<p data-end="587" data-start="368">Queensland builder-developer MAYD has revealed the first look at its major North Kirra beachfront development, lodging amended plans that reduce the number of apartments and increase the proportion of larger residences.</p>

<p data-end="778" data-start="589">The project is planned across a substantial 4,742 sqm amalgamated site spanning seven lots at <a href="https://www.apartments.com.au/new-apartments/2-6-pacific-parade-bilinga-qld-4225">2-6 Pacific Parade</a> and 27-33 Golden Four Drive in Bilin​ga, directly opposite Nor​th Kirra Beach.</p>

<p data-end="907" data-start="780"><a href="https://www.apartments.com.au/developers/mayd-group">MAYD</a> secured the site for $32.5 million in 2025, in what was one of the Gold Coast's largest property transactions of the year.</p>

<p data-end="1052" data-start="909">The development will be delivered across two stages, with the first stage carrying an estimated gross realisation value of around $360 million.</p>

<p data-end="1311" data-start="1054">The latest amendments seek to reduce the overall apartment count and shift the project further toward the owner-occupier market, with larger residences designed for buyers wanting considerably more space than traditionally offered in a beachfront apartment.</p>

<p data-end="1451" data-start="1313">The residential mix will include townhomes, oversized two-bedroom apartments, substantial three-bedroom residences and four-bedroom homes.</p>

<p data-end="1676" data-start="1453">MAYD has appointed Cera Stribley to lead the architecture and interiors, with the Melbourne-based design practice drawing on the beachfront setting through a series of ocean-facing terraces and heavily landscaped balconies.</p>

<p data-end="1908" data-start="1678">Strong horizontal forms and curved balconies will define the exterior, with subtropical landscaping integrated throughout the building to soften the built form and increase the connection between the residences and the beachfront.</p>

<p data-end="2142" data-start="1910">The project will also include an extensive collection of resident wellness and lifestyle facilities, continuing the broader shift across the Gold Coast's luxury apartment market toward larger homes supported by resort-style amenity.</p>

<p data-end="2142" data-start="1910"><img alt="MAYD" data-entity-type="file" data-entity-uuid="d1bcbb05-e659-4b47-8bd4-1e595315e2ad" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-08-27%20at%202.05.03%E2%80%AFPM.png?VersionId=jj0XEud1X1DuLt7_KyElhjMdZGOXmLHP" /></p>

<p data-end="2308" data-start="2144">MAYD Founder Todd Mould said North Kirra was increasingly appealing to buyers attracted to the more established, lower-density character of the southern Gold Coast.</p>

<p data-end="2648" data-start="2310">"North Kirra presents one of the most compelling luxury residential opportunities currently emerging in Australia, combining absolute beachfront with the character and authenticity that buyers are increasingly seeking, and the same sense of tight-knit community that defined Burleigh and Currumbin perhaps 10 or 15 years ago," Mould said.</p>

<p data-end="2797" data-start="2650">"With Gold Coast Airport on its doorstep, it also offers a level of accessibility that broadens its appeal across almost every market demographic."</p>

<p data-end="2938" data-start="2799">The project comes as the southern Gold Coast continues to attract an increasing share of high-end apartment development and buyer activity.</p>

<p data-end="3216" data-start="2940">Kirra in particular has emerged as one of the region's more tightly held beachfront markets, with its relatively low-density character, established surf and hospitality scene and proximity to Gold Coast Airport differentiating it from the higher-density markets further north.</p>

<p data-end="3325" data-start="3218">Mould said those characteristics had informed the approach MAYD and Cera Stribley had taken to the project.</p>

<p data-end="3442" data-start="3327">"We've worked closely with Cera Stribley to create a vision that is deeply connected to its surroundings," he said.</p>

<p data-end="3662" data-start="3444">"Inspired by the coastline itself, the architecture has been shaped around space, privacy and resort-style living, creating a collection of homes that reflects the next generation of luxury on the southern Gold Coast."</p>

<p data-end="3818" data-start="3664">MOTIV Managing Director Carly Cottam, who has been appointed to market the project, said buyer attention had continued to move south along the Gold Coast.</p>

<p data-end="4076" data-start="3820">"Purchasers who may once have defaulted to Broadbeach, Main Beach or Surfers Paradise are increasingly recognising the value of a genuine beachfront location that offers lower density, strong amenity and a more established sense of community," Cottam said.</p>

<p data-end="4375" data-start="4078">"Kirra has a powerful combination of growing demand and genuine scarcity. Beachfront supply is inherently constrained, the area remains relatively low density, and buyers are increasingly placing a premium on locations that feel established, uncrowded and authentic rather than heavily developed."</p>

<p data-end="4503" data-start="4377">Cottam said the proximity to Gold Coast Airport was also proving increasingly important for interstate and second-home buyers.</p>

<p data-end="4741" data-start="4505">"Being minutes from Gold Coast Airport makes it particularly compelling for interstate buyers, frequent travellers and second-home purchasers who can access an authentic coastal lifestyle almost immediately after stepping off a flight."</p>

<p data-end="4910" data-start="4743">The acquisition takes MAYD's active development portfolio to more than $500 million, with the North Kirra project representing one of its largest undertakings to date.</p>

<p data-end="4951" data-start="4912">MAYD is targeting an early 2027 launch.</p>


Joel Robinson

First look at MAYD's North Kirra mixed-use precinct

<main data-perf-region="main">
<p data-end="600" data-start="394">Castle Hill, the longtime hub of the Hills District, has been one of the major beneficiaries of Sydney's Metro expansion, with improved connectivity helping drive continued population growth, development and buyer demand across the Hills District.</p>

<p data-end="733" data-start="602">But despite that growth, the suburb has seen relatively few major new apartment projects brought to market over the past 18 months.</p>

<p data-end="970" data-start="735">Hills District developer Reve Group is looking to fill that gap with <a href="https://www.apartments.com.au/new-apartments/nova-r-ve-castle-hill-2-garthowen-crescent-castle-hill-nsw-2154">Nova Rêve</a>, a major new mixed-use precinct on the corner of Garthowen Crescent and Old Castle Hill Road, a short walk from Castle Hill Metro Station and Castle Towers.</p>

<p data-end="970" data-start="735">[smartcode_project:default project_id=152737 project_image_fid=377679]</p>

<p data-end="1159" data-start="972">The project will comprise three residential towers alongside a hotel, restaurants, cafes and a skybar, more than 1,600 sqm of ground-floor retail and almost an acre of landscaped gardens.</p>

<p data-end="1357" data-start="1161">It represents the largest project undertaken by Reve Group, the development arm of the Kassis family, which has been building across the Hills District for more than 30 years through Kassis Homes.</p>

<p data-end="3400" data-start="3216">[smartcode_project:default project_id=152737 project_image_fid=377675]</p>

<p data-end="3400" data-start="3216">Nova Rêve also represents a significant step up from the family's first apartment development, Grand Rêve, which was delivered nearby on Garthowen Crescent.</p>

<p data-end="1664" data-start="1517">Grand Rêve introduced larger, house-like apartment layouts and premium inclusions including Wolf and Sub-Zero appliances to the Castle Hill market.</p>

<p data-end="1826" data-start="1666">Nova Rêve takes that approach to a precinct scale, combining the residential component with hospitality, retail and substantial public and resident landscaping.</p>

<p data-end="1826" data-start="1666">[smartcode_project:default project_id=152737 project_image_fid=377685]</p>

<p data-end="2045" data-start="1828">Reve Group Managing Director Sam Kassis said the project reflected the family's three decades of building in the Hills, which has evolved from trophy homes on quarter-acre blocks to larger-scale apartment development.</p>

<p data-end="2269" data-start="2047">"Grand Rêve was our first apartment project here and it showed us what this pocket of Castle Hill could be. Nova Rêve is the refinement of that idea: not just apartments, but a place the whole suburb can use," Kassis said.</p>

<p data-end="2430" data-start="2271">A key part of that approach is the hotel, which has been designed to operate as an amenity for the wider Castle Hill community rather than solely hotel guests.</p>

<p data-end="2606" data-start="2432">It will include restaurants, cafes, skybars and all-day dining, alongside conference and event facilities catering to business functions, community groups and private events.</p>

<p data-end="2724" data-start="2608">At ground level, more than 1,600 sqm of shops and cafes will open onto the surrounding streets and landscaped areas.</p>

<p data-end="2892" data-start="2726">Almost an acre of gardens designed by Land and Form Studios will run through the precinct, incorporating pathways, seating, barbecue areas and children's play spaces.</p>

<p data-end="2892" data-start="2726">[smartcode_project:default project_id=152737 project_image_fid=377680]</p>

<p data-end="3004" data-start="2894">Reve Group's Romio Georges said creating an active ground plane had been central to the planning of Nova Rêve.</p>

<p data-end="3214" data-start="3006">"There are gardens with pathways, barbecues, seating and play areas, shops and cafes opening onto the street, and a hotel with restaurants and a skybar that anyone in Castle Hill can walk into," Georges said.</p>

<p data-end="3400" data-start="3216">The project's elevated position on one of Sydney's highest ridgelines will also provide apartments with outlooks toward the Sydney skyline, surrounding parkland and the Blue Mountains.</p>

<p data-end="3400" data-start="3216">More than 80 per cent of the apartments will occupy corner positions, with Turner responsible for both the architecture and interiors.</p>

<p data-end="3670" data-start="3538">&nbsp;</p>

<p data-end="3670" data-start="3538">[smartcode_project_cta:default project_id=152737]</p>

<h3 data-end="3697" data-section-id="q3n5ak" data-start="3672">&nbsp;</h3>
</main>


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

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


Maréa Residences brings parkside apartments to Coolangatta

<p data-end="535" data-start="324">Melbourne developer PDG has secured Victorian Government approval for its $1.5 billion Southbank development <a href="https://www.apartments.com.au/new-apartments/the-one-1-queens-bridge-street-southbank-vic-3006">The One</a>, clearing the way for the long-dormant riverfront site opposite Crown to finally be developed.</p>

<p data-end="717" data-start="537">The Minister for Planning has approved the project at 1-29 Queens Bridge Street, with the Department of Transport and Planning issuing the planning permit following its assessment.</p>

<p data-end="918" data-start="719">The approval will allow PDG to develop the prominent 5,059 sqm site with a major mixed-use tower comprising premium apartments, including branded residences, a luxury hotel and boutique office space.</p>

<p data-end="1131" data-start="920">PDG acquired the site in late 2024, with its position directly opposite Crown's main entrance and near Melbourne's Arts Precinct making it one of Southbank's most significant remaining development opportunities.</p>

<p data-end="1131" data-start="920"><img alt="PDG" data-entity-type="file" data-entity-uuid="3933013e-6332-4386-b9be-089df05caf17" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-08-27%20at%209.29.22%E2%80%AFAM.png?VersionId=sITIgBqDL0N3VNSMwWEmF5UA.uvcsRyu" /></p>

<p data-end="1318" data-start="1133">Designed by COX in collaboration with ODO and PDG, the tower's architecture draws on the movement of the Yarra River, with six vertical pleats running the height of the sculpted facade.</p>

<p data-end="1433" data-start="1320">The project will also see the heritage-listed Queens Bridge Hotel restored and incorporated into the development&nbsp;with new hospitality and public uses, including a rooftop venue.</p>

<p data-end="1658" data-start="1591">A significant component of The One will be its residential amenity.</p>

<p data-end="1864" data-start="1660">More than 5,000 sqm of resident facilities will be delivered across a single level, making it one of the largest consolidated residential amenity offerings proposed in an Australian apartment development.</p>

<p data-end="2011" data-start="1866">The planning approval also incorporates a major upgrade of Queensbridge Square, which PDG will deliver in partnership with the City of Melbourne.</p>

<p data-end="2011" data-start="1866"><img alt="PDG" data-entity-type="file" data-entity-uuid="73167fcd-1031-4b6f-a408-a064cfe45ed1" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-08-27%20at%209.29.17%E2%80%AFAM.png?VersionId=Pf1AEWxw6SNmBqR0zQW5lyEze.MtxgFp" /></p>

<p data-end="2191" data-start="2013">The existing square will be revitalised as a new civic and pedestrian space along the Yarra River, strengthening the connection between the project, Southbank and the riverfront.</p>

<p data-end="2365" data-start="2193">PDG Founder and Managing Director Vince Giuliano said the approval represented a major milestone for a site which has remained largely underutilised for more than 15 years.</p>

<p data-end="2473" data-start="2367">“This is the most significant Planning Permit approval Melbourne has seen in recent years,” Giuliano said.</p>

<p data-end="2775" data-start="2475">“For more than 15 years, this site has remained underutilised. This approval enables us to deliver a project that will contribute meaningfully to the revitalisation of Southbank, restore and reactivate an important heritage building, and create a new civic and hospitality destination for Melbourne.”</p>

<p data-end="2943" data-start="2777">The latest approval follows an earlier planning permit issued by the City of Melbourne covering demolition works across part of the site at 9-29 Queens Bridge Street. Those demolition and early works are already underway.</p>

<p data-end="3145" data-start="3001">PDG has also started generating early interest in the residential component from owner-occupiers ahead of a planned public launch in early 2027.</p>


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

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


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

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>
<div class="column"> </div>
<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">Click here <a href="https://www.propertyobserver.com.au/images/2018/6/6/figure1.jpg" target="_blank">to enlarge.</a>
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<div class="column"><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/2018/6/6/figure1.jpg" alt=""></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>
<p><span><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/2018/6/6/figure2.jpg" alt=""></span></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>
<p> </p>
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<p>Click here <a href="https://www.propertyobserver.com.au/images/2018/6/6/figure3.jpg" target="_blank">to enlarge.</a></p>
<p><span><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/2018/6/6/figure3.jpg" alt=""></span></p>
<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>
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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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jchancellor-FAypfDUnLy

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>
<p><a href="https://www.propertyobserver.com.au/images/2017/09/19/Moodys2.png" target="_blank">Click to enlarge</a></p>
<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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jonathanchancellor-7SQnKwU6yx

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>
<p><a href="https://www.propertyobserver.com.au/images/2017/09/18/Screen%20Shot%202017-09-18%20at%2010.06.15%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%2010.06.15%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>
<p><a href="https://www.propertyobserver.com.au/images/2017/09/18/Screen%20Shot%202017-09-18%20at%2010.07.15%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%2010.07.15%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>
<p><a href="https://www.propertyobserver.com.au/images/2017/09/18/Screen%20Shot%202017-09-18%20at%2010.11.05%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%2010.11.05%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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