A long-stalled Campbelltown development site is back in play, with new plans for 139 apartments set to supersede a mixed-use scheme approved almost a decade ago but never built.

The new proposal for 28 Cordeaux Street would deliver 116 market and 23 affordable apartments in a part 14-storey building, bringing a substantial new project into a Campbelltown market where new apartment supply remains limited.

Plans have been filed over the 3,092 sqm corner site at Moore-Oxley Street, around 600 metres from Campbelltown Railway Station and the city-centre retail core.

The site already carries a mixed-use residential approval dating to 2016. Doroch Architects has now been engaged on a larger replacement scheme, which is progressing as a State Significant Development Application following a Housing Delivery Authority determination in August 2025.

The apartment mix comprises 39 one-bedroom, 72 two-bedroom and 28 three-bedroom residences. Two-bedroom apartments make up just over half of the project, while three-bedroom homes account for 20 per cent.

<img alt="First look: New 139-apartment plans revive long-stalled Campbelltown city centre site" data-entity-type="file" data-entity-uuid="136dd5b9-3791-4da6-9e31-76f533f5b4de" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Campbelltown%20da2.png?VersionId=LgOSy9nwf5u.MGswBBwaGGxuX8QpHSl_" />

Of the 139 apartments, 23 will be delivered as affordable housing under the in-fill affordable housing provisions of the Housing SEPP. The affordable component represents 15 per cent of the residential gross floor area and will be managed by a registered Community Housing Provider.

Doroch has sought to break the scale of the building into two distinct elements, with a masonry podium of around four storeys establishing the street edge before the residential tower steps back above.

The corner position has shaped that approach. Cordeaux Street faces toward the commercial and civic centre, while Moore-Oxley Street leads into the lower-scale residential neighbourhood to the south, and the design verification report describes the site as "bridging the commercial core to the north and established residential areas to the south."

The podium will be expressed predominantly in face brick, while the upper levels shift to brushed and grooved concrete cladding with darker metal detailing. Recessed sections, deep balcony edges and landscaping break down the upper form, with an approximately 11.8-metre setback to the northern boundary addressing the adjoining St Peters Anglican School.

<img alt="First look: New 139-apartment plans revive long-stalled Campbelltown city centre site" data-entity-type="file" data-entity-uuid="c8b3d2d3-c561-4bfc-a5d9-a68c0c10dac1" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Campbelltown%20da1.png?VersionId=AeAEyJU02Gk2k5noUj2StziCvdQ7fW4B" />

Campbelltown has been starved of new residential developments in the last decade.

The only other notable development set to come to market this year is ALAND's Queen Square, a mixed-use precinct on over two hectares that will comprise apartments above a vibrant ground-level retail and hospitality dining precinct.

Joel Robinson

First look: New 139-apartment plans revive long-stalled Campbelltown city centre site

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

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

Interest Rates

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<h4>Statement by Philip Lowe, Governor: Monetary Policy Decision</h4>
At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.
Conditions in the global economy are continuing to improve. Labour markets have tightened further and above-trend growth is expected in a number of advanced economies, although uncertainties remain. Growth in the Chinese economy has picked up a little and is being supported by increased spending on infrastructure and property construction, with the high level of debt continuing to present a medium-term risk. Commodity prices have generally risen recently, although Australia's terms of trade are still expected to decline over the period ahead.
Wage growth remains subdued in most countries, as does core inflation. Headline inflation rates have declined recently, largely reflecting the earlier decline in oil prices. In the United States, the Federal Reserve expects to increase interest rates further and there is no longer an expectation of additional monetary easing in other major economies. Financial markets have been functioning effectively and volatility remains low.
The Bank's forecasts for the Australian economy are largely unchanged. Over the next couple of years, the central forecast is for the economy to grow at an annual rate of around 3 per cent. The transition to lower levels of mining investment following the mining investment boom is almost complete, with some large LNG projects now close to completion. Business conditions have improved and capacity utilisation has increased. Some pick-up in non-mining business investment is expected. The current high level of residential construction is forecast to be maintained for some time, before gradually easing. One source of uncertainty for the domestic economy is the outlook for consumption. Retail sales have picked up recently, but slow growth in real wages and high levels of household debt are likely to constrain growth in spending.
Employment growth has been stronger over recent months, and has increased in all states. The various forward-looking indicators point to continued growth in employment over the period ahead. The unemployment rate is expected to decline a little over the next couple of years. Against this, however, wage growth remains low and this is likely to continue for a while yet.
The recent inflation data were broadly as the Bank expected. Both CPI inflation and measures of underlying inflation are running at a little under 2 per cent. Inflation is expected to pick up gradually as the economy strengthens. Higher prices for electricity and tobacco are expected to boost CPI inflation. A factor working in the other direction is increased competition from new entrants in the retail industry.
The Australian dollar has appreciated recently, partly reflecting a lower US dollar. The higher exchange rate is expected to contribute to subdued price pressures in the economy. It is also weighing on the outlook for output and employment. An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.
Conditions in the housing market vary considerably around the country. Housing prices have been rising briskly in some markets, although there are some signs that these conditions are starting to ease. In some other markets, prices are declining. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Rent increases remain low in most cities. Investors in residential property are facing higher interest rates. There has also been some tightening of credit conditions following recent supervisory measures to address the risks associated with high and rising levels of household indebtedness. Growth in housing debt has been outpacing the slow growth in household incomes.
The low level of interest rates is continuing to support the Australian economy. Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.
To go to the RBA website <a href="https://www.rba.gov.au/media-releases/2017/mr-17-13" style="font-size: 12.16px;">click here</a>.
 
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jchancellor-FAypfDUnLy

Investors facing higher rates warns RBA Governor Philip Lowe's August 2017 statement

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finder.com.au’s monthly cash rate survey shows all 35 economists and experts surveyed are forecasting the Reserve Bank to leave the cash rate untouched today, on August 1.
Experts and economists were asked to shed light on the direction of the next rate move, and the majority (87%, 26) think the next rate movement will be in a positive direction. Only four experts (13%) are expecting a rate cut. 
Graham Cooke, Insights Manager at finder.com.au, says a rate hike is in the pipeline.
“It looks as though April and May next year may be the most likely months a rate cut will be enforced.
“If the economy continues to stabilise, we can expect to see more rate rises throughout 2018,” he says. 
The panellists do not agree with the view of former RBA board member, John Edwards, that eight rake hikes over the next two years is “distinctly possible.” 
The majority surveyed on this topic (69%) expect three or fewer hikes over the next two years, while one in four (23%) expect four hikes. Just one economist, John Caelli from ME Bank, agrees with Mr Edwards that eight hikes may take place over the next two years. 
Panellists were asked to identify their greatest economic concerns for Australia right now, and the two highest ranked concerns were household debt and wage growth, cited by six experts each. 
“Wage growth is at record lows, currently sitting at about a quarter of inflation. Meanwhile, house prices continue to soar in the capitals and credit is cheaper than ever. This combination could be troublesome,” Mr Cooke says.
Since the Australian dollar hit a two-year high against the USD this month, it’s no surprise the high AUD was the third most cited concern, mentioned by three economists.  
“A high Aussie dollar could harm our exports as goods become more expensive for foreigners to buy,” Mr Cooke says.
Panellists were divided about the future of the AUD, with a slight majority (55%, 12) saying it peaked last week at 80 US cents. Just under half (45%, 10), however, said the dollar may reach 85 US cents by the end of this year.
“However, the strength of the local currency against the greenback is good news for travellers heading to the US as they'll find their dollar will go that little bit further.
“Anyone importing or buying goods from US sites, such as eBay or Amazon, will be get better value for money,” Mr Cooke says. 
Other concerns raised among panellists were the unemployment rate, the future of the Chinese economy, and a lack of entrepreneurial innovation in Australia.
Here’s what our experts had to say:
Jordan Eliseo, ABC Bullion (Hold): "The RBA has made it clear it thinks that it has the appropriate monetary policy settings in place. None of the data that we've seen come out this month (on inflation, business confidence, employment etc) will have meaningfully impacted that view. As such, notwithstanding their renewed concern regarding the strength of the AUD, we think they will keep rates on hold when they meet next week."
Tim Nelson, AGL Energy (Hold): "Low wages growth means inflation is largely in check. High levels of household debt mean increasing rates is challenging."
John Hewson, ANU (Hold): “[Insufficient] info to move one way or the other."
Shane Oliver, AMP Capital (Hold): "While growth was weaker than expected in the March quarter, recent data suggests its back on track reducing pressure to cut rates again but risks around the consumer, weak inflation and a rebound in the $A indicate its way too early to hike rates. So best to remain on hold."
Alison Booth , Australian National University (Hold): "Little change in the main indicators." 
Peter Munckton, Bank of Queensland (Hold): "Cash rate is at the right level."
Darryl Gobbett, Baillieu Holst Ltd (Hold): "The RBA doesn't see the current cash rate as necessarily all that expansionary and remains concerned about the impact of rate rises on households with the very high gearing, stagnant wages and rising utilities prices."
Richard Robinson, BISoxford economics (Hold): "Although RBA would like to cut rates to take upward pressure off the Aus dollar, it can't cut rates as it fears re-stoking the residential property market. With inflation low and particularly wages growth very low, there is no need to raise rates for at least 2 years."
Paul Dales, Capital Economics (Hold): "The RBA does not want to cut interest rates for fear of boosting the housing market and debt levels, but equally the economy and inflation aren't strong enough to warrant interest rate hikes. 
Savanth Sebastian, Commonwealth Bank (Hold): "Inflation remains well contained. RBA would be concerned about the lift in the Aussie dollar. Focus will be on how economy tracks over the next few months."
Saul Eslake, Corinna Economic Advisory (Hold): "The RBA would clearly prefer not to have to cut rates any further, but is also in no hurry to start raising them (even if central banks elsewhere in the world do). Economic data since the last board meeting (more good data on employment, business conditions, offset by another quarter of very low inflation, softness in household spending) don't present a strong case to move in either direction."
Andrew Wilson, Domain Group (Hold): "The RBA is clearly determined to leave rates at current level taking a more medium-term view of the macroeconomy regardless of the current insipid intransigence of key economic performance indicators. 
Scott Morgan, Greater Bank (Hold): "No indication of likely move from recent commentary."
Mark Brimble, Griffith Uni (Hold): "Bias remains to the down side as the economy struggles to gain any traction.  The dampening impact of credit controls (while assisting with medium term risk around credit risk and elements of the property market) and retail interest rate rises by financial institutions have not helped.  Indeed the puzzling comments from the RBA that have related to a spike in the AUD also have a dampening impact.  Despite this, the RBA is unlikely to move rates for some time." 
Paul Bloxham, HSBC (Hold): "Inflation is still below the target band, so no immediate move in sight." 
Alex Joiner, IFM Investors (Hold): "Robust labour markets and a soft headline CPI outcome for Q2 (and 'core' measure being inline with the RBA's forecasts) underscores there is no economic rationale to move rates in either direction. Financial stability concerns seemingly prevent further easing. And a higher A$ deters premature hiking." 
Michael Witts, ING Bank (Hold): "The RBA will be concerned about the rise in the AUD and will not be looking to add fuel to the fire." 
Nicholas Gruen, Lateral Economics (Hold): "[The rate will hold because] Philip Lowe said so!"
Leanne Pilkington, Laing+Simmons (Hold): "The RBA has indicated its intention to cautiously manage inflation to the preferred 2-3% range while at the same time appears reticent to reduce rates further. The weak inflation forecast in the June CPI figures point to a steady rate scenario for the short term. With employment levels also steady, this is good news for the property market on the whole.” 
Matthew Tiller, LJ Hooker (Hold): "There has been little discernible change in economic indicators since last month’s RBA meeting." 
John Caelli, ME (Hold): "With the high dollar, low inflation and low wage growth there is no rush to put up rates just yet."
Michael Yardney, Metropole Property Strategists (Hold): "The RBA can't raise rates as it would stifle our fragile economy and would lead to a higher AU$. Similarly, it can't lower rates as this would  fuel the Sydney and Melbourne property markets." 
Mark Crosby, Monash University (Hold): "Probably the strongest signal in history that the RBA will sit on its hands for the next couple of meetings, particularly given the latest inflation outcome." 
Jessica Darnbrough, Mortgage Choice (Hold): "Last month, the Reserve Bank of Australia made it clear that its current monetary policy setting is appropriate for the time being and I believe this will continue to be the case at the August Board meeting.”
Chris Schade, MyState Bank (Hold): "Interest rate settings remain appropriate. Economy performing a little below trend, inflation remains at the lower end of target, and the Aussie dollar is higher than the RBA would like. Holding rates at their current highly accommodative level is appropriate to allow the economy to continue to gain momentum as the unwind of the mining boom ends, the housing construction peak passes (but activity remains at a robust level for some time – i.e. no major drop) and, hopefully, other sectors pick up." 
Alan Oster, NAB (Hold): "Still too early, watching wages and the labour market.” 
Noel Whittaker, QUT (Hold): "I think we are at the bottom of the cycle but don't see any urgent need to raise rates."
Nerida Conisbee, REA Group (Hold): "While earlier in the month strong jobs growth figures suggested that the economy was on track, the strengthening Australian dollar put a dampener on the need for an increase. Inflation figures out today are likely to further cemented the RBA’s decision to take a wait and see approach with these figures continuing to be below the target of between 2 and 3%. Despite the RBA likely to hold, it is likely that banks will continue to increase the rates they charge home owners. This is partly because their costs of wholesale funding have increased but also because there is continued pressure from APRA to moderate their lending. The banking tax announced in the budget is also likely to be passed on to homeowners.”
Janu Chan, St.George Banking Group (Hold): "RBA will still have concerns about spare capacity and low inflation. However, risks of another rate cut have clearly dissipated." 
Brian Parker, SUNSUPER (Hold): "No signs in the data that they need to change their views of the world or their policy stance."
Nicki Hutley, Urbis (Hold): "Current settings are appropriate for employment and inflation settings."
Clement Allan Tisdell, The University of Queensland (Hold): "RBA statements and the increase in the value of the AUD [indicate no change]."
Other participants: Bill Evans, Westpac (Hold), Jonathan Chancellor, Property Observer (Hold).
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j.ballantyne1990-6AQqhLzZaK

Rates on hold, with next move up: finder.com.au survey

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GUEST OBSERVER
<div title="Page 1">
<div>
<div>
The Reserve Bank Board next meets on August 1.
Of course, the Board will keep rates on hold as clearly signalled by important speeches from both the Governor and Deputy Governor over the last week.
Therefore the interest directly associated with the Board meeting will be with the Governor’s associated Statement.
No doubt the Governor will continue to “call out” the labour market and the housing markets as the key areas of interest. In that regard the sentiment in the July Board Minutes and the Governor’s July Statement is likely to be repeated.
On housing, “Conditions varied considerably across the country. Housing prices have been rising briskly in some markets, although there are some signs that these conditions are starting to ease ....”
On the labour market, the commentary is likely to be along the lines of the Minutes, “Labour market conditions had improved ...forward indicators had remained positive.......The strength of recent labour market data had removed some of the downside risk to the Bank’s forecast of wage growth.”
However on that latter point the Governor’s speech on July 26 indicated that there was limited confidence in the call that wage rates would gradually increase over the course of the forecast period.
And then, of course, there is the Australian dollar. Since the last Board meeting the AUD has increased from USD 0.76 and a TWI of 65 to USD 0.795 and TWI of 67.
Even at USD0.76 the Governor repeated his consistent call that “an appreciating exchange rate would complicate this adjustment.” The language is likely to strengthen at USD 0.795. In his speech on July 21 the Deputy Governor noted: “a lower AUD would be helpful.”
In mid-2015, when the AUD was adjusting, the “path” from USD 0.80 to USD 0.75 was consistently associated with: “Further depreciation is likely/necessary.”
It seems likely that the “commentary” on the AUD in the Governor’s Statement will be stronger than we have seen recently but we cannot be sure that a new “terminology” will be adopted.
Be clear that even though the move in the AUD is associated with higher commodity prices the RBA is uncomfortable. The clear offset to services; manufacturing; and agricultural exports that we might expect from higher commodity prices is not materialising. Cashed up mining companies are not reinvesting and are not lifting employment in this cycle largely because they are not convinced of the sustainability of the current increases. As such the higher AUD is a “challenge” for both growth and inflation.
In that regard the second RBA report for the week will be more significant. The Statement on Monetary Policy will be released on August 4 and will contain the Bank’s revised growth and inflation forecasts.
These forecasts will be provided out to end calendar 2019, extending from June 2019 currently.
Recall the convention for the assumptions behind the forecasts. The rate profile is that indicated by market pricing and the AUD profile assumes the current level of the AUD.
</div>
<div>
When the last forecasts were released in May the rate outlook was flat while the AUD was at USD 0.74 and TWI 64.
Today markets are pricing in a 0.25% rate hike by the second half of 2018 while the AUD is likely to be assessed at USD0.80 or TWI 67.
The issue is whether the Bank will change its forecasts on the basis of the new “assumptions”.
The key forecasts from a policy perspective are GDP growth in 2018 and underlying inflation in 2018 and 2019.
In May, GDP growth in December 2018 was forecast at 2.75%-3.75% and underlying inflation at 1.5-2.5% in 2018 and 2-3% in June 2019.
We are not aware of the Bank’s specific modelling methodology and of course any potential “subjective” adjustments that might be applied to the modelling before the final results are released.
However we can assess some historical “form”.
In November 2016, when AUD was at USD 0.77 and the TWI at 65, growth in 2018 was forecast at 3-4% and underlying inflation at 1.5- 2.5%.
In May 2017, when AUD was at USD 0.74 and the TWI at 64, growth in 2018 was forecast at 2.75%-3.75% and underlying inflation at 1.5- 2.5%.
You can see that between November and May there was a US 3 cents move in the AUD yet no significant changes were made in the forecasts. In fact a lower AUD was associated with a modest downward revision in the growth rate.
Elsewhere, the positive global back drop, with upgrades to world growth, and domestically the surprisingly strong employment figures, buoyant business confidence surveys and expansionary public investment would have boosted the Bank’s confidence in their above trend growth forecast for 2018 (with trend growth estimated at 2.75%). Those developments would support the Bank’s inclinations to keep their growth forecasts intact.
For 2019, consistent with the above, the RBA is likely to restate their 3.25% growth forecast for June 2019 and to also forecast 3.25% for December 2019, which rolls into the forecast horizon.
Certainly there seems little chance that the Bank would react to the AUD developments by lowering its underlying inflation forecast for 2018 which already sits at the bottom of the 2-3% target band.
No doubt there will be considerable angst at the Bank around the growth forecast.
For me, rigid adherence to the assumption of an AUD holding at USD0.80 over the next 3 years with a resulting change to the confident “above trend” growth story in 2018 would be an unattractive option for the Bank.
Consequently, despite the sharp short term move in the AUD, I expect the RBA to retain its “above trend” growth forecast when it releases its forecasts in the Statement on Monetary Policy on August 4. 
BILL EVANS is chief economist of <a href="https://www.westpac.com.au/" target="_blank">Westpac</a>.
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RBA to keep rates on hold: Westpac's Bill Evans

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Bankwest, the Commonwealth Bank of Australia subsidiary, has raised rates for existing interest-only owner occupiers.
The increase of 35 basis points is the latest move to rein in higher-risk loans.
The lender is decreasing lending on selected principal and interest products by up to 15 basis points to encourage property buyers to switch to, packages requiring principal repayment.
Transfer fees will be waived for existing borrowers with the bank switching to principal and interest loans.
"Bankwest is mindful of its broader obligations as a responsible lender and aims to balance the needs of customers, shareholders and regulators when reviewing products and pricing," a spokesman for the bank to The Australian Financial Review.
"These changes are being made in line with regulatory guidance."
From Tuesday, principal and interest investor and owner occupier loans will be reduced by 15 basis points and 12 basis points respectively.
From October, existing investor and owner occupier interest-only loans will be increased by 25 basis points and 35 basis points respectively.
It also created a new category of low-deposit loans for those with less than 5 per cent deposit by raising rates to 5.29 per cent, up from 4.53 per cent.
The new rate is inclusive of expensive lenders' mortgage insurance. The comparative rate, which takes into account all fees and charges, will rise from 4.94 per cent to 5.69 per cent.
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Bankwest raises rates for existing interest-only owner occupiers

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GUEST OBSERVER
Not another attempt to come the raw prawn with us on Australian interest rates!
The financial market reaction to the minutes from the last RBA meeting was way over the top. Don't read too much into them.
I must admit to finding the periodic discordance between the post meeting statement and the minutes a bit disturbing - surely they relate to the same meeting and so should leave the same impression.
It does make me wonder though whether the high level of RBA communications could just be adding to noise and confusion around interest rates at times. Mind you, this is a much bigger problem in the US. 
But back to where interest rates are headed...the minutes certainty did sound a bit more upbeat than the initial post meeting statement about growth and wages. But the bit that caused most excitement was the reference to a 3.5% neutral rate of interest, ie the rate of interest consistent with growth at potential, inflation at target and which neither causes the economy to accelerate or decelerate.
Some have interpreted this as indicating that a series of eight quarterly rate hikes of 0.25% are imminent. This is very doubtful.
First, the neutral rate discussion looks to have been just a regular “deep dive” into a key issue and so as Deputy Governor Guy Debelle pointed out “no significance should be read into the fact the neutral rate was discussed” at the last meeting. 
Second, the neutral rate is a rubbery rather academic concept, a bit like the non-inflation accelerating rate of unemployment (NAIRU) and the “output gap”. In theory it should be around long run potential nominal growth, but it can move around a lot given attitudes to debt and debt levels, the gap between the rates bank lend at and the official cash rate, inflation expectations, uncertainty about what potential growth is, etc.
At the Fed, they refer to a long term neutral rate (seen to be around 3% at present) and a short term neutral rate with Fed Chair Yellen recently saying it was already close to neutral with the Fed Funds rate at just 1-1.25%! So while a comparison to some neutral rate may be of use in assessing whether policy is easy or tight it’s not a firm target that central banks head for.
Third, for what it’s worth our assessment is that because of higher household debt to income levels and higher bank lending rate spreads the neutral rate is around 2.75%.
Fourth, a rise in the cash rate to 3.5% over the next two years if passed on in full would push the ratio of household interest payments to household disposable income from 8.6% currently to around 12%. This would be well above the average ratio of 9.6% since 2000, above the 2011 peak of 11.4% and towards the pre GFC peak of 13.2%, both of which saw hits to consumer spending – see the next chart.
The hit this time would likely be greater as unlike a decade ago households lack the optimism to take on more debt to cover higher interest payments (remember the ATM in the lounge room!). So the 3.5% of income hit to spending power would likely take a big chunk out of consumer spending. Of course these numbers are averages - for those households with a mortgage the interest payment to income ratio would be around three times higher and in Sydney and Melbourne it would be even higher again.
Which all suggests that in the absence of much stronger economic conditions rates won’t be increased by 2%.
Finally, heightened rate hike expectations have already pushed the $A above $US0.79 and a cash rate of 3.5% would likely see it soar, exacting another round of damage on the economy just at a time when we still need a lower currency to offset the impact of still falling mining investment.
Reflecting all these influences, when it does come time to start raising rates the RBA won't be on autopilot on its way up to 3.5% but rather will be incremental, ie hike 0.25% and then wait to assess the impact. And as we have seen with the Fed the process is likely to be very gradual and we doubt that rates will be able to go as high as 3.5% any time soon as the RBA won't want to crash the economy.
As to the timing of the first rate hike, while the RBA's upbeat view suggests the risk of an earlier move, our view remains that it won’t occur until late next year. While jobs growth and business confidence are good other indicators are far more mixed - particularly around the consumer, wages and underlying inflation.
It’s worth noting that Deputy Governor Debelle also pointed out that: rate hikes by other central banks do not mean that the RBA has to raise rates too; interest rates in both the US and Canada remain below those in Australia; a rising $A works against the benefit of stronger global growth; and that a lower $A “would be helpful”. It’s hard to see any sign of an imminent RBA rate hike in any of this.
<a href="https://www.propertyobserver.com.au/https://plus.google.com/110172465327488162875?rel=author">SHANE OLIVER</a> is head of investment strategy and economics and chief economist at <a href="https://www.ampcapital.com.au/home">AMP Capital</a> and is responsible for AMP Capital's diversified investment funds.
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Not another attempt to come the raw prawn with us on Australian interest rates! Shane Oliver

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Treasurer Scott Morrison said this week's central bank’s possible hint about rate increases doesn’t indicate the bank is heading there anytime soon.
Morrison was responding to Ross Greenwood’s questions on his show on Money Show on 2GB.
The Reserve Bank of Australia estimated the neutral nominal cash rate would be around 200 basis points above its current level in comments contained in minutes of the RBA’s July 4 policy meeting.
The RBA’s estimate suggests the cash rate target will need to rise from 1.50 per cent currently to 3.5 per cent over an unspecified time, but Treasurer Morrison was keen not to alarm mums and dads.
Asked about the implications for households that have significant debt at the moment and also potentially for the future of the Australian economy, while also considering the budget’s deficits and surpluses and therefore the government’s debt, Morrison said he didn’t think there “are any real implications to that in the short term, or in the medium term or even beyond that”.
He said these sorts of things are “topics for economists’ picnic most of the time”, they are important no doubt, but mainly relate more to analysts who take a keen interest in key technical issues rather than the mums and dads or small businesses.
Morrison said he wouldn’t jump to any conclusions yet about the implications.
"I wouldn’t be leaping into any sort of early conclusions about having any indirect implications as we speak. These are important analyses to be undertaken but they mean more for the analysts taking a keen technical interest in these issues than they do for mums and dads or small businesses," he said.
He said the Reserve Bank had showed tremendous patience and discipline, referring to central banks cutting rates across the world, while the RBA didn’t take them down as far as the rest of the world. He said that while there was some movement with the Fed and in Europe, they are still “well below where we are today”.
Referring to RBA's minutes, Morrison said, "What that analysis that became public in the minutes in any way indicates that the bank is heading there anytime soon. Obviously, that’s a position for them. They’re an independent bank. But they will continue to have regard to the employment market, where inflation is and all of these issues.”
Morrison said the RBA had taken astute judgments in this regard, and commended both former RBA Governor Glenn Stevens and current chief Philip Lowe.
On the question of APRA raising capital requirements for banks to 10.5 percent, he said it was part of the move to build an unquestionably strong financial sytem.
The Treasurer struck a positive note on banks’ resilience and the regulatory framework, saying “we have arguably one of the strongest, most stable banking and financial systems in the world” and said the new bank levy as announced in the budget was still modest.
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Speculation of RBA raising rates is topic for "economist picnics", not for mums and dads for now: Scott Morrison

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GUEST OBSERVER
Changes in productivity, the stock of debt, lending margins, fiscal policy and the exchange rate impact the neutral cash rate.  
We estimate the neutral policy cash rate has moved to a record low of just 3% (2 1⁄2 - 3 1⁄2% range) which is lower than our  previous point estimate in 2014 of 3 1⁄2%.  
A record low neutral rate means that very little tightening would be required to shift monetary policy from an expansionary setting to a neutral one.
<a href="https://www.propertyobserver.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.33.03%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.33.03%20AM.png" alt="">
Overview
Over the past three months there has been a significant shift in market interest rates (chart 1). The yield curve has steepened and market pricing for another RBA rate cut has receded. Current market pricing indicates a small (15%) chance that policy is eased again. And it implies a 35% chance of a rate hike within the next 12 months.
CBA’s house view is that interest rates are on hold over 2017. And in our view, the risks over the year lie with a cut. But the steeping in the yield curve and shift in market expectations has led us to revisit our estimate of the neutral cash rate. The analysis confirms our earlier work that neutral it is much lower than in previous cycles which means that the cash rate would not need to rise by much for policy to no longer be having a stimulatory impact on the economy.
In this note we update our earlier qualitative and quantitative analysis to derive our estimate of neutral. We estimate it to be 3% (21⁄2 - 31⁄2% range) which means that the current cash rate is about 150bps in expansionary territory.
What is a neutral interest rate and why does it matter?
The level at which the RBA sets the cash rate can either have an expansionary, contractionary or neutral impact on economic activity. The neutral cash rate is the interest rate (or range of rates) consistent with full employment, trend growth1 and neither upward nor downward pressures applied on the price level through monetary policy. Or more generally, when the setting of interest rates is such as to exert neither contractionary nor expansionary forces on the economy, policy can be said to be ‘neutral’.
<a href="https://www.propertyobserver.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.34.02%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.34.02%20AM.png" alt="">
But the neutral rate it is not a constant rate. Rather it is influenced by changes in productivity, the stock of debt, lending margins, fiscal policy and the exchange rate. A chronology of neutral policy settings according to the RBA is shown in Table 1. These drivers have moved in a way over the recent past that indicates the current neutral cash rate is probably at a record low.
The neutral rate is an important benchmark rate for evaluating the stance of monetary policy. It allows us to determine how expansionary or contractionary a particular policy setting is at any point in time. One rule of thumb often used is comparing the level of the cash rate to a historic average cash rate to assess how accommodative or restrictive policy settings are. But that can be misleading because the neutral rate is fluid and varies over time. When we compare current policy setting to the neutral rate they do not look as expansionary as implied by comparing the current cash rate to the historic cash rate average. 
A qualitative discussion: 
Over the past thirty years the RBA’s policy rate has trended lower (chart 2). The neutral rate has also moved lower. In this section we present qualitative arguments as to why the neutral rate looks to have fallen to a record low. The five factors we cover here are (i) productivity growth, (ii) the debt to income ratio, (iii) lending spreads; (iv) fiscal policy; and (v) the exchange rate. 
<a href="https://www.propertyobserver.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.35.10%20AM.png" target="_blank">Click to enlarge</a>
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(i) Productivity growth is soft
During the 1990s, economic growth in Australia was powered by a significant lift in productivity. A number of key economic reforms undertaken in the late 1980s and 1990s enhanced the productive capacity of the economy and as a result, both growth and real incomes improved. The good times for Australian incomes continued after the turn of the century. But that was largely because of an income boost from a big lift in the terms of trade which concealed the fact that productivity growth had stepped down. Put another way, rising commodity prices masked the slowdown in productivity growth which kept interest rates higher than they would be otherwise.
But since the terms of trade turned down in 2012 (notwithstanding the recent bounce), soft productivity growth has become illuminated because real per capita incomes have fallen. Multi-factor productivity, which is the broadest measure of productivity growth, has been soft over that period (chart 3). It has lifted a little recently, but that is largely because the mining boom has transitioned from the from the labour intensive investment phase to the production phase. Outside of the resources sector productivity growth is poor.
Weak productivity growth lowers potential growth in output per capita which ultimately lowers the neutral cash rate. A lower neutral cash rate results because a fall in productivity growth lowers the return on capital and labour, meaning that it is less desirable to invest and employ. And if the desire to invest is lowered while the desire to save is unchanged or higher then a lower interest rate is required to balance savings and investment plans.
Here we note that Australia is not alone in having weak productivity growth. Most advanced economies around the world are also suffering from soft productivity growth and potential growth has fallen (chart 4). As a result, the neutral rate of most advanced economics is lower now than in previous decades. 
<a href="https://www.propertyobserver.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.36.04%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.36.04%20AM.png" alt="">
(ii) Debt to income ratios at record highs. 
Australia’s stock of debt has been rising over the past year at a modest pace by historic standards (5.6% through the year to December 2016). But given weak income growth, the stock of debt has been growing faster than nominal GDP 1.0 which means overall leverage in the economy has been rising (chart 5). The increase in leverage has been mainly driven by the household sector. And the debt has been going into bricks and mortar.
2016
The increase in the stock of debt relative to income means that the household debt-to-income ratio is rising (chart 6). It is currently at a record high and puts Australia in the top tier of household indebtedness globally. As the RBA noted in its October Financial Stability Review, “household indebtedness continues to drift up and, with incomes growing more slowly than in the previous decade, households may not be able to rely on income growth to make their debt easier to service.”
<a href="https://www.propertyobserver.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.36.58%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.36.58%20AM.png" alt="">
The increase in the stock of debt relative to income means that debt burdens have risen. This puts downward pressure on the neutral interest rate. The policy rate required to keep interest payments constant as a share of income must fall if debt is growing faster than income. As a result, the neutral rate falls when debt is rising relative to income, all other things equal. 
(iii) Lending spreads 
Lending rates are interest rates that are faced by households and businesses. It is where “the rubber hits the road”. They are the rates that have the biggest influence on the economy and they are impacted by bank funding costs which are a function of both the RBA cash rate and conditions in financial markets. Prior to mid-2007, spreads between bank funding costs and the RBA cash rate were low and stable. With hindsight there was insufficient pricing of risk. As a result of the financial crisis and repricing of risk, spreads between bank funding costs and the RBA cash rate lifted which means that the spread between lending rates and the policy rate also rose.
After an initial levels adjustment higher as a result of the GFC, the spread between lending rates and the RBA policy rate has continued to inch a little higher (chart 7). This reflects changes in funding costs and the additional cost of capital banks are required to hold against home lending.
<a href="https://www.propertyobserver.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.38.00%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.38.00%20AM.png" alt="">
A higher spread between the cash rate and lending rates means that a lower cash rate is required to produce a given level of lending rates than in the past. The neutral cash rate is lower as a result.
(iv) Fiscal Policy
The stance of fiscal policy impacts on the economy. Expansionary fiscal policy acts like an accelerator on the economy and pushes up the rate of interest required to prevent the economy moving beyond full employment, other things being equal. Conversely, contractionary fiscal policy, or fiscal consolidation, acts as a brake on the economy. Under fiscal policy that is contractionary, the interest rate that is required to keep the economy growing at trend is lowered, other things equal.
Fiscal slippage has been a persistent theme in recent years and progress in repairing the budget has been elongated. This has meant that fiscal policy has had a negligible impact on the neutral cash rate. But fiscal consolidation remains a priority of both major political parties (chart 8). The change in the budget balance is an approximate guide to the fiscal impact on the economy. And on that score, the 2016/17 Budget “takes out” 0.4%pa of GDP on average over the next four years. Fiscal consolidation will act as a headwind on the economy if these plans come to fruition and as a result it will put downward pressure on the neutral interest rate.
7.
(v) Exchange rate
Financial conditions are also affected by the currency. Overall monetary conditions are determined by interest rates and the exchange rate. The higher the currency, the more restrictive monetary conditions are and vice versa. We have replicated the RBA’s fair value model whose inputs are based on the traditional drivers of the currency - interest rate differentials, export commodity prices and the current account (chart 9).
<a href="https://www.propertyobserver.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.39.12%20AM.png" target="_blank"> Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.39.12%20AM.png" alt="">
The model suggests that the AUD continues to trade a little above what looks like fair value, though the differential is not material. Notwithstanding, it does suggest that the level of the exchange rate is exerting some soft downward pressure on the neutral interest rate relative to where it would be if the AUD was trading at fair value.
A quantitative analysis
In this section we run three models to derive our estimate of the neutral interest rate: (i) Mankiw; (ii) RBNZ yield curve; and (iii) Critical debt service level (CDSL). 
Mankiw Rule 
The Taylor Rule is the general term for a rule that sets a monetary policy rate (the RBA cash rate in this case) as a linear function of an inflation rate and a measure of economic slack. The Mankiw Rule is a variation of the Taylor Rule that uses the unemployment rate as a measure of economic slack. Using the CPI and the unemployment rate to model the RBA cash rate is logical because the RBA’s mandate is price stability and full employment.
Here we estimate a relationship between the RBA cash rate and the Mankiw Indicator (defined as the annual change in core CPI inflation minus the unemployment rate). It says that the cash rate is a linear function of CPI inflation minus the unemployment rate.
The red line in the chart opposite plots the derived Mankiw Rule cash rate against the RBA’s cash rate over the last ten years (the green line plots the derived Mankiw Rule cash rate over the last five years). The green line is below the red line meaning that neutral is now lower (chart 10).
Based on the observed relationship between core inflation, the unemployment rate and the cash rate over the past five years we could expect to have an interest rate of around 23⁄4 - 31⁄4% if the economy was operating at full employment and inflation was within the RBA’s target band. The current cash rate of 11⁄2% therefore implies that the RBA is pushing monetary policy some 150bps into expansionary territory from neutral on this measure. 
RBNZ yield curve model
The RBNZ developed a method of estimating neutral based on the slope of the yield curve. The idea is that over the business cycle monetary policy settings must be neutral if inflation is stable.
The divergence of the yield curve slope from “normal” is an indication of whether monetary policy is contractionary or not. In this approach “normal” is defined as the difference between the 90-day rate and the 10-year rate over a period. That difference is the term premium or average yield curve slope. The neutral rate can be calculated by subtracting the average yield curve slope over the period from the 10-year rate.
<a href="https://www.propertyobserver.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.40.16%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.40.16%20AM.png" alt="">
Taking this approach and applying it to the Australian yield curve indicates a neutral real rate of 3⁄4%. Or 3 1⁄4% in nominal terms with a range of 2 3⁄4% to 3 3⁄4% (chart 12).
Critical debt service model
The imbalances associated with rapid growth in debt and asset prices are a recurring theme in the policy debate. Organisations such as the Bank for International Settlements have attempted to develop indicators of financial stress. The same approach can be used with debt servicing.
The idea is that there is a certain critical debt service level over and above normal where the resultant “stress” has a significant impact on consumer spending. That critical level can be determined by benchmarking deviations in debt servicing against deviations in consumer spending growth.
The approach is quite neat because once the critical debt service ratio is known, it is possible to work out what cash rate you need to get there. One description of neutral is the rate at which interest rates are neither stimulating nor weighing on economic activity. So the implied cash rate in these calculations should be an approximation for neutral.
The model suggests that the current critical level would be breached with an RBA cash rate of around 2 3⁄4% (chart 13). Adjusting for the change in lending spreads
means the critical rate would be breached at a cash rate of 1 1⁄2%. In other words, any tightening from here would have a significant negative impact on consumer spending. The rate is at a record low because the stock of household debt is at a record high relative to income. Policy easing over recent years has not resulted in the stock of debt falling as a share of income even though rate cuts make debt repayment easier. Instead, rate cuts have contributed to a lift in borrowing because debt looks cheaper. Dwelling prices have risen as a result.
<a href="https://www.propertyobserver.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.41.24%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/07/19/Screen%20Shot%202017-07-19%20at%2011.41.24%20AM.png" alt="">
Summary and policy implications
A range of estimates and theoretical arguments suggest that the neutral cash rate has moved to a record low. Our qualitative and quantitative analysis points to a neutral range of 2 1⁄2%-3 1⁄2% meaning a point estimate of 3%.
The analysis suggests that the RBA is faced with a relatively easy task if it needs to put the brakes on the economy at some point further down the road. It wouldn’t take a lot of tightening in policy to restore monetary policy to a neutral setting.
The flip side is that it becomes harder for the RBA to stimulate the economy as the neutral rate falls and we approach the lower bound. The limitations of monetary policy to stimulate growth become more apparent when the neutral rate falls towards the lower bound. The need for meaningful fiscal policy reform grows as a result. We don’t see the RBA tightening over 2017. And in our view the risks like with further easing. Calls for fiscal policy reform in addition to higher levels of public investment will continue. 
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Gareth Aird is economist at Commonwealth Bank and can be contacted <a href="https://www.propertyobserver.com.au/https://au.linkedin.com/pub/gareth-aird/14/790/905">here</a>.
 
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 Interest rates on hold over 2017: Gareth Aird

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The latest Census data shows mortgage stress has eased, but of course even a small interest rate rise will send many households, and even the economy, back onto struggle street.
The national research by the Grattan Institute showed highly indebted households were clustered on the fringes of capital cities rather than in the wealthiest suburbs of the inner ring.
Sydney suburbs under mortgage stress included Preston, Hoxton Park, Carnes Hill, West Hoxton, Middleton Grange, Hinchinbrook and Chullora.
The suburbs deemed as not under mortgage stress included North Bondi, Tamarama, Bronte, Double Bay, Bellevue Hill, Sydney, Haymarket, The Rocks, Balmain, Newtown, Camperdown and Darlington.
Mortgage stress was defined as spending 30 per cent or more of household income on home loan repayments.
"In 2011, about 10 per cent of households had mortgage stress. Today it's only 7 per cent," Grattan Institute chief executive John Daley said.
"What the census data shows is that the areas of high stress are a little further out from the metropolitan areas in 2016 than in 2011 because new housing estates are further out," Mr Daley noted.
Although the outer ring house prices are cheaper, incomes are likely lower and loan-to-value ratios are higher because more people have actually only just purchased a property.
Our overall low interest rates have made it easier for most households to meet mortgage repayments.
"If interest rates went up 2 percentage points, which is possible, stress levels would be the highest on record apart from the squeeze in 1989, which scarred a generation of home-owners," John Daley said. 
The Reserve Bank of Australia's recent data on household debt show it stood at 190 per cent of annualised disposable incomes confirming Australia has one of the world's highest private debt burdens.
Treasurer Scott Morrison has acknowledged this private debt load.
It was a reason the government supported moves by the Australian Prudential Regulation Authority and Reserve Bank's to further crackdown on interest-only lending especially for home buyers. 
The regulatory response has helped slow price growth in Sydney which was rising at an annual pace of almost 20 per cent in late 2016. It is now down to 12 percent annual growth according to CoreLogic.
The systemic risk of people not being able to repay their home loans appears small. 
In fact the proportion of people who have very high exposure to a fall in house prices – with loan to valuation ratios above 90 percent – has been in decline. 
The basic picture is one of prudent households, rather than a community of people gambling on house price rises, Rodney Maddock, Adjunct Professor of Economics, Monash University said recently.
None of this is to deny that house prices can fall, and that interest rates will rise, but somehow most of us will find a way to endure any challenging landscape.
This article first appeared in the Daily Telegraph.
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Mortgage stress eases in the city but future rate rises will impact the fringe households

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GUEST OBSERVER
Canada has started; the US has been on the path for some time; the ECB's tone has shifted and so has that of Norway and Sweden. Australia? Soon, but not yet.
In our view, the key two factors that forced the RBA to cut to a very low, 1.50 percent, cash rate setting are now both receding.
First, was the massive resources cycle, with very low rates needed to rebalance growth to the non-mining sectors as mining investment and commodity prices fell.
Second, extraordinarily low global interest rates meant that a low cash rate was needed to keep the AUD down, again, to rebalance growth. Now, with the mining downturn around its trough and global rates rising, Australia may not need a record low cash rate for much longer. But, unlike with the other central banks, don't expect forward guidance from the RBA. You've got to watch the data. We expect a hike in Q1 2018.
The global economy is currently experiencing its most synchronised upswing in a number of years. The US, which has been leading the recovery, is continuing to show positive growth momentum. European activity indicators have had a run of upside surprises. Global trade has been lifting, supporting growth in Asia. Notwithstanding still benign inflation pressures in most countries, a number of central banks have turned less dovish recently, as a result of lifting economic activity and tightening labour markets.
Some are lifting rates, others suggesting cuts are now unlikely and still others, hinting that they may slow asset purchase programmes.
For Australia, this episode has been a bit unusual. Australia's central bank is often one of the first to start lifting rates in global upswings. But there are a few differences this time around.
First, commodity prices have not been lifting. This may reflect that the recent lift in global activity indicators has been most significant in the developed economies, with most of the upside surprises in Europe, so there has been less upward momentum in metals prices than if China's investment was leading the way. Developed world growth tends to be less commodity-intensive than China's growth.
The lift in global trade has also allowed China scope to tighten local financial conditions, to help deal with some of its own imbalances, again, softening growth in housing and infrastructure investment.
Second, local wages growth and underlying inflation are low, although we expect that both are at or past their troughs. We see the slowdown in wages growth as partly the result of the long, drawn out, downturn in the mining industry, as high paid mining jobs were lost and replaced by lower paid services jobs.
Wages growth has been showing some signs of stabilising and we expect growth to edged higher in H2 2017. As a result, underlying inflation is below the RBA's 2-3% target band, although it looks to be past its trough. The RBA will need to be convinced that wages growth is past its trough to start hiking.
<a href="https://www.propertyobserver.com.au/images/2017/07/18/Screen%20Shot%202017-07-18%20at%208.06.25%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/07/18/Screen%20Shot%202017-07-18%20at%208.06.25%20AM.png" alt="">
Third, there have been some measurement challenges recently, which have made it harder to get a clear view of the economic momentum. Q1 GDP growth, which ran at a below trend rate of 1.7% y-o-y, was held back by wet weather on the East Coast and the impact of Cyclone Debbie. Measures that are better at abstracting from the weather-related effects, such as surveyed business 
conditions, are at around decade-highs, implying much stronger growth (Chart 1). Measurement issues in the labour force survey have also meant that momentum may have been understated. However, the official labour force numbers for the past three months have started to come back into line with other timely labour market surveys (Chart 2).
Our overall view is grounded in the idea that the biggest factor driving the RBA to cut all the way to 1.50% had been the massive cycle in the resources sector, and that this is now over. The boom and downturn was at least three times larger than anything Australia had previously seen. In addition, global interest rates have also been at historical lows, which has impacted local policy through the currency.
With the mining downturn now stabilising and global rates lifting, we doubt the RBA will need its very accommodative setting for much longer. Besides, the low cash rate is also causing unwanted exuberance in the Sydney and Melbourne housing markets (auction clearance rates are still around 70% in both markets).
Nonetheless, the market seems reluctant to price in RBA hikes over the next 12 months. The market is currently pricing that the RBA is unlikely to lift its cash rate until mid-to-late2018, with OIS 50:50 priced for a 25bp hike by May 2018. This may partly reflect some of the issues with commodity prices and local measurement issues that we have raised above. It could also reflect that markets have become used to central banks, including the ones we discussed above, providing forward guidance before they take action. Keep in mind, the RBA does not do this. 
<a href="https://www.about.hsbc.com.au/hsbc-in-australia/management-team" target="_blank">PAUL BLOXHAM</a> IS CHIEF ECONOMIST (AUSTRALIA AND NEW ZEALAND) FOR HSBC. 
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Interest rate hikes are expected... but not quite yet: Paul Bloxham

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<img src="https://counter.theconversation.edu.au/content/80457/count.gif?distributor=republish-lightbox-advanced" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
The Reserve Bank of Australia once again left official interest rates on hold this week - leaving the cash rate at an historically low 1.5%.
That certainly wasn’t a surprise, but the language used in governor Philip Lowe’s official statement on the decision was definitely interesting.
Gone were the predictions of 3% plus GDP growth, with the statement striking a much more cautionary note. Lowe noted slower growth in the March quarter, lower levels of mining investment but improved business conditions and investment when not related to mining. He said:
"At the same time, consumption growth remains subdued, reflecting slow growth in real wages and high levels of household debt."
Former RBA board member, John Edwards, made a splash by suggesting that there would be eight interest rate increases, in fairly short order, because the cash rate was “way below where it will need to be in years to come”.
I don’t know if Dr Edwards was just setting his hair on fire to get an audience (if so, well played), but let’s assume he was being serious when he said:
"If inflation does indeed return to 2.5%, as the bank now expects, if growth does indeed return to 3% ‘within a few years’, as the minutes of the June board meeting predict, if the world economy is indeed picking up, then a policy rate of 1.5% is too low."
That’s a lot of “ifs”, and it’s fair to say that the June RBA board minutes suggesting 3% growth were rather surprising. Even if that were to be the growth rate, population growth in Australia is quite high by medium-term (and also international advanced economy) standards, as the following chart shows.
<a href="https://www.propertyobserver.com.au/images/2017/07/06/Screen%20Shot%202017-07-07%20at%208.56.44%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/07/06/Screen%20Shot%202017-07-07%20at%208.56.44%20AM.png" alt="">
source: <a href="https://tradingeconomics.com/australia/population-growth-annual-percent-wb-data" target="_blank" style="font-size: 12.16px;">tradingeconomics.com</a>
Surely it’s real GDP per capita that we should care about instead.
In any case, it seems that Dr Edwards is reflecting back on the macroeconomic recoveries of the past. Perhaps he’s right, but I don’t think so.
It’s quite likely that Australia, like other advanced economies, is suffering from “secular stagnation”. This view, most recently argued by former US Treasury Secretary Larry Summers, holds that the speed limit of advanced economies has been permanently lowered because of a fire hose of global savings chasing too few productive investment opportunities.
In a world where a laptop and a good idea can create a company more valuable than Australia’s Big Four banks combined (Facebook), people just don’t need the same volume of investment capital as in past eras. This drives down what economists call the “equilibrium real interest rate” - and ultimately limits potential GDP growth.
This has probably been the case for many years, but was masked in the US by a massive real estate bubble which burst a decade ago, and in Australia by the commodities boom.
So Dr Edwards prediction of a return to old normal in terms of growth, and hence interest rates, seems more aspirational than likely to me.
Importantly, the RBA statement also pointed again to the financial stability risks in the Australian housing market, saying:
"Growth in housing debt has outpaced the slow growth in household incomes. The recent supervisory measures should help address the risks associated with high and rising levels of household indebtedness. Lenders have also announced increases in mortgage rates for investor and interest-only loans."
Let’s hope that those supervisory measures, which have provided some of the impetus for banks raising rates on interest-only loans, do the trick.
Yet as the RBA itself has pointed out, one-third of Australian mortgage holders do not have a month’s buffer. Stopping questionable new borrowing is one thing, but with slow wages growth it is hard for household to “delever” themselves.
And it’s for that reason that wages growth and the labour market are such a central part of the problem - and a big reason for the RBA not to raise rates any time soon.
Perhaps that also explains the unusual remarks governor Lowe made at the ANU recently, where he basically wished for higher wages growth.
In any case, I wouldn’t bet on eight rapid-fire rate hikes any time soon.
<a href="https://theconversation.com/profiles/richard-holden-118107" target="_blank">Richard Holden</a> is Professor of Economics and PLuS Alliance Fellow, UNSW and author for <a href="https://theconversation.com/au" target="_blank">The Conversation</a>.
 
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