
<p>As a result, the time taken to save a deposit for an average dwelling in Australia has been increasing for the past five years.</p>
<p> The story is different across the country. Sydney and Melbourne have experienced the worst of the affordability difficulties, in line with their exceptionally strong house price growth in recent years.</p>
<p>For an average income earner in Sydney, the time taken to save a 20% deposit for an average dwelling price is now sitting at over 10 years.</p>
<p>Melbourne is not much better, at 9 years (Figure 5). And this assumes that prices do not grow faster than incomes over that saving period. </p>
<p><a href="https://www.propertyobserver.com.au/images/2017/09/26/Screen%20Shot%202017-09-26%20at%209.14.57%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/09/26/Screen%20Shot%202017-09-26%20at%209.14.57%20AM.png" alt=""></p>
<p> WHAT DOES THIS ALL MEAN?  </p>
<p>In isolation, the housing market balance has little direct impact on price movements.</p>
<p>The housing balance is a long-term, structural measure, whereas prices can move quickly in response to many factors, including sentiment, policy, interest rates and incomes.</p>
<p>The added complication of worsening affordability and falling headship ratios make interpreting the housing balance more difficult.</p>
<p>Our analysis does however provide useful guidance on the outlook for prices, construction, and affordability.</p>
<p> This strong latent demand (FHBs currently priced out of the market) is likely to provide support to prices.</p>
<p>Any dip in prices may well activate the pool of potential entrants, resulting in additional demand and thereby sustaining prices.</p>
<p>We noted in a recent housing market update that it is hard to see house prices falling (in the absence of sharp interest rates increases), and this research supports that view.</p>
<p> Australia’s strong population growth needs ongoing supply. We expect dwelling investment will slowly decline over the next two years as the current backlog of construction (primarily of high-rise apartments) clears, but the fundamentals are in place for construction activity to remain historically high over the longer term.  Finally, the outlook for FHBs is not encouraging.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/09/26/Screen%20Shot%202017-09-26%20at%209.16.04%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/09/26/Screen%20Shot%202017-09-26%20at%209.16.04%20AM.png" alt=""></p>
<p>The probability of strong population growth and the presence of many potential FHBs mean the market is likely to remain extremely competitive. We have previously noted3 that stamp duty incentives are great for a lucky few, but such measures do little to address the underlying issues.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/09/26/Screen%20Shot%202017-09-26%20at%209.17.17%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/09/26/Screen%20Shot%202017-09-26%20at%209.17.17%20AM.png" alt=""></p>
<p>It is difficult to envisage Australia’s supply-side response suddenly boosting the availability of affordable housing, so it looks like home ownership will remain a challenge for 20–34 year olds.  </p>
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<p>Daniel Gradwell is Senior Economist, ANZ and can be contacted <a href="https://www.anz.com/corporate/research/" target="_blank">here</a>.</p>
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Australia's housing affordability is distorting demand figures: Daniel Gradwell

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<p>The proportion of Australian residential mortgages more than 30 days in arrears rose to 1.62% in May 2017, the highest rate in five years, according to Moody's Investors Service.</p>
<p>The ratings agency further said that delinquencies would continue to increase through 2017 due to the weak economies of mining-dependent states.</p>
<p>Even on a year-on-year basis, the figure was higher than 1.50% in May 2016.</p>
<p>“We expect delinquencies to continue to increase through the remainder of 2017, as weaker conditions in states reliant on the mining industry, high underemployment, and less favourable housing market and income dynamics will continue to drive the rate higher", says Alena Chen, a Moody's senior analyst.</p>
<p>The mining downturn had dampened growth in resource-reliant states: Western Australia, the Northern Territory and Queensland.</p>
<p>“We expect this situation will weigh on mortgage performance for some time,” added Chen.</p>
<p>Higher delinquencies raise the risk of mortgage defaults and are therefore credit negative for Australian residential mortgage backed securities (RMBS), says the latest report titled RMBS - Australia: Mortgage delinquency map: Home loan arrears rise to five-year high.</p>
<p>While mortgage delinquencies rose to record highs in Western Australia, the Northern Territory and South Australia, they declined in New South Wales and Victoria, and fell slightly from record high levels in Tasmania.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/09/19/Moodys1.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/09/19/Moodys1.png" alt=""></p>
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<p><img src="https://www.urban.com.au/images/2017/09/19/Moodys2.png" alt=""></p>
<p>They were also up in Queensland and the Australian Capital Territory over the year to May 2017, Moody’s said.</p>
<p>In a previous assessment, Moody's had said that mortgage delinquencies hit record highs in Western Australia, South Australia and the Northern Territory and increased nationwide over the year to November 2016.</p>
<p>"Regions with exposure to the resource and mining sectors dominated the  list of areas with the highest delinquencies in May 2017. Eight of the 10 regions with the highest 30+ delinquency rates were in either Western Australia or Queensland, and many of these regions are exposed to industries directly or indirectly related to mining and resources," said Chen.</p>
<p>The ten regions with the lowest mortgage delinquencies in Australia in May 2017 were all in Sydney and Melbourne, where housing market and economic conditions were the most supportive for mortgage borrowers.</p>
<p>The Western Australian economy is heavily reliant on the resources sector and growth has slowed over the past three years, following the end of the mining boom. </p>
<p>Western Australia's final demand (a measure of domestic economic growth that excludes exports) fell sharply by 8% over the year to March 2017 owing to lower business investment.</p>
<p>"With Australia's two core housing markets, we note that prices in Sydney and Melbourne rose 12.37% and 15.93% respectively over the year to July 2017, and 11.08% and 11.52% over the year to May 2017. Rising house prices have supported mortgage performance in these states, giving borrowers at risk of, or already in arrears, the option to sell their properties quickly for a good price to repay their loans," says Chen.</p>
<p>"However, as house prices continue rising without a corresponding increase in incomes to pay for the more expensive houses, housing affordability decreases and the risk of delinquencies and defaults rises," adds Chen.</p>
<p>Moody's further noted that Australia's financial regulators have introduced a range of measures to improve the quality of lending, curtail mortgage risk, and reduce overall household debt.</p>
<p>So, while aggregate house prices have continued to rise, other metrics like home sales and sales-to-new-listings ratios are softening, signaling a cooling in the housing market.</p>
<p>Persistently high underemployment will also constrain economic performance and wage growth, adversely affecting mortgage performance.</p>
<p>While Australia's unemployment rate was 5.60% in August 2017 and has remained below 6% since January 2016, its underemployment rate is much higher, averaging 8.57% Australia-wide in August 2017.</p>
<p>Underemployment results in lower income and reduced capacity to make mortgage repayments, increasing the risk of delinquencies and defaults.</p>
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Australian residential mortgage arrears at 5-year high, will rise further: Moody's

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<p>The latest housing update from ANZ tips weaker auction results pointing to slower price growth for the rest of 2017 with tighter borrowing conditions and higher interest rates for investors to influence price growth in 2018. </p>
<p>The housing update, authored by Daniel Gradwell, senior economist, ANZ and Joanne Masters, senor economist, ANZ says housing affordability has been steadily worsening in Sydney and Melbourne with first home buyers priced out of the market.</p>
<p>"House price growth has continued to slow down, and it appears that tighter regulation is having the desired impact," it said.</p>
<p>"At the national level, dwelling price growth has slowed over the past three months. Prices are now 9.7% higher than a year ago, down from the peak of 11.4% y/y growth recorded in May this year.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/09/18/Screen%20Shot%202017-09-18%20at%2010.05.11%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/09/18/Screen%20Shot%202017-09-18%20at%2010.05.11%20AM.png" alt=""></p>
<p>"Much of this slowdown appears to be caused by a retreating investor presence in the market, in line with recent regulatory changes.</p>
<p>"APRA’s further crackdown aimed at investor borrowing, particularly those with interest-only loans, has seen the investor share of total borrowing steadily decline.</p>
<p>In turn, price growth has slowed across most capital cities and regional areas and across detached houses and the unit/apartment market.</p>
<p>"Having said that, the Melbourne market has recently been more resilient than the Sydney market, perhaps reflecting an element of ‘catch-up’ after Sydney outperformed in previous years.</p>
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<p><img src="https://www.urban.com.au/images/2017/09/18/Screen%20Shot%202017-09-18%20at%2010.06.15%20AM.png" alt=""></p>
<p>"ANZ believe this broad slowdown in price growth will continue.</p>
<p>"Weaker auction results point toward slower price growth through the remainder of 2017, while tighter borrowing conditions, and higher interest rates for investors are likely to weigh on growth through 2018.</p>
<p>"Given Melbourne’s recent resilience, we have nudged our 2017 price forecasts higher, and now expect nationwide prices will finish the year 5.8% higher, followed by growth of 2.2% in 2018.</p>
<p>"Note that while we expect price growth will slow, there is no suggestion that prices will fall outright.</p>
<p>"Melbourne and Sydney will continue to be the main drivers of this growth, in line with their expanding populations.</p>
<p>"Strong additions to supply are expected to keep a lid on Brisbane’s prices, while Perth and Darwin are likely to have another year of weakness, as their mining boom adjustment winds up. </p>
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<p><img src="https://www.urban.com.au/images/2017/09/18/Screen%20Shot%202017-09-18%20at%2010.07.15%20AM.png" alt=""></p>
<p> "Although price growth has slowed, and interest rates for owner-occupiers are at record low levels, housing affordability is still a concern.</p>
<p>"This is especially the case in Sydney and Melbourne, where price growth in recent years has far outweighed only modest income growth.</p>
<p>"The effects of worsening affordability have been most keenly felt by first home buyers (FHBs).</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/09/18/Screen%20Shot%202017-09-18%20at%2010.08.26%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/09/18/Screen%20Shot%202017-09-18%20at%2010.08.26%20AM.png" alt=""></p>
<p>"The time taken to save a deposit for an average priced house in Sydney, for someone earning an average income, has sharply increased to over ten years.</p>
<p>"Assuming prices rise no faster than incomes in that time!</p>
<p>"The 2017-18 New South Wales and Victoria budgets have attempted to assist this problem by granting significant stamp duty savings for FHBs.</p>
<p>"As a result, the number of FHB finance commitments in July (the first month of the discounts) leapt 28% and 11% in New South Wales and Victoria respectively.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/09/18/Screen%20Shot%202017-09-18%20at%2010.09.58%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/09/18/Screen%20Shot%202017-09-18%20at%2010.09.58%20AM.png" alt=""></p>
<p>"However, as we have noted previously, policies such as these essentially bring more funds into the housing market. We are therefore sceptical that they will address the underlying, long term problem."</p>
<p>"The residential construction cycle appears to have peaked, but recent data suggest that the slowdown may be more moderate than previously feared.</p>
<p>"In fact, we have lifted our near-term profile for residential construction activity and expect investment will flat- line through the second half of 2017, and fall a mild 3.5% y/y in 2018.</p>
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<p><img src="https://www.urban.com.au/images/2017/09/18/Screen%20Shot%202017-09-18%20at%2010.11.05%20AM.png" alt=""></p>
<p>"Building approvals have started to stabilise after a period of weakness. Approvals were down 11.4% y/y in trend terms in July but this is the slowest rate of decline since late 2016. Assuming this is the bottom of the cycle, it has been a historically modest downturn, perhaps reflecting the fact that the slowdown has been driven by tighter credit conditions not an RBA tightening cycle."</p>
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