<section data-scroll-anchor="false" data-testid="conversation-turn-48" data-turn="assistant" data-turn-id="request-WEB:55d7c6ac-8e6d-4881-ad49-0ed9bf66d1cc-23" dir="auto">
Melbourne’s apartment market entered 2026 with renewed momentum, but the recovery is uneven, policy-driven, and increasingly shaped by constrained supply.

According to the RPM Apartments &amp; Townhomes Market Report (April 2026), apartments have begun to outperform detached housing on key metrics,yet that performance is occurring against a backdrop of falling approvals and a tightening development pipeline.

At the end of 2025, Melbourne unit values reached a three-year high of $656,500, recording quarterly growth of two per cent. That figure edged ahead of the 1.8 per cent growth recorded in the house market over the same period, marking a notable shift in relative performance. While modest in absolute terms, the outperformance is significant given the sustained dominance of houses through much of the previous cycle.

This shift has been driven in large part by policy. The federal government’s expanded five per cent Deposit Scheme has had a disproportionate impact on apartment demand, particularly in Melbourne where the $950,000 price cap captures a large share of medium- and high-density stock.

As RPM notes, the scheme “heavily favours medium and high-density dwellings,” effectively accelerating demand in the apartment sector.

The impact is most visible in buyer activity. Victoria recorded more than 43,000 new housing loans in Q4 2025, the highest quarterly volume since mid-2022 and one of the strongest results in over a decade. This lift was broad-based across all buyer types, with first home buyers, owner-occupiers and investors all returning to the market with greater confidence.

This surge in demand has flowed directly into apartment pricing, particularly in Melbourne’s middle and outer rings. Middle-ring unit values reached approximately $757,500, a four-year high, while outer-ring units climbed to a record $650,000. Quarterly growth of 2.9 per cent and 2.5 per cent respectively significantly outpaced both the inner ring (0.8 per cent) and the broader house market.

&nbsp;

<img alt="RPM" data-entity-type="file" data-entity-uuid="4628dde5-ad63-4b03-b18e-77d0f750e2aa" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-04-24%20at%209.23.32%E2%80%AFAM.png?VersionId=ig6mqc7Oz7UaszRuzULrGtLPUxGf4NJC" />

&nbsp;

The divergence between apartments and houses is also being shaped by affordability. Detached housing remains out of reach for many buyers, pushing demand toward apartments as a more accessible entry point into well-located suburbs. This is particularly evident among first home buyers and downsizers, both of whom are increasingly prioritising location, amenity and lifestyle over land size.

At the same time, population growth continues to underpin demand. Victoria added more than 122,000 residents in the year to Q3 2025, with Melbourne attracting both overseas migrants and interstate movers, partly due to its relative affordability compared to other capitals.

&nbsp;

<img alt="Population" data-entity-type="file" data-entity-uuid="49e10567-a8b3-47c3-afbd-290f0bb62c49" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-04-24%20at%209.22.25%E2%80%AFAM.png?VersionId=.2Drmko4TPh02X55JdF3mIC1EcG0ZfGl" />

However, the most critical factor shaping the apartment market is not demand, it is supply.

Apartment approvals across Greater Melbourne have fallen sharply, signalling a constrained pipeline of future stock. In Q4 2025, just 2,339 apartments were approved, down 20 per cent on the previous quarter and 47 per cent lower than the same period a year earlier. On an annual basis, 11,066 apartment approvals were recorded, an improvement on the previous year, but still well below medium- and long-term averages.

&nbsp;

<img alt="Apartment approvals" data-entity-type="file" data-entity-uuid="12f2e7bc-fe01-40c0-80b5-9e829b279d98" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-04-24%20at%209.21.56%E2%80%AFAM.png?VersionId=5mnIXkXGoDgIJdAFhA0alm0cSKzEytqZ" />

This decline reflects a broader contraction cycle that has been underway since 2020. As RPM notes, “apartment approvals appear to be sliding back into a downward trend,” with developers increasingly focused on launching and completing existing projects rather than initiating new ones.

The reasons are well understood. Construction costs have risen more than 20 per cent since 2021, driven largely by labour shortages and material price escalation. At the same time, financing conditions have tightened, with lenders requiring higher contingencies and taking a more cautious approach to risk. Combined with recent interest rate rises, these factors have made feasibility more challenging, particularly for higher-density projects.

This dynamic is creating a disconnect in the market. Demand for apartments—particularly at the more affordable end—is strengthening, while the pipeline of new supply is weakening. In the short term, this may limit the number of new projects coming to market. Over the medium term, however, it is likely to support price resilience and potentially further outperformance relative to houses.

There are some signs of policy-driven supply response. The introduction of Victoria’s Mid-Rise Code, which streamlines approvals for four- to six-storey developments, is expected to improve delivery in well-serviced middle-ring locations. However, this is unlikely to materially offset the broader decline in apartment approvals in the near term.

Despite the positive momentum at the end of 2025, the outlook for 2026 has become more complex. Two interest rate rises early in the year have already impacted consumer confidence, while broader cost pressures, particularly energy and fuel, are feeding through to construction and development costs.

“Victoria’s built form market ended 2025 on a high, but early 2026 rate rises quickly reversed the momentum,” RPM notes.

The implication is that while apartments are currently outperforming houses, the trajectory of that outperformance will depend on how these competing forces evolve. Policy support and affordability are clearly working in favour of apartments, but constrained supply and rising costs are likely to shape the pace and nature of future growth.

What is increasingly clear is that apartments are playing a more central role in Melbourne’s housing market. As population growth continues and affordability pressures intensify, higher-density housing is becoming not just an alternative to detached homes, but a primary solution to the city’s housing needs.
</section>

Joel Robinson

Units lead Melbourne price growth as apartments outperform houses: RPM

Brunswick is set for some of its largest apartments ever delivered with the upcoming new development Frith &amp; Howarth, where the apartments are around 20 per cent larger than what has come before it in the sought-after suburb.

Developer Young Group focused its design on Frith &amp; Howarth around size and scale, but within a boutique building, to create a mini neighbourhood within the mid-rise development. There are just 24 apartments in the mid-rise building on Victoria Street, a short walk to Brunswick Station and the cafe and dining strip along Sydney Road.

“We spent hours comparing what’s currently on the market so we could offer genuine points of difference,” Young Group says, pointing to room sizing, storage, and functional planning as key drivers behind the design.

All of the two-bedroom apartments in the building have been snapped up, with just the large three- and four-bedroom apartments, with the biggest floorplans and best outlooks, remaining.

[smartcode_project:default project_id=134317 project_image_fid=354139]

Apartments open directly into open-plan living zones where full-height glazing draws light deep into the apartment. Sliding doors extend the space outward to terraces, many oriented toward the adjacent park or back toward the city skyline.

Kitchens sit within this central space, anchored by sculptural island benches that reference the building’s faceted exterior language. Storage is integrated across multiple layers, overhead cabinetry, concealed joinery, and, in larger configurations, dedicated sculleries or butler’s pantries.

[smartcode_project:default project_id=134317 project_image_fid=354137]

The penthouse is the largest ever offered in Brunswick. The penthouse measures nearly 400 sqm all-up, with 242 sqm of internal space complimented by a further 149 sqm of terraces.

It spans the whole top floor and has four bedrooms, four bathrooms, and parking for four cars.

[smartcode_project:default project_id=134317 project_image_fid=354133]

Low maintenance resident amenity has been created in the form of a landscaped rooftop, complete with&nbsp;vegetable plots, outdoor cooking areas, and aflresco dining spaces, designed as a place for neighbours to gather outside of their homes.

“To enable connection with neighbours, generous rooftop gardens with communal spaces and outdoor cooking areas offer a chance to develop a sense of community,” says John Patrick, Principal of <a href="https://www.apartments.com.au/landscape-architect/john-patrick-landscape-architects">John Patrick Landscape Architects</a>.&nbsp;

“Private open spaces with a selection of native and exotic plantings and gorgeous city views on the rooftop create a high-end aesthetic, with a low maintenance lifestyle. The perfect balance, so that residents can enjoy a serene living space.”

[smartcode_project:default project_id=134317 project_image_fid=354134]

Sustainability is embedded at both the building and apartment level. <a href="https://www.apartments.com.au/new-apartments/frith-howarth-288-290-victoria-street-brunswick-vic-3056">Frith &amp; Howarth</a> is one of only a small number of all-electric residential developments in Brunswick, supported by solar infrastructure, EV-ready parking, and high-performance glazing. These measures sit alongside less visible systems such as rainwater reuse and high-grade insulation, reducing long-term operational costs while maintaining consistent internal conditions.

Positioned within walking distance of Brunswick Station, Route 96 trams, and established retail along Sydney Road and Barkly Square, the development balances access to transport with proximity to open space, a combination that has become increasingly difficult to secure in inner-city sites.

“These exquisite homes are nestled in a culturally diverse neighbourhood, with parklands and nature right on your doorstep,” says Young Group.

[smartcode_project_cta:default project_id=134317]

Frith & Howarth to deliver Brunswick’s largest apartments

<a href="https://www.apartments.com.au/new-apartments/prince-parade-by-mirvac-brunswick-701-park-street-brunswick-vic-3056">Prince &amp; Parade</a> in Brunswick is entering its final stages of construction, with the removal of the project’s last tower crane and the unveiling of the building’s full façade marking a significant milestone ahead of completion this coming spring.

The Park Street development, designed by <a href="https://www.apartments.com.au/architects/bates-smart">Bates Smart</a>&nbsp;and Mirvac Design with landscaping by <a href="https://www.apartments.com.au/landscape-architect/jack-merlo">Jack Merlo</a>, is now largely structurally complete, with internal works progressing across the 169-apartment project opposite Princes Park.

<a href="https://www.apartments.com.au/builders/mirvac-construction">Mirvac Construction</a> Project Manager Sam Payne said the latest update reflects a transition from structure to refinement.

“Since our last update, all façade panels have been installed and the scaffolding and gantry has come down, unveiling the building in its full form for the very first time,” Payne said.

“A significant milestone was reached this month with the removal of our final tower crane, signalling the completion of major structural works and a pivotal step forward in the building’s transformation.”

[smartcode_project:default project_id=4802 project_image_fid=366856]

Apartments are now well advanced internally, with joinery completed to level eight and tiling to level six, alongside the delivery of a prototype apartment used to set the benchmark for the remaining residences.

This next phase coincides with the release of a completed furnished residence, styled by MCM House, and the introduction of private buyer tours, giving purchasers a clearer understanding of the finished product ahead of settlement.

<a href="https://www.apartments.com.au/new-apartments/prince-parade-by-mirvac-brunswick-701-park-street-brunswick-vic-3056">Prince &amp; Parade</a> will comprise 169 one to four-bedroom apartments, with completion targeted for early spring. Interiors focus on natural materials and muted tones with two design schemes, while kitchens and bathrooms adopt a restrained palette anchored by stone, timber and textured finishes.

Bates Smart Director Jeffery Copolov said the project reflects a shared design direction centred on liveability and sustainability.

“Blending Mirvac and Bates Smart’s focus on wellness and sustainability, <a href="https://www.apartments.com.au/new-apartments/prince-parade-by-mirvac-brunswick-701-park-street-brunswick-vic-3056">Prince &amp; Parade</a> offers a new kind of conscious, elevated living in Melbourne’s inner north,” Copolov said.

<a href="https://www.urban.com.au/new-apartments/prince-parade-by-mirvac-brunswick-701-park-street-brunswick-vic-3056">Prince &amp; Parade</a> presents Mirvac's third parkside collaboration with&nbsp;<a href="https://www.urban.com.au/architects/bates-smart">Bates Smart</a>&nbsp;in Victoria.&nbsp;Their previous collaborations delivered two of the city’s landmark apartment buildings: The Melburnian opposite Kings Domain and The Eastbourne on Fitzroy Gardens.

[smartcode_project:default project_id=4802 project_image_fid=366857]

A key focus of the development is its landscape-led amenity offering. The central courtyard, spanning around 600 sqm, will feature established trees and planting grown off-site, alongside communal lawns and seating areas designed for everyday use.

Development Manager James Gardner said the outdoor spaces are central to the project’s lifestyle positioning.

“<a href="https://www.apartments.com.au/new-apartments/prince-parade-by-mirvac-brunswick-701-park-street-brunswick-vic-3056">Prince &amp; Parade</a> isn’t just a home, it’s a complete lifestyle offering, and the resident amenity is just one example of the elevated living experience the soon-to-be-complete building will be known for,” Gardner said.

The courtyard connects to a series of shared indoor and outdoor spaces, including a residents’ lounge, dining room, library and secondary west-facing garden area, designed as extensions of the apartments themselves.

Located directly opposite Princes Park and around four kilometres from the CBD, the development places residents within one of Melbourne’s most established inner-north precincts, with access to open space, transport and the retail and hospitality offerings of Brunswick and Carlton.

With façade works complete and landscaping and final finishes now underway, <a href="https://www.apartments.com.au/new-apartments/prince-parade-by-mirvac-brunswick-701-park-street-brunswick-vic-3056">Prince &amp; Parade</a> is moving into its most active construction phase, with permanent services and external works to be finalised in the coming months ahead of completion in spring.

[smartcode_project_cta:default project_id=4802]

Mirvac’s latest landmark, Prince & Parade Brunswick, enters final construction phase

Boutique Perth developer ADC has unveiled its latest project.

The developer, which focuses on bringing apartments to some of Perth's most premium inner-city and riverside suburbs, has launched <a href="https://www.apartments.com.au/new-apartments/mos-lane-mosman-park-46-manning-street-mosman-park-wa-6012">Mos Lane</a>, 68 luxury apartments and townhouses in the heart of <a href="https://www.apartments.com.au/developments/mosman-park-wa-6012">Mosman Park</a>.

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Alongside the one-, two-, three- and four-bedroom apartments, the development will also include five two-level townhomes and two luxe penthouses. ADC is also introducing a significant retail offering for residents through Mos Lane Village, which will feature a wellness studio, fish and chips shop, barber, and florist, adding a layer of amenity not typically found in the predominantly residential Mosman Park area.

Construction has already commenced on the project, which sits just a short walk from the Swan River, Mosman Park Bowls Club, and Mosman Park Golf Course.

House Agency Directors Tom House and Lachlan McDonald say they are fielding the majority of buyer interest from local downsizers, as well as buyers with a long-standing affinity for Mosman Park.
</section>

[smartcode_project:default project_id=148957 project_image_fid=364591]

Mos Lane will comprise two buildings; Samson House and Manning House, which have been designed by&nbsp;<a href="https://www.apartments.com.au/architects/nelson-koo">Nelson + Koo</a>, an emerging design consultancy specialising in the masterplanning and design of mixed use places and spaces.

The two buildings adopt distinct architectural responses to their surroundings. Manning House references the strong roof forms of nearby homes, with floorplates oriented to maximise light and long-range views, while Samson House is organised around a central atrium designed to bring daylight deep into the building and create a greater sense of openness.

At ground level, the inclusion of five townhomes introduces a typology more commonly associated with Mosman Park’s established streets, each with private courtyards and direct frontage, offering a transition between traditional housing and apartment living.

[smartcode_project:default project_id=148957 project_image_fid=364103]

Interiors have been led by Melbourne-based Hecker Guthrie, with an emphasis on practical, long-term liveability. Residences incorporate sculpted joinery, generous storage and flexible multi-purpose rooms that can adapt to changing household needs, whether for working from home, guest accommodation or additional living space.

Material selections draw on a restrained palette of textured stone, timber and neutral tones, with options for lighter or darker schemes. Detailing such as fluted glass, full-height joinery and integrated appliances is intended to balance functionality with a more refined residential finish.

Outdoor spaces are a consistent feature across the development, with balconies and terraces designed for dining and entertaining, and larger apartments incorporating outdoor kitchens. Orientation has been considered to allow residents to choose between morning or afternoon sun, while mature street trees and landscaped communal areas contribute to a softer streetscape.

[smartcode_project:default project_id=148957 project_image_fid=364107]

Shared amenities are positioned to support both day-to-day convenience and occasional use. These include a private dining room with a caterer’s kitchen, alfresco entertaining areas, and a bookable guest suite for visiting friends and family. Additional practical features such as a resident workshop, storage facilities, car and pet wash areas, and concierge-style services for cleaning and dry-cleaning collection reflect a focus on usability.

Positioned between the Swan River and Cottesloe Beach, and within reach of schools such as Iona Presentation College and St Hilda’s Anglican School, the development is aimed at a broad buyer group, from downsizers seeking a lower-maintenance alternative to larger homes, through to local residents looking to remain in the area in a different housing format.

Mos Lane represents one of the more significant additions to Mosman Park’s limited pipeline, combining new housing supply with a village-style retail centre in a suburb where opportunities for large-scale redevelopment are relatively constrained.

[smartcode_project_cta:default project_id=148957]

Living village precinct set for Mosman Park as ADC launches Mos Lane

An entity linked to I&amp;D Group Founder Ivan Filipović has filed plans for a new residential development at 188–202 Swan Street in Cremorne, targeting a prominent site within the tightly held Swan Street activity corridor.

The proposal seeks to redevelop the consolidated Swan Street landholding into a <a href="https://www.apartments.com.au/new-apartments/188-202-swan-street-cremorne-vic-3121">high-density mixed-use project</a>, replacing a series of existing commercial buildings with a significantly scaled residential outcome. The planning submission positions the development as a response to increasing demand for housing in well-connected inner-urban locations, particularly within established activity centres.

Plans outline the construction of a 14-storey building delivering 165 apartments above a four-level basement, alongside a ground-floor retail and commercial offering designed to activate the streetscape. A key feature of the scheme is a new north–south pedestrian link connecting Swan Street to Railway Place, intended to “enhance permeability and provide an active, publicly accessible connection through the site.”

<img alt="First Look: Plans lodged for Ivan Filipović-linked Cremorne apartment project on Swan Street" data-entity-type="file" data-entity-uuid="7332a8f8-dd2b-483d-b86e-320658838c84" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/cremorne.png?VersionId=cXm8vAaRdHh.LpYVbecrRkjckgu9mtAF" />

The development will retain part of the existing built form at 198–200 Swan Street, while the remainder of the site will be cleared to accommodate the new structure. Basement levels will provide 196 car spaces and 113 bicycle spaces, with vehicle access from Railway Place. Communal amenity is distributed across the building, including a shared outdoor area on Level 1 and a rooftop terrace for residents.

Ground level uses include retail tenancies fronting Swan Street and the pedestrian link, a residential lobby, and a flexible commercial space positioned to support community-oriented uses. The planning report notes this space “could be offered as a flexible space within the development for community groups,” supporting short-term or longer-term occupancy arrangements.

<img alt="First Look: Plans lodged for Ivan Filipović-linked Cremorne apartment project on Swan Street" data-entity-type="file" data-entity-uuid="8208bf7b-cc67-485d-ad0f-1d73a74c907f" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/cremorne%20lane.png?VersionId=69ctjC0txXv0zCHy7qQUpJyGwvPAT7gw" />

The site sits within the Swan Street Major Activity Centre, surrounded by a mix of retail, hospitality, and emerging residential development, and directly opposite tram services along Swan Street. East Richmond Station is located to the south, providing strong rail connectivity, while the broader Cremorne precinct continues to evolve as a mixed-use hub.

I&amp;D Group, founded by Ivan Filipović, is regarded as one of Victoria’s largest formwork contractors, partnering with major construction firms across large-scale public and private developments. The Swan Street proposal signals a move into development-backed opportunities tied to strategic inner-city sites.

First Look: Plans lodged for Cremorne apartment project on Swan Street

Penalty Rates

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GUEST OBSERVER
In the current review of Modern Awards before the Fair Work Commission, employers are challenging the level of penalty rates.
At the same time, the Productivity Commission says excessive penalty rates for Sundays reduce hours worked, mean unemployment is higher than it needs to be, and reduce options for businesses and consumers. It wants Sunday penalty rates in some sectors to be set at the Saturday rate.
A penalty rate for Sunday work was first implemented in Australia for working “unsocial” hours in 1919. The 1947 “Weekend Penalty Rates Case” expanded penalty rates to Saturdays, while Sundays were set at a rate of double time. Later decisions specified that workers would need to be compensated for the loss of opportunity for family life and social time resulting from weekend work.
More than 60 years on, employers argue the world has changed. It has, but many of the arguments employers make are not supported by the evidence.
Myth 1: Given extended trading hours, it’s no longer abnormal for people to work weekends. 
Most employees still do not work unsocial hours. According to the Australian Work and Life Index, 38% of workers work unsocial hours; only 32.2% of workers work weekends and 18.9% of workers work evenings after 9pm regularly. These figures include the 13.1% of workers who work both evenings and weekends regularly.
<a href="/images/2015/11/16/Screen%20Shot%202015-11-16%20at%208.06.14%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2015/11/16/Screen%20Shot%202015-11-16%20at%208.06.14%20AM.png" alt="" width="705" height="570">
 
Click to enlarge
Myth 2: It’s only young single people that work weekends.
While being single with no children is more common than other family types among these workers, they are not a majority: there are also many couples both with and without children, and sole parents.
<a href="/images/2015/11/16/Screen%20Shot%202015-11-16%20at%208.10.04%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2015/11/16/Screen%20Shot%202015-11-16%20at%208.10.04%20AM.png" alt="" width="705" height="414">
 
Women are also more likely than men to work weekends. HILDA data indicates that only 22% of male and 21% of female weekend workers were dependent students; in other words, 78% of all weekend workers were not dependent and pay their own bills.
<a href="/images/2015/11/16/Screen%20Shot%202015-11-16%20at%208.11.22%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2015/11/16/Screen%20Shot%202015-11-16%20at%208.11.22%20AM.png" alt="" width="779" height="663">
 
Myth 3: The disadvantages of working weekends are only bad for those who work very long hours.
Employers argue that the adverse effects associated with working weekends are only relevant to those who work very long hours, and that the days and times themselves are no longer relevant, either because people no longer engage in the activities which previous decisions attempted to protect, or because these activities can be made up on other days and at other times.
But those who work on weekends do so at the sacrifice of time with friends and family, time which cannot be simply made up through time spent at other times during the week. This is particularly acute on Sundays, which remain a time for spending time with family. In spite of claims to the contrary, the differentiation between Saturdays and Sundays remains relevant in modern Australian society.
In general, the recompense of penalty rates is the key reason for willingly working weekends; with far fewer doing so to meet their own flexibility needs. However, the experience of the Work Choices era, and the importance and power of employer expectation, does suggest that many employees would not, in the absence of penalty rates, be able to avoid weekend work due to fear of losing their jobs, and indeed employees being forced to work weekends for no extra pay seems the most likely consequence of removing penalty rates.
Myth 4: Those who work in industries that pay penalty rates are not low paid.
Many workers on penalty rates are among the low paid. According to the Australian Work and Life Index, 37.8% of workers who work weekends only and receive penalty rates rely on these to meet household expenses. This increases to 48.8% for those working both evenings and weekends, and 52.2% for Sundays only.
<a href="/images/2015/11/16/Screen%20Shot%202015-11-16%20at%208.13.12%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2015/11/16/Screen%20Shot%202015-11-16%20at%208.13.12%20AM.png" alt="" width="779" height="640">
Myth 5: Reducing or eliminating penalty rates would increase employment.
The empirical evidence for increased employment as a result of reducing penalty rates is non-existent. <a href="https://press.anu.edu.au/wp-content/uploads/2014/11/Paying-the-Penalty-The-High-Price-of-Penalty-Rates-in-Australian-Restaurants.pdf">Employer arguments</a> have been based essentially on economic theory, which is merely hypothesis in the absence of empirical confirmation. What may be relevant in terms of the impact of wages on employment is that none of the available empirical evidence suggests minimum wages have a significant effect on net employment, a point reiterated by the Productivity Commission.
While some studies do suggest a substitution effect, this would be a matter of balancing one set of employed workers against another – older workers versus youth. In the absence of minima the wages of those who are employed would be lower. However, a number of studies suggest no effect at all, and some suggest a positive effect.
Given the evidence, it is difficult to see any benefits likely to accrue from the abolition or reduction of penalty rates for employees, employment levels or greater availability of services to the public.
 
Ray Markey is director of the Centre for Workforce Futures, Macquarie University and author for The Conversation. He can be contacted <a href="https://theconversation.com/profiles/ray-markey-16292" target="_blank">here</a>.
 
</body></html>

jchancellor-FAypfDUnLy

Myths about penalty rates and those who rely on them

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GUEST OBSERVER
Economists find it difficult to agree on the subject of exactly how penalty rates affect employment and business. There is a dearth of empirical evidence on the subject because constructing an experiment to test the exact role of penalty rates in employment or business viability would be near impossible.
Anecdotal evidence from some businesses in the hospitality and retail sectors supports Mr Frydenberg’s claim that they’re not opening on Sundays because of penalty rates, but the direct evidence is far from conclusive.
<h2>Do penalty rates reduce employment?</h2>
It is true that penalty rates can reach 200% for certain awards. Sunday premium rates depend on a number of factors, including the occupation grade of the employee, and whether or not they are employed on a casual or permanent basis.
Direct evidence on the employment effects of penalty rates, and whether any such effects are driven more by demand or supply of weekend work, is really very limited. Some researchers have concluded penalty rates reduce demand for labour; other experts are unconvinced.
On supply side, the employment effects of Sunday penalty rates are quite complex. For those who value weekend time for lifestyle, family or religious reasons, the incentive to work on a Sunday will diminish if penalty rates are reduced. However, many workers have limited options to substitute from weekend to weekday work in the absence of a Sunday wage premium. Some employees may actively seek weeken<a href="https://www.qtic.com.au/news/modern-face-weekend-work-%E2%80%93-report-fair-work-commission-penalty-rates">d</a> work for a variety of reasons.
Employment effects are likely to be stronger on the demand side, with penalty rates unarguably imposing additional wage costs on employers. Savings from lower penalty rates offer businesses the choice to employ more workers at the same costs, or the same number of workers at lower costs.
Whether employment would increase following a reduction in penalty rates, and by how much, depends on the balance of positive responses to lower wage costs among businesses, and the negative reactions of workers to lower remuneration. There is some potential for a market-determined wage premium to emerge in the absence of penalty rates to ensure that working on a Sunday remains attractive.
<h2>Do penalty rates cause restaurants to close?</h2>
Are we seeing higher rates of closure in the restaurant sector? And more pertinently, can these closures be attributed to the penalty rate system above other factors?
Of those businesses trading in June 2010 in the food and beverage services sector, ABS data show that 70.3% survived to June 2012, and 51.7% to June 2014 - the latter survival rate being 10 percentage points below the average for all industries. So yes, there are higher rates of closure in the restaurant sector.
However, this may reflect the greater “churn” among businesses in the hospitality and retail sectors more than the effects of penalty rates. Overall business counts have remained relatively strong over the last period.
<a href="/images/2015/08/17/Screen%20Shot%202015-08-17%20at%208.50.57%20AM.png" target="_blank">Click to enlarge </a>
<img src="/images/2015/08/17/Screen%20Shot%202015-08-17%20at%208.50.57%20AM.png" alt="">
Survival rates of businesses operating in June 2010 ABS Cat No 8165.0: Counts of Australian Businesses, including Entries and Exits, June 2010 to June 2014
It’s harder to find direct evidence to support the claim that penalty rates are the dominant cause of extensive restaurant business closures – if by “closing” we mean going out of business altogether, as opposed to simply closing on Sundays.
It appears Mr Frydenberg meant that latter – that restaurants and cafes were closing on Sundays, as opposed to closing down altogether. His spokesman said by email that:
"The Assistant Treasurer’s statement was primarily based on the findings of the Productivity Commission’s Draft Report in relation to the impact of Sunday penalty rates and the level of Sunday business activity; not the registration of businesses generally."
According to ABS figures, wages contribute more to the overall costs of doing business in the hospitality and retail sectors – averaging 43% of total retail business costs and 37% for accommodation and food services - compared with the overall industry average (28%).
A higher proportion of those wage costs are incurred at weekends and evenings, these being the periods of greatest demand for restaurant services. This does mean that penalty rates are likely to impose a greater cost burden on restaurants, cafes, bars and retail outlets relative to businesses in other sectors.
Penalty rates are likely to be more damaging during downturns in the business cycle, with lower consumer demand putting greater pressure on businesses in the hospitality sector who already work to tight profit margins.
A spokesman for Mr Frydenberg said that the Productivity Commission’s Draft Report makes several references to Sunday rates hampering business activity – notably on pages 483, 522, 250, 25 and 519.
He pointed to a statement from the Chamber of Commerce and Industry Queensland’s submission, which said:
"44% of (surveyed Queensland) businesses noted that they have decreased or substantially decreased the number of full time staff. Taken together, the results suggest that rising labour cost loadings are affecting business decisions about staffing hours and negatively impacting employment."
Mr Frydenberg’s spokesman cited evidence from a 2015 survey of 1000 restaurant and cafe operators conducted by Jetty Research on behalf of the Restaurant and Catering Industry Association, which found that:
"of those surveyed that didn’t open on Sundays and/or public holidays, 70% said that “this was because of penalty rates or an inability to trade profitably.”
However, this finding is based on responses from only 10% of the survey. Of the 90% of respondents in the same survey who stayed open on Sundays and/or public holidays, around half (51%) reported that they did so because of “increased profitability”, with one quarter (24%) reporting that Sunday opening made them less profitable. Of all respondents, 52% said they would employ more staff if penalty rates were reduced, and 42% said they would open additional hours.
The full response from Mr Frydenberg’s spokesman can be found <a href="https://theconversation.com/response-from-assistant-treasurer-josh-frydenberg-46075" target="_blank">here</a>.
<h2>Verdict</h2>
It is true that there is feedback from some restaurants and cafes that they are closing due to the high cost of Sunday penalty rates. However, even when you look at the restaurant and cafe industry’s own survey, only 10% of businesses surveyed closed on a Sunday. Of the 90% that remained open on a Sunday, more than half did so because they made a profit. Less than a quarter said penalty rates were reducing their profits. The evidence that restaurants and cafes are closing on Sundays because of prohibitively high costs is, at best, ambiguous.
Direct evidence of the employment and business impact of penalty rates is hard to come by. It is not possible to say for sure that penalty rates, above all other factors, are forcing restaurants and cafes to close their doors on a Sunday.
<h2>Review</h2>
The author of this FactCheck correctly notes that the evidence of the impact of penalty rates on employment and business operations in the food and beverages industry is limited in Australia.
There is some anecdota<a href="https://www.pc.gov.au/inquiries/current/workplace-relations/draft/workplace-relations-draft-overview.pdf">l</a> and qualitative evidence that shows for particular businesses, higher penalty rates have reduced employment. Some quantitative studies show that increasing labour costs are likely to lead to a reduction in the demand for labour but there is limited recent evidence on the direct effects of penalty rates on the demand and supply of labour over the weekend. Standard economic theory predicts that an increase in the wage will lead to a reduction in the demand for labour but the effects on the supply of labour are less clear.
The relationship between the survival of businesses in the food and beverage industry and pay rates is a subject on which more evidence is required.
Alan Duncan is director, Bankwest Curtin Economics Centre, Curtin University and can be contacted <a href="https://theconversation.com/profiles/alan-duncan-100759" target="_blank">here</a>.
Anne Daly is professor of economics at University of Canberra and can be contacted <a href="https://theconversation.com/profiles/anne-daly-184578" target="_blank">here</a>.
Both are authors for The Conversation
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