Joel Robinson

First Look: Sherlock Construction pitches apartments for low-rise Deception Bay

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.

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.

<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.

The development will be delivered across two stages, with the first stage carrying an estimated gross realisation value of around $360 million.

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.

The residential mix will include townhomes, oversized two-bedroom apartments, substantial three-bedroom residences and four-bedroom homes.

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.

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.

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.

<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" />

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.

"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.

"With Gold Coast Airport on its doorstep, it also offers a level of accessibility that broadens its appeal across almost every market demographic."

The project comes as the southern Gold Coast continues to attract an increasing share of high-end apartment development and buyer activity.

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.

Mould said those characteristics had informed the approach MAYD and Cera Stribley had taken to the project.

"We've worked closely with Cera Stribley to create a vision that is deeply connected to its surroundings," he said.

"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."

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.

"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.

"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."

Cottam said the proximity to Gold Coast Airport was also proving increasingly important for interstate and second-home buyers.

"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."

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.

MAYD is targeting an early 2027 launch.

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

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

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

Maréa Residences brings parkside apartments to Coolangatta

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

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

Interest Rates

<html><body>
NAB has just slashed several of its 2-year fixed rates for owner-occupiers paying principal and interest by 0.20 per cent.
For first home buyers NAB is offering 3.49 per cent, which is one of the lowest 2-year fixed rates available in Australia.
NAB is also offering $2,000 back on new loans of $250,000 or more.
This follows shortly after <a href="/news/anz-finally-cuts-fixed-home-loan-rates">ANZ cut rates</a> across several fixed rate home loans packages as of May 10.
ANZ was the last of the <a href="/news/westpac-joins-other-big-two-to-cut-fixed-home-loan-interest-rates">big four banks to reduce fixed rates</a> on home loans.
RateCity.com.au research director Sally Tindall said it was unusual to see one of the big four banks offer one of the lowest fixed rates in Australia.
“The fact that NAB, a big four bank, is offering one of the lowest fixed rates in Australia is a sign of the times,” she said.
“The big banks are now playing in the low cost loan space in a bid for new customers and they aren’t taking a backwards step.
RateCity data shows around 50 lenders have cut fixed rates in the last two months ahead of the expected RBA cut.
Some lenders are even moving variable rates in the week out from the RBA, including ING which moved rates today and Mortgage House, which now has the lowest ongoing variable rate in Australia of 3.29 per cent.  
Click <a href="https://www.propertyobserver.com.au/images/2019/5/30/NAB%20Slash%20rates.JPG" target="_blank">here</a> to enlarge.
<img src="https://www.urban.com.au/images/2019/5/30/NAB%20Slash%20rates.JPG" alt="">
Note: All interest rates in the tables above are for owner-occupiers paying principal and interest.
</body></html>

j.ballantyne1990-6AQqhLzZaK

NAB cuts two year fixed rates

<html><body>
GUEST OBSERVATION
Australia’s lowest ever Reserve Bank cash rate – 1.5% – is about to be consigned to history.
On Tuesday Governor Philip Lowe made it clear he plans to cut it in two weeks’ time. The money market cash rate (from which all other rates derive) will then fall to 1.25%.
After that, if betting in the market is right, he will cut the cash rate to just 1% by Christmas.
Speaking in Brisbane, Lowe said the Reserve Bank board <a href="https://www.rba.gov.au/speeches/2019/sp-gov-2019-05-21" target="_blank">was of the view that</a>:
"Inflation was likely to remain low relative to the target, and that a decrease in the cash rate would likely be appropriate. 
"A lower cash rate would support employment growth and bring forward the time when inflation is consistent with the target. Given this assessment, at its meeting in two weeks’ time the board would consider the case for lower interest rates."
The bank is forecasting a tick up in economic growth from the present 2.3% to 2.75% by the end of the year and a fairly steady unemployment rate.
But here’s the thing. He was keen to emphasise that those forecasts only applied if he cut rates twice this year – that’s twice, before the end of the year.
<hr>
Reserve Bank cash rate since 1990
<a href="https://images.theconversation.com/files/275782/original/file-20190521-23832-y56vnk.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/275782/original/file-20190521-23832-y56vnk.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></a>
<a class="source" href="https://www.rba.gov.au/statistics/cash-rate/" target="_blank">Reserve Bank of Australia</a>
<hr>
He is planning to do it because the economy is weak, much weaker than his political masters suggested during the election campaign. Consumer spending is “unusually soft”.
"Over the past three years, household disposable income has increased at an average rate of just 2.75%. This compares with an average of 6% over the preceding decade.
"As this period of weak income growth has persisted, it has become harder for households to dismiss it as just a temporary development – as something that will pass quickly. The lower rate of income growth has also made it harder for households to pay down debt. The end result has been that many people have decided to adjust their spending plans."
The cuts are just the start
It isn’t much good cutting interest rates if mortgage rates don’t follow. That will be up to the banks. But until this week, even if they had passed it on, there would have been so many would-be borrowers it wouldn’t have helped.
That’s because, whatever the interest rate and whatever a would-be borrower’s ability to make payments, banks have generally refused to lend to anyone who couldn’t cope with a rate of 7.25%.
It’s been the doing of the Australian Prudential Regulation Authority – one of the Reserve Bank’s sister organisations. It regulates banks and super funds and other institutions in order to keep the financial system stable.
In December 2014 it directed the institutions it supervises to impose serviceability assessments that incorporated a buffer of at least two percentage points above the loan product rate they were offering and a minimum floor rate of <a href="https://www.apra.gov.au/sites/default/files/141209-Letter-to-ADIs-reinforcing-sound-residential-mortgage-lending-practices.pdf">at least 7%</a>.
That meant that if new mortgage rates were 5%, as they were at the time, the lenders had to satisfy themselves that the borrower could cope with 7%. As new mortgage rates fell to 4.5% they still had to satisfy themselves that the borrower could cope with 7%.
Banks have needed unreasonably high buffers
APRA’s directive stated that “prudent practice would be to maintain a buffer and floor rate comfortably above these levels”, meaning that in practice most lenders wouldn’t lend to anyone who wasn’t able to cope with the mortgage rate climbing to 7.25%, no matter how unlikely that was becoming.
On Tuesday this week, a few hours before Governor Lowe delivered his speech, it wrote to the institutions again, <a href="https://www.apra.gov.au/sites/default/files/letter_consultation_on_revisions_to_prudential_practice_guide_apg_223_residential_mortgage_lending.pdf" target="_blank">telling them that</a>: "the low interest rate environment is now expected to persist for longer than originally envisaged. This may mean that the gap between actual rates paid and the floor rate may become unnecessarily wide."
It was proposing to remove “reference to a specific 7% floor”.
The required serviceability buffer would climb from 2% to 2.5%, and it would no longer expect lenders to use a rate “comfortably above” that buffer.
Soon, they’ll be able to lend more…
While strictly speaking the letter notified lenders of a one-month consultation period, what it really did was notify them that the changes were about to be implemented.
In recent months most new mortgage rates have been below 4.5%, with some high-quality borrowers able to get rates as low as 3.6%.
The new arrangements will allow banks to assess them on their ability to make payments on a 6% to 7% loan instead of a 7.25% loan.
Should the next two cash rate cuts be passed on, it would allow them to assess lenders on their ability to repay a 5.5% to 6.5% loan.
It would represent a substantial easing of credit standards for new borrowers.
..up to 10% more
My calculations suggest it would increase the borrowing capacity of home buyers by as much as 10%, enough to have a material positive impact on the housing market.
APRA’s move (almost certainly taken in consultation with the Reserve Bank) both makes a cut in the Reserve Banks’s cash rate less imperative and more potent.
As interest rates get lower, further cuts seem to have been losing their ability to get people and businesses spending and borrowing, something the Governor would have been thinking of when he referred in his speech to the “limitations” of relying on just one instrument to boost the economy.
It would also be up to the government to provide “additional fiscal support” (which means extra spending or tax cuts) including through spending on infrastructure and “policies that support firms expanding, investing and employing people”.
The first of his rate cuts, due in a fortnight, will have more impact than it would have had APRA not acted.
Or perhaps not as much as he would have hoped if the banks, carrying big costs as a result of the misdeeds uncovered in the royal commission, don’t pass it all on.<img src="https://counter.theconversation.com/content/117500/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;">
Warren Hogan, Industry Professor, University of Technology Sydney
This article is republished from <a href="http://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/cutting-interest-rates-is-just-the-start-its-about-to-become-much-much-easier-to-borrow-117500" target="_blank">original article</a>.
</body></html>

Cutting interest rates is just the start. It’s about to become much, much easier to borrow

<html><body>
EXPERT OBSERVER
The property market will remain weak well into 2020 unless the RBA cuts interest rates and these are passed on by the banks.
However, it was the introduction of lending restrictions by APRA, followed by the greater scrutinisation of loan applications as a result of the Royal Commission, that was the catalyst for the downturn, has just released its latest Quarterly Risks &amp; Opportunities Report.
Tighter lending standards, the findings of the Banking Royal Commission, political uncertainty, fears of the potential changes to negative gearing and capital gains tax, restrictions on foreign investors, unit oversupply and large falls in dwelling commencements had all had a material impact on the property market.
The major risks associated with residential property have, and continue to be, significantly increased in comparison to the risk levels in the long term.
This is due to a combination of factors that are changing the face of the property landscape with no price increases and significant improvement expected until at least the end of 2020.
There’s an 80 per cent chance the ALP will come into power at the forthcoming Federal election and this win will see the implementation of their policy to limit negative gearing to new housing only and reduce the discount on capital gains tax from the current 50 per cent to 25 per cent to come into effect on January 1, 2020.
This will simply make property investment, in both existing and new dwellings, by far less attractive.
<a href="https://www.propertyobserver.com.au/Visit%20www.riskwiseproperty.com.au" target="_blank">RiskWise</a> demonstrated that fears of the proposed changes have already impacted the market with price reductions accelerating following the Liberal Party leadership spill in August last year. In addition, auction clearance rates dropped below 50 per cent towards the end of 2018 in both Sydney and Melbourne and are currently in the low to mid-50s.
Buyer sentiment had been greatly diminished with strong reductions in activity by investors who realised they had to wait for the election results, the implementation of the taxation policy, and a new low equilibrium point to be reached, before they could act.
Investors understand the potential increases to out-of-pocket expenses due to the taxation changes, which are equivalent to a significant and sudden interest rate increase of 1.15 per cent in the Sydney unit market.
RiskWise analysis shows there is an 80 per cent likelihood the RBA will cut interest rates during the second half of 2019 with a further cut before the end of the year or early 2020, with the banks ‘highly likely to pass them fully on to borrowers’. 
This will significantly reduce price reductions, particularly in the Sydney and Melbourne markets, and increase demand in the markets that have shown resilience and already enjoy good demand. Interest rate cuts have a direct impact on out-of-pocket expenses and also have an impact on buyer sentiment, particularly investors.
GDP growth is also below target, largely due to a reduction in dwelling commencements, and a drop in consumer sentiment has an impact on household spending.
In fact, according to ABS data, there has been a major reduction in household wealth, driven by a reduction of land and property values. While household wealth is falling, the household-debt-to-income ratio hit a new record just shy of 200 per cent.
While APRA has removed the 30 per cent interest-only lending cap, this is unlikely to have a material impact on the housing market. Banks will continue to mitigate the risks associated with interest-only loans in a market where the majority of the properties that are purchased or re-financed are depreciating assets.
In addition, there is a 7 per cent stress test (where many lenders set the stress test at 7.25 per cent) when it comes to the ability to service a loan making it extremely difficult to get approval from lenders.
Negative equity has also become a major risk, particularly for lenders who have concentration of loans in weak markets within Western Australia, Queensland and the Northern Territory.
Also, the majority of the properties that have been purchased in Sydney and Melbourne in the past couple of years have depreciated in value and properties that have loan-to-value ratio (LVR) of 90 per cent or more carry a high level of risk of negative equity.
The next quarter will be crucial for the housing market due to the election results and expected high level of certainty regarding RBA’s interest rate cuts, but expect the weak outlook to continue.
Macro-economic measures, particularly in relation to Consumer Price Index (CPI), employment and GDP growth will play central roles in whether there would be an interest rate reduction sooner rather than later.
Our analysis shows us however, that at least for the foreseeable future, and especially with the likely introduction of the taxation changes, that the weak housing market will continue with high levels of apartment supply, combined with low sales volumes, and a continuous reduction in dwelling commencements, that will help to absorb the high level of supply gradually over time.
State-by-State Overview:
In New South Wales, the combined effects of unaffordable housing, poor investment serviceability ratio and lending restrictions have led to a quick reduction in house and unit prices. In addition, there has been a significant reduction in investor activity. Without RBA interest rate cuts and / or a Labor loss in the federal election, Sydney is likely to experience continuous price reductions over the next couple of years, with an estimated annual reduction of 4-6 per cent for both this year and 2020. Some regional areas, however, are likely to hold well. An RBA interest rate cuts is likely to mitigate price reductions.
Victoria has the highest population growth in the country, enjoys a solid economy and a healthy job market. However, like NSW, dwelling prices have fallen, although to a lesser extent, as have auction clearance rates. Again, this fall can be attributed to the same factors as that of NSW – lending restrictions, significantly lower investor activity, fear of changes to the current taxation regime and expectations of price reductions. Therefore, without RBA interest rate cuts that are much needed to support this market and / or a Labor loss in the federal election, over the next couple of years, the prospect for the Melbourne housing market is negative with annual price reductions in the order of 4-7 per cent for both this year and 2020. However, a number of regional areas, in particular Geelong and Ballarat, which deliver solid capital growth, present only a low level of risk and are projected to continue delivering solid capital growth both in the short and long term.
The Australian Capital Territory delivered good economic growth and experienced the second largest population growth rate in the country, delivering capital growth and a relatively resilient property market. While growth rates have decelerated in recent months, dwellings in the ACT present a relatively low level of risk for major price reductions and are projected to deliver modest capital growth in the next couple of years. Houses are still enjoying, and likely to continue to do so, some capital growth while the unit market remains reasonable, although it does carry a higher degree of risk to deliver negative growth in the short term, particularly due to its reliance on investor activity.
The modest growth pace in the Queensland housing market continues although for units remains poor or negative. Some areas, particularly in South-East QLD including the Gold Coast and the Sunshine Coast, enjoy good population growth and healthy demand for houses. Other areas, such as Central QLD, are still experiencing poor demand for dwellings, very high vacancy rates and a very soft property market. An oversupply of units in inner Brisbane makes this market particularly susceptible to the impact of potential taxation changes. Other areas that have a high supply of new units also present high levels of risk, particularly where there are relatively affordable houses as, generally, houses are significantly preferred dwelling alternatives.
The South Australian economy has shown some improvement but still has a high effective unemployment rate which has led to very low population growth and soft housing demand meaning only modest capital growth is forecast for houses. However, houses in popular areas, such as Adelaide Central and Hills carry a low level of risk and are projected to deliver solid long-term returns. Some areas have unit oversupply and are experiencing weakness, particularly Adelaide CBD where poor growth is forecast.
In Western Australia, lending restrictions had the most impact thanks to its weaker economy. Perth prices, which had stabilised, began to fall once again. The impact is expected to increase if a blanket approach is also taken when implementing the proposed taxation changes. While the state’s economy has returned to positive growth, a combination of a very high effective unemployment rate, low population growth and a significantly below-average economic activity level has resulted in price reductions for both houses and units. Finally, units carry a very high risk due to the combination of oversupply, lending restrictions and low demand, particularly in central Perth.
Tasmania leads the country in investment serviceability with its high median rental returns and low average dwelling price. However, Hobart has gone off the boil, with CoreLogic figures showing a 0.9 per cent slide of dwelling prices last month. Houses fell 1.2%, while unit growth was only 0.3% in March. A significant increase in dwelling prices in recent years, less affordable housing, decelerated price growth, fewer people turning up to open home inspections and fewer inquiries on listings, indicate that housing affordability has made an impact and that the growth rate was unsustainable. It is projected to significantly decelerate in 2019 and further into 2020, with some areas likely to deliver very low or negative capital growth.
The Northern Territory experienced poor population growth resulting in negative dwelling growth and a very soft property market. Poor demand for dwellings and price reductions, combined with a relatively high median household income have resulted in the most affordable dwellings (i.e. the lowest price-to-income ratio) in the country. The property market is projected to remain soft, particularly for units. Furthermore, it is likely that the NT housing market will be a victim of unintended consequences from the blanket implementation of the potential taxation changes that will further reduce investor activity.
DORON PELEG is the CEO of <a href="https://www.propertyobserver.com.au/Visit%20www.riskwiseproperty.com.au" target="_blank">RiskWise Property Research</a>
</body></html>

Interest rate cuts and election results keys to property market: Doron Peleg 

<html><body><div class="page" title="Page 1">
<div class="section">
<div class="layoutArea">
<div class="column">
The next three RBA meetings are clearly live for a rate cut, says the NAB's Alan Oster.
<div class="page" title="Page 1">
<div class="section">
<div class="layoutArea">
<div class="column">
With its outlook for below trend growth, and below target inflation combined with little further improvement in the labour market, NAB expect the RBA to cut rates twice in 2019, taking the cash rate to a new record low of 1%.
</div>
</div>
</div>
</div>
"We expect a cut by at least August."
"We have left our call for the first cut as July, with a follow up in November." 
However, with the RBA still looking for an improvement in the labour market and monthly figures often volatile, NAB recognise that the timing of the first cut will be especially data dependent.
"On the one hand a marked deterioration in upcoming labour market data as well as weaker national accounts partials, could see the cut brought forward to next month.
"Against that a cut could be delayed to August when the Bank will have observed another quarter of likely weaker GDP growth, a further update on the CPI and a revised set of staff forecasts ahead of the next SMP."
NAB noted labour market indicators should be closely watched, as a turn in the labour market could reasonably be 1.0 expected given the prior slowing in output growth.
<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/2019/5/15/NAB1.jpg" alt="">
<div class="page" title="Page 2">
<div class="layoutArea">
<div class="column">
The NAB Survey measure of employment weakened in April and job ads appear to have fallen.
<div class="page" title="Page 3">
<div class="layoutArea">
<div class="column">
The NAB reported the impact of the downturn in the housing market was "affecting both output and inflation data.
"The cooling appears to be ongoing, with prices continuing to decline and building approvals continuing to trend down."
NAB expect dwelling investment to record another decline in Q1 following the relatively sharp fall in the last quarter of 2018. 
"Overall we expect dwelling investment to decline by around 20% over the next two years. 
"Alongside this, we expect house prices to decline by another 5% nationally over 2019 and early 2020 before levelling out for a period."
<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/2019/5/15/NAB2.jpg" alt="">
The report noted capital city house prices have now fallen by almost 10% since peaking in late 2017. 
"These declines have been led by Sydney (down 15%) and Melbourne (down 11%) where the role of investors is much larger and prices saw a much more significant rise. 
"That said, recent months have seen price declines broaden to the other states, with Brisbane and Adelaide having now declined over the year in addition to the ongoing weakness in Perth. In Hobart growth has slowed, but the city remains the standout, with prices remaining well up on a year ago," Alan Oster said.
On the activity side, building approvals continued their trend decline in March, unwinding the spike a month earlier. 
Over the past year approvals are 27% lower and are now 37% below their peak in 2017.
<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/2019/5/15/NAB-Survey.jpg" alt="">
 
The decline in approvals is evident across both houses and apartments down 19% and 57% respectively from their peaks in 2017. 
The decline in approvals suggests that activity in the sector will weigh on growth overall as the pipeline of outstanding work is completed.
NAB noted alongside the cooling in the market, housing credit growth has continued to slow. 
Investor lending slowed to just 0.7% y/y in March 2019, while growth in credit extended to owner-occupiers is tracking a little higher but has slowed to 5.7%. 
Overall housing credit has risen by 4.0% over the past year. 
ABS data on the value of new loan approvals has continued to trend down suggesting that credit growth will likely weaken a little further over coming months.
"To date, the adjustment in the housing market appears to have occurred in an orderly fashion – and may have served to reduce the prior build up of risk in the sector," Alan Oster said.
"We see the weakness in prices as having been driven by the earlier tightening driven APRA restrictions, a waning in foreign investor demand as well as affordability constraints themselves. 
"In addition it appears that there are some pockets of oversupply. 
"Going further, we see the cooling in the market continuing with prices declining a little further and also a notable downturn in the construction cycle. 
"Beyond this, we are closely watching for any additional spill overs from this sector to other sectors."
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div></body></html>

Next three RBA meetings are live for a possible rate cut: NAB

<html><body>
EXPERT OBSERVER
Three months ago we said “It all gets down to jobs.” And that point has clearly been emphasised by the Reserve Bank in the period since. If the Reserve Bank is tempted to cut interest rates in coming months it will be because there is clear evidence that the jobless rate is trending higher, while at the same time there is disappointment on the wages paid by employers.
You have to admire the Reserve Bank’s stoicism with its forecasts. Over the past six months the Reserve Bank has downgraded short-term economic growth and inflation forecasts and pushed-out its expectations by around a year.
Confusingly Reserve Bank “domestic forecasts are conditioned on the technical assumption that the cash rate moves in line with market pricing, which implies two 25 basis point cuts to the cash rate.” Despite that, inflation struggles to get to 2 per cent and the jobless rate stays at 5 per cent. The Reserve Bank needs to provide a clearer explanation of his views and assumptions.
Reserve Bank remains confident on outlook: 
The full Statement on Monetary Policy can be found here: <a id="LPlnk836631" href="https://www.rba.gov.au/publications/smp/2019/may/pdf/statement-on-monetary-policy-2019-05.pdf" target="_blank" rel="noopener noreferrer" data-auth="NotApplicable">https://www.rba.gov.au/publications/smp/2019/may/pdf/statement-on-monetary-policy-2019-05.pdf</a>
<ul>
<li>Key Paragraph: “At its recent meeting, the Board focused on the implications of the low inflation outcomes for the economic outlook. It concluded that the ongoing subdued rate of inflation suggests that a lower rate of unemployment is achievable while also having inflation consistent with the target. Given this assessment, the Board will be paying close attention to developments in the labour market at its upcoming meetings.”
</li>
<li>Growth &amp; inflation: “Growth in the Australian economy has slowed and inflation remains low.”
</li>
<li>Spending: "The near-term outlook for consumption growth has been revised lower because weaker housing market conditions and income growth are likely to continue to drag on spending."
</li>
<li>Household spending: “Subdued growth in household income and the adjustment in the housing market are affecting consumer spending and residential construction. Despite this, the labour market is performing reasonably well, with the unemployment rate steady.”
</li>
<li>Incomes: "Some recovery in income growth is likely, because employment growth is expected to remain solid, wages are expected to increase and the tax offset for low and middle-income taxpayers is set to come into effect in the second half of this year."
</li>
<li>Incomes: “Disposable income growth is also expected to be supported by lower net interest payable owing to the lower cash rate assumption.”
</li>
<li>Home prices &amp; spending: "The deterioration in housing market conditions is expected to continue to weigh on consumption in coming quarters."
</li>
<li>Home building: "There is a risk that dwelling investment declines by more than currently forecast in the near term."
</li>
<li>Home building: …“information from the liaison program points to a significant slowdown in activity in the early stages of residential development.”
</li>
<li>Inflation: Core inflation is “expected to remain low in coming quarters, largely because the weakness in housing- related items is expected to persist for a while.”
</li>
<li>Global: “The global growth outlook has been revised slightly lower and the risks remain tilted to the downside.”
</li>
<li>China: “The outlook for China continues to be an important source of uncertainty for the external environment facing Australia’s economy. The Chinese authorities face significant policy trade-offs and it is unclear how various policy changes will play out.”  “The outlook for trade policy remains uncertain and negative developments could harm global growth.”
</li>
<li>Wage pressure: “…there has been some upward pressure on inflation as a result of the decline in labour market spare capacity.”
</li>
<li>Wages: “The moderate increase in wages growth forecast over the next year is consistent with information from the Bank’s liaison program.”
</li>
<li>Jobs: “A number of other indicators suggest that labour market conditions remain positive and that spare capacity is being absorbed. There has been a notable decline in the rate of medium-term unemployment (between 13 weeks and one year)…”
</li>
</ul>
Implications for interest rates and investors:
CommSec doesn’t expect a change in interest rates for a few months yet. But a cut in rates is factored into Reserve Bank forecasts, presumably on a softer job market.
The Reserve Bank says that “The domestic forecasts are conditioned on the technical assumption that the cash rate moves in line with market pricing, which implies two 25 basis point cuts to the cash rate.” While the RBA always notes that forecasts are based on technical assumptions, this time it is quite explicit with the rate cut assumptions.
The Reserve Bank is no doubt hoping that fiscal stimulus is applied over the next year through tax cuts and targeted spending. The 
Craig James is the chief economist at <a href="https://www.comsec.com.au/default.aspx" target="_blank">CommSec</a>.
</body></html>

cjames-5S2v74qSNK

Infrastructure boom fundamental in driving the economy: CommSec's Craig James

<html><body>
ANZ has cut rates across several fixed rate home loans packages as of May 10.
It makes them the last of the <a href="/news/westpac-joins-other-big-two-to-cut-fixed-home-loan-interest-rates">big four banks to reduce fixed rates</a> on home loans.
Australia’s fourth largest bank has cut between 0.20 per cent and 0.60 per cent off owner occupier and investor fixed loans.
The cuts make their rates more comparable with their big four competitors.
<img src="https://www.urban.com.au/images/2019/5/10/ANZ%20Rates%201.JPG" alt="">
(Source: RateCity.com.au)
On the same day, Macquarie Bank, Australia’s eighth largest home lender has reduced variable rates on a range of loans by up to 0.51 per cent.
Macquarie Bank's lowest ongoing variable rate, available to new owner occupiers paying principal and interest with a 30 per cent deposit, is now 3.69 per cent – a drop of 0.12 per cent.
As a result they now offer a lower a lower variable rate than the big four banks alongside HSBC, who offer the same rate for new customers.
Sally Tindall, RateCity.com.au research director said, "with more competitive pricing, Macquarie Bank has seen an 18.4 per cent growth in their home lending year on year, according to the most recent data from APRA."
“The move by ANZ today comes as no shock. Some of their fixed rates were sticking out like a sore thumb. Now ANZ has some of the most competitive 3 and 5-year fixed rates available from the big four banks,” she added.
<img src="https://www.urban.com.au/images/2019/5/10/ANZ%20Rates%202.JPG" alt="">
(Source: RateCity.com.au)
</body></html>

ANZ finally cuts fixed home loan rates

<html><body>
GUEST OBSERVATION
Suncorp Bank is now offering fixed home loans with some of the lowest advertised interest rates on the market.
The Brisbane-based bank’s packaged home loans for both owner-occupiers and investors have three-year fixed rates that rival most variable-rate products.
From today, the Home Package Plus Special Offer home loans offer interest rates of:
<ul type="disc">
<li>3.49% p.a. (4.24% comparison rate) for owner occupier, principal and interest borrowers</li>
<li>3.69% (4.50% comparison rate) for investment, principal and interest or interest-only borrowers</li>
</ul>
Both of these new interest rates are available for loan-to-value ratios (LVR) of up to 90% – that’s a minimum deposit of 10%.
In addition, owner occupier and investment customers can get rates as low as 3.44% and 3.64% respectively if they use Suncorp’s fast refinance (owner-occupied refinancers can also get $1,500 cashback with Suncorp).
It should be noted these are packaged home loan products, meaning borrowers would need to combine the loan with a Suncorp bank account to be eligible for the rate.
This means they come with a higher comparison rate compared to other non-packaged products, which reflects higher fees.
Suncorp’s packaged products come with a $375 package fee, but the comparison rate on the special offer products are still much lower than its non-packaged products.
Suncorp’s standard fixed owner-occupier loan, for example, has an advertised rate of 3.94% and a comparison rate of 5.43%.
On its website, Suncorp promises to waive this $375 fee in the first year.
How do these new rates compare?
These new interest rates are among the lowest on the market at the time of writing, and are a testament to the sheer number of rate drops there have been lately, particularly when it comes to fixed rates.
Big four banks Westpac and the Commonwealth Bank also began offering lower fixed home loan interest rates this week, but their new rates pale in comparison to Suncorp’s latest rates.
Commbank’s new three-year fixed package home loan for owner-occupiers offers a rate of 3.79% (4.98% comparison rate) while Westpac is offering 3.89% (4.92% comparison rate) on its three-year fixed package.
These rate cuts follow a similar move in late March, where Suncorp cut some of its other fixed-rate home loans by as much as 70 basis points.
This article was originally published on <a id="LPlnk675834" href="https://www.savings.com.au/home-loans/suncorps-new-fixed-home-loan-rates-among-the-lowest-on-the-market/" target="_blank" rel="noopener noreferrer" data-auth="NotApplicable">Savings.com.au</a>.
</body></html>

Suncorp’s new fixed home loan rates among the lowest on the market

<html><body>
EXPERT OBSERVATION 
This month’s RBA Board meeting saw interest rates remain on hold for the 29th meeting (or 32nd month) in a row. No surprise there.
But while the RBA’s post meeting statement was little changed in relation to global conditions, the strong labour market and the housing “adjustment”, it did sound a little bit more dovish in two areas.
First in its acknowledgement of weak December quarter GDP growth and consumer spending.
And second in adding at the very end of its statement that it “will continue to monitor developments”.
Of course it would be dangerous to read too much into this but maybe the RBA’s neutral bias on rates is getting a bit less neutral in the direction of easing.
Our view remains that the RBA is underestimating the impact of the housing downturn on the economy – particularly in terms of its impact on consumer spending – and as a consequence we still see weaker growth and lower inflation than the RBA is forecasting.
As a result, our view remains that the RBA will cut the cash rate to 1% by year end.
At this stage it makes sense for the RBA to see what the Budget and the election bring in terms of fiscal stimulus, but our base case is that the first cut will come around June but with the RBA moving to an easing bias at its May meeting.
SHANE OLIVER is the Head of Investment Strategy and Chief Economist at AMP Capital
</body></html>

soliver-smf6LQXgW9

RBA starting to sound a little more dovish: Shane Oliver

<html><body>
The February meeting of the RBA has seen the cash rate remain on hold at 1.5 percent.
It has now stayed at record lows for 27 consecutive meetings. 
The last time the rate changed was in August 2016.
CoreLogic's head of research Tim Lawless said the declining house price market will likely put pressure on the RBA in the future, however he predicted a hold at today's meeting.
"The RBA has looked past the housing downturn which has gathered some momentum over the past three months", Lawless said.
"The hold decision was widely anticipated, considering a subtle uplift in CPI and steady labour market conditions, however financial markets are increasingly leaning towards the next move from the RBA being a cut rather than a hike. 
"With CoreLogic’s January hedonic index revealing national dwelling values are falling at the fastest rate since the GFC, while Sydney and Melbourne’s rate of decline is now the most rapid since at least the early 1980’s, there is the potential the RBA may be becoming less comfortable with the performance of the housing sector. 
"Add to this a consistent downtrend in dwelling approvals, weakening consumer sentiment and softer retail trade figures, and it looks like the household sector could start to weigh down economic growth. 
Figures released by the ABS yesterday showed dwelling approvals declined to lows not seen since 2018.
Lawless said the RBA may consider a rate cut due to a number of out of cycle rate hikes.
"The weeks preceding the RBA meeting saw several smaller lenders pushing mortgage rates higher in response to persistently high funding costs, following an average 14 basis point rise in owner occupier mortgage rates since September last year. 
"If we see mortgage rates rising more broadly, we might see the RBA become more willing to consider a rate cut in an effort to offset higher funding costs and support heavily indebted household balance sheets."
 
</body></html>

jrobinson-rf4aSBido9

RBA holds official cash rate in first meeting of 2019

<html><body>
EXPERT OBSERVER
Economists expect the cash rate to remain steady for yet another year even though inflation is on the floor. 
The Reserve Bank kicks off its first meeting for the year next Tuesday facing the same dilemma it did throughout last year.
It hasn’t got easier.
The bank has a very public, fairly clear objective: to keep inflation <a href="https://www.rba.gov.au/monetary-policy/framework/stmt-conduct-mp-7-2016-09-19" target="_blank">between 2% and 3%</a>. But it keeps missing it. Over and over and over again, and on the downside.
As the following chart shows, inflation has been below the bank’s target band for nearly all of the past four years.
<hr>
<img src="https://images.theconversation.com/files/256541/original/file-20190131-42594-1p06f0z.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="">
<hr>
During his decade in office, the previous governor Glenn Stephens achieved an average inflation rate of 2.46% – almost bang in the centre of the target band.
During his subsequent two and half years in the job, Philip Lowe has averaged just 1.87%. At no point during Lowe’s term of office has the average fallen within the target band. The rate for December, <a href="https://www.propertyobserver.com.au/http://www.abs.gov.au/ausstats/abs@.nsf/mf/6401.0">released on Wednesday</a>, was 1.8%.
Next Wednesday Lowe will make an unusual address to the <a href="https://www.npc.org.au/speakers/philip-lowe-npc-sydney-address/" target="_blank">National Press Club</a>, during which he will outline his thoughts about the year ahead.
It is a year which The Conversation’s forecasting panel predicted will be free of interest rate adjustments, making it a record 40 months without a rate move – Lowe’s entire term in office.
<hr>
<a href="https://images.theconversation.com/files/256590/original/file-20190131-112389-hml5ue.JPG?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/256590/original/file-20190131-112389-hml5ue.JPG?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></a>
<hr>
<h2>The RBA has more than one target</h2>
Although the inflation target is an important part of the Reserve Bank’s mandate, it is also asked to <a href="https://www.rba.gov.au/monetary-policy/framework/stmt-conduct-mp-7-2016-09-19" target="_blank">focus on other things</a>. Among them are GDP growth, employment, and (probably less explicitly) the Australian dollar and house prices.
And therein lies the problem. Unless the rate moves needed to meet all those objectives point in the same direction, the bank needs to make trade-offs, or sideline one or more of its objectives.
A classic principle of economics is that a policy-maker needs one instrument (or policy tool) for each objective. It is called the <a href="https://www.propertyobserver.com.au/https://www.jstor.org/stable/2282568?seq=1#metadata_info_tab_contents" target="_blank">Tinbergen Rule</a>, after the 1969 Nobel Laureate.
The bank has four or five objectives, but really only one tool – the cash rate, stuck at 1.5% since Lowe took the job.
Throw in the ability to partially shape market expectations through speeches by Lowe and Deputy Governor Guy Debelle (so-called “open mouth” operations), and maybe it has two.
Since Lowe took office, the casualty of this imbalance between instruments and objectives has been the inflation target. And it’s unlikely to change for some time.
<h2>So why is inflation so low?</h2>
Australia is not alone. Advanced economies around the world have had several years of low wages growth, low productivity growth, and low inflation. Populations are ageing, less keen on spending, and have a glut of excess savings.
Add to this the fact that technology and international trade have made a whole range of goods probably permanently cheaper and it’s hard to find inflationary pressure.
Potentially making things worse in Australia is the decline in house prices in Sydney and Melbourne eating into consumer confidence and with it, spending. <a href="https://theconversation.com/vital-signs-so-far-its-more-of-a-house-price-blip-than-a-bust-in-the-making-109568" target="_blank">With well over half of the economy coming from private spending, already soft consumer spending could be hit further.</a>
So far, RBA Governor Philip Lowe has been doing an admirable impression of Mr Micawber, in the Charles Dickens novel David Copperfield. When it comes to inflation, he is hoping “something will turn up”. But it hasn’t, even with historically low levels of unemployment.
Worse still, it doesn’t even seem to really be ticking up in the United States, <a href="https://www.thebalance.com/unemployment-rate-by-year-3305506" target="_blank">despite the lowest year-end unemployment rate since 1969</a>.
<h2>And why does it target inflation?</h2>
The bank targets inflation in order to maintain credibility.
The high levels of inflation in the 1970s and ‘80s – despite quite high levels of unemployment – led to the realisation that expectations had a lot to do with it.
Put simply, if people believe prices are going to rise sharply they will demand steep wage rises, which will cause prices to rise sharply. It becomes a “wage-price spiral”.
Macroeconomists and central bankers realised that a credible commitment to keep inflation low would remove the need for the large wage rises, cutting off the spiral before it got going.
The bank describes the rationale for its inflation target <a href="https://www.rba.gov.au/inflation/inflation-target" target="_blank">this way</a>:
The Governor and the Treasurer have agreed that the appropriate target for monetary policy in Australia is to achieve an inflation rate of 2–3%, on average, over time. This is a rate of inflation sufficiently low that it does not materially distort economic decisions in the community. Seeking to achieve this rate, on average, provides discipline for monetary policy decision-making, and serves as an anchor for private-sector inflation expectations.
That’s been the logic for the past 25 years. We have certainly done away with inflationary spirals. We are in the age of secular stagnation, with an excess of savings chasing too little spending. A world where, since the turn of this century, robust growth has only really been possible when accompanied with financial bubbles–first in dot-coms, then in housing.
<h2>So what’s a central banker to do?</h2>
<a href="https://theconversation.com/vital-signs-its-time-to-discuss-a-new-framework-for-central-banking-101978" target="_blank">There is an active debate</a> among <a href="https://www.rba.gov.au/speeches/2018/sp-dg-2018-04-12" target="_blank">central bankers</a> and leading macroeconomists about whether to abandon the inflation targeting framework.
Luminaries like former US Treasury Secretary <a href="https://www.brookings.edu/research/why-the-fed-needs-a-new-monetary-policy-framework/" target="_blank">Larry Summers</a> argue that inflation targets are, <a href="http://shakespeare.mit.edu/hamlet/hamlet.1.4" target="_blank">to borrow from Hamlet</a>, “more honour’d in the breach than the observance”.
Right now Lowe faces a real dilemma. If he doesn’t cut rates, the inflation target will become more and more of a joke. It will add to pressure on him to articulate a new monetary policy framework for a new secular-stagnation era.
If he does, he risks re-inflating the housing bubble, boosting already sky-high household debt, and giving himself even less wiggle room if a recession hits.
On Tuesday he’ll leave the cash rate at 1.50%. And on the first Tuesday of the next month, and the the next, and the one after that…
But I think he’ll begin serious internal discussions about a new monetary policy framework, and the mechanics of getting into (and out of) a massive bond-buying program (otherwise known as quantitative easing or printing money) if needed to ward off the next recession should the cash rate remain or get so low he can’t cut it further.
He might have already started. He might drop further hints on Wednesday.
<hr>
<a href="https://theconversation.com/profiles/richard-holden-118107" target="_blank">Richard Holden</a>, Professor of Economics, <a href="http://theconversation.com/institutions/unsw-1414" target="_blank">UNSW</a>
This article is republished from <a href="http://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/vital-signs-yet-another-year-of-steady-rates-whats-the-point-of-the-rba-inflation-target-110574" target="_blank">original article</a>.
</body></html>

Interest Rates

Editor's Picks

Have something to contribute?

Developments

New apartments

New townhouses

News

Interest Rates

Editor's Picks

Receive the latest news stories to your inbox

Have something to contribute?

Developments

New apartments

New townhouses

News