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.

Joel Robinson

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

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

Maréa Residences brings parkside apartments to Coolangatta

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

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

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

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

Pete Wargent

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Ego and Confirmation Bias
The other day I bought a parcel of shares in an industrial stock for $1.10, the share price zoomed up to above $1.20 in double-quick time, but then the price fell back to my entry point at $1.10 and I was stopped out with short shrift. 
I know beyond the shadow of any doubt that when I was 25 I would have let the price fall well below my entry price before even thinking of selling, and then hoped for it to 'come back'. 
It's an ego thing; you never want to admit to making a poor selection.
By the time I turned 35 I'd learned that if you want to be a successful share trader you must have the discipline to cut your losses and let the winners run (rather than precisely the opposite, which is what most losing traders do).
Even the best stock pickers might select perhaps four trades which don't co-operate from every ten. That doesn't make them bad trades, as such. You simply must be disciplined, and cut the losing selections ruthlessly, and 'trade right'.
<blockquote>
Property investors will likely still be able to attain strong enough returns over the longer term, provided they know in which locations and what property types to buy.
</blockquote>
The process is as important as the outcome. Twisting on 20 and getting an ace doesn't make one smart, only lucky. 
Ridding yourself of that pesky ego is vital to ongoing success as a trader. If you let the losing trades fall and fall in the vain hope that they one day come back to save you at break-even, eventually one of them will keep falling and wipe out all of the other accumulated gains in your trading account and then some.
Human nature dictates that it's very hard to admit being wrong. This is non-sensical: we all get things wrong all the time!
The only reason I reckon myself to be a half-decent investor today is that I've made no many balls-ups in the past - pretty much every mistake you can name, in fact, I've probably made it or a variation thereof. 
Indeed, making all the mistakes in the book is sometimes the only way to learn about what works and what doesn't, and to some extent it might be described as the hallmark of an expert investor - one who has made every mistake, but has resolved to learn the inherent lessons.
Capital growth
Is there ego in a lot of our property market commentary? Gosh, yes! 
How often do people admit to being wrong? Even when they've had a complete shocker and recommended speculating in mining towns where prices have since collapsed? Occasionally? Rarely? Ever?!
As I blogged about <a href="https://petewargent.blogspot.com.au/2014/02/error" target="_blank">here</a>, unfortunately for me, I've made mistake after mistake as an investor, although luckily a long-term outlook can be forgiving of errors.
It was Oscar Wilde who said: "Experience is the name everyone gives to mistakes." It's true. Mistakes are how we learn as people, and also as investors.
Inner suburbs, or outer?
There has been a long-running debate in Australia about whether capital growth is stronger in suburbs closer to the respective city centre (aye), or in outer suburbs (nay).
Clearly, historically, there is no debate to be had.
Median house prices in Sydney's inner suburb of <a href="/news">Point Piper</a> obviously did not get to exceed $5.832 million with moderate capital growth.
And, just as obviously, median house prices of $228,000 in <a href="/news">Spencer</a>, <a href="/news">Gosford</a>, or median unit prices in <a href="/news">Vineyard</a>, Hawkesbury of $162,000 are hardly representative of rampant dwelling price appreciation.
The price growth has necessarily been in some way inversely related to relative proximity to the city with its employment, infrastructure, amenities, and so on.
It's a debate we've had over and over again in London and the UK over the years. And every time we carry out research into the issue, the results are precisely the same. 
Regional price growth in Britain remains relatively poor, outer London suburbs show moderate growth, and prime central London continues to outperform massively.
<div class="separator"><a href="https://3.bp.blogspot.com/-cw6q9EaewkE/U3SXOFTYDbI/AAAAAAAANNA/78q1_e_z1TI/s1600/AWBE.jpg"><img src="https://3.bp.blogspot.com/-cw6q9EaewkE/U3SXOFTYDbI/AAAAAAAANNA/78q1_e_z1TI/s1600/AWBE.jpg"></a></div>
<a href="https://allenwargent.com/wp-content/uploads/2013/04/AW-LONDON-BE-SP13-031.pdf" target="_blank">Source: AllenWargent Buyers Eye</a>
Australia?
While it has been common knowledge in Aussie real estate that inner suburbs have demonstrated stronger capital growth over the long term, in the past 15 years or so there has sprung up a debate as to whether regional centres and outer suburbs might now be the outperformers.
Why would that happen? People working from home? People seeking to move outwards for a cheaper lifestyle?
Unfortunately, study after study after study shows that the answer is: no. It's not happening. Indeed, if anything, we seem to have the opposite problem.
Younger generations often want to live close to the city, even if they have to pay to rent or buy an expensive apartment to do so. 
What can happen, in my experience, is that cheap suburbs can get a sugar hit as they gentrify thus experiencing a spurt of capital growth, but over the long term price growth is stronger in better located suburbs closer to the city.
See <a href="https://petewargent.blogspot.com.au/2013/09/outer-suburbs-better-or-worse" target="_blank">here</a> and <a href="https://theconversation.com/can-lower-income-buyers-build-housing-wealth-too-18418" target="_blank">here</a> for the charts from AHURI which prove it, both over the long-term and across recent years too. 
The evidence is as clear as daylight, yet some will still cling to perming carefully selected data over short term time horizons in order to defend their arguments.
This article continues on the next page. Please click below.
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Inner suburbs are STILL seeing higher capital growth
And so to the RBA's Luci Ellis and her excellent presentation on Australian housing at a conference in Sydney last week, the full transcript of which you can read <a href="https://www.rba.gov.au/speeches/2014/sp-so-150514" target="_blank">here</a>.
Ellis started by highlighting how household debt has hit a plateau since 2005, which implies that Australian dwelling price growth in aggregate will be slower in the future, and far more closely tied to household income growth in the future than it has been in the past, when lending criteria were deregulated and a structural shift to lower inflation and lower interest rates took place.
I'd suggest, though, that property investors will likely still be able to attain strong enough returns over the longer term, provided they know in which locations and what property types to buy.
Ellis highlighted what I've discussed a thousand times, that being the geographical constraints on some of our cities such as Sydney, which is surrounded by ocean, national parks and mountains, as well as pointing out how exceptionally low the population density is in our urban locations.
We have spacious plots, large houses and relatively few people per square kilometre in urban Australia, which does little to help combat housing affordability in detached dwelling types. 
<img src="https://www.rba.gov.au/speeches/2014/images/sp-so-150514-graph3-small.gif" alt="Graph 3: Urban Population Density"> 
<div>Ellis also went on to discuss the concept of the Central Place model - which is akin to what I have previously referred to <a href="https://petewargent.blogspot.com.au/2013/11/bid-rent-curves-in-australia" target="_blank">here as the bid-rent curve</a> - it suggests that prices and rents tend to decrease as you move away from a city's central point. </div>
<img src="https://www.rba.gov.au/speeches/2014/images/sp-so-150514-figure1-small.gif" alt="Figure 1: The Central Place Model">
Although Australia's cities are not monocentric and do have smaller sub-centres, the RBA notes that when you look at the spatial pattern of employment in Australia, the single centre model "is not a bad fit".
That's correct and accords with what I have seen unfolding in Sydney. We do have employment centres such as Parramatta and Macquarie Park/North Ryde, but they remain very much secondary locations to the main event of the CBD.
We kind of already know all this.
Jobs growth, population growth and capital growth in residential property and much commercial property has been strongest near to the centre of cities in the past.
But what of the future? At present job density is much higher in the central city areas as the RBA's research shows. In fact, read this point from the RBA carefully:
"Population density is higher near the centres and declines rapidly: again, the scales on these graphs are exponential, so each darker shade is an order of magnitude higher density. 
"Some of the outermost districts still contain agricultural land and a good fraction of national parks, so it isn't surprising that population densities are low in these places. I find it interesting that even some middle-ring districts are not that much denser."
Job density: 
<img src="https://www.rba.gov.au/speeches/2014/images/sp-so-150514-graph4-small.gif" alt="Graph 4: Job Density">
And, for that matter, so is population density far more heavily concentrated on central areas:
<img src="https://www.rba.gov.au/speeches/2014/images/sp-so-150514-graph5-small.gif" alt="Graph 5: Population Density (Persons per square kilometre, 2011)">
That's all fairly inherently obvious, but what is more important is how are these trends changing over time.
"The power of the central place is even more striking if we directly contrast where the jobs are with where the employed people live...in all of these cities, the CBD is still the job magnet."
Aha! As I've been arguing forever and a day - yes, we have secondary employment centres in Sydney (and other cities), but no, they most certainly do not draw more jobs to them than the city and the respective central zones.
Firstly, job density is clearly increasing in central areas at a far greater rate than it is in outer areas:
<img src="https://www.rba.gov.au/speeches/2014/images/sp-so-150514-graph8-small.gif" alt="Graph 8: Change in Job Density">
And, secondly, which is more, the population is increasing in density in inner and middle suburbs at a much greater rate too.
RBA: "In fact, many of the inner areas have become even greater job magnets in recent years; some middle and outer areas added people, but not so many jobs, so their job-to-worker ratios actually declined."
<img src="https://www.rba.gov.au/speeches/2014/images/sp-so-150514-graph9-small.gif" alt="Graph 9: Change in Population Density">
This article continues on the next page. Please click below.
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Impact on dwelling prices?
What people, I suppose, are often really interested in is how these demographic shifts impact dwelling prices.
The answer, concludes the RBA's research, as indeed does every other credible study undertaken on the subject for that matter, is that the ratio of inner ring to outer ring house prices is actually continuing to increase, and the ratio is notably increasing at the greatest rate in the largest cities.
Luci Ellis:
"Declining job-to-worker ratios in some of the outer areas mean that many people are likely to face longer commutes than before. 
"The trade-off between space and place is getting steeper. 
"Locating on the fringe is relatively less attractive than it used to be, and not only because the fringe is moving further out.
"You can see that trade-off in relative housing prices over time. Inner-ring properties have become more expensive relative to outer-ring properties in recent years. And the larger the city, the greater is that premium."
<div class="breakafter"> </div>
<img src="https://www.rba.gov.au/speeches/2014/images/sp-so-150514-graph11-small.gif" alt="Graph 11: House Price Gradient" width="400" height="319">
This trend has played out in all five of the major cities so the conclusion is inarguable on an aggregate basis.
The causation is simply a matter of increasing demand for living close to the city versus scarcity value.
A word of caution, though. This chart represents the ratios for detached housing only, which inherently tends to have a certain level of scarcity value, particularly in fully built out areas.
<div>If you're going to buy unit or apartment stock, look to those with an inherent scarcity value, which does not mean generic, over-priced high rise shoe-boxes which are purchased off the plan.</div>
Outer suburbs and regional centres are struggling
With a few exceptions, outer suburbs and regional centres are struggling across a range of metrics. Ellis again:
"Even social infrastructure doesn't easily follow population to the low-density fringes. Sydney's newest university, Notre Dame, could have chosen an outer-ring location where land was cheaper and it had more room to grow. 
"But instead it put one campus right next to two other universities not far from here on Broadway and another in Darlinghurst."
And on the challenges facing our regional centres:
"I also can't help noticing how difficult it seems to grow the smaller cities in this country relative to the bigger cities. With the possible exceptions of Newcastle, Geelong and maybe Bendigo and Ballarat, few centres outside the state capitals have many corporate headquarters or other job magnets. 
"These self-sustaining job magnets seem to be necessary to create the variety of job opportunities that would attract large numbers of former city dwellers. 
"Over recent years at least, these smaller centres had rates of employment growth and changes in employment-to-population ratios that were similar to or a little below those in the big cities, and a bit below those of inner-city areas. 
"At this rate, it will be hard for the smaller centres to start catching up with the bigger cities, relatively speaking. That means that if big-city housing prices should rise too high for some residents, smaller cities cannot provide alternative locations that are any more viable than they are today.
"Instead of jobs coming to people, at least some of the people have been coming to the jobs, enabled by the pattern of building. In recent years, not only is a lot of the new housing in infill developments, it is much more likely to take the form of high-rise apartments than in the past."
And so, yet another independent study concludes unequivocally that inner suburbs are more desirable, are magnets for jobs growth, have greater access to essential infrastructure and amenities, have higher population growth, are more self-sustaining and show higher residential property capital growth  - both over the long term, and over the last 8 years too.
<div>
RBA warns on regional jobs growth
As we've been highlighting for a long time, jobs growth has become very heavily focused on capital cities in Australia, which is in turn necessarily very concerning for the economic health of our regional centres.
Regional jobs growth has been lagging badly and this has an unpropitious effect on the respective localised economies.
Luci Ellis highlighted exactly this point.
It was noted that regional locations have been adding jobs at a slower pace than the capital cities, and that it is likely to become increasingly difficult for the regions to close that gap as regional centres are offering a lack of variety in job opportunities.
It's something I've witnessed first hand in Britain over the last two decades.
The <a href="https://petewargent.blogspot.com.au/2014/03/zipfs-law" target="_blank" style="line-height: 1.3em;">large cities become more self-sustaining over time</a> while so many regional centres struggle to develop their economies at anything like the same speed.
The result over time can be a mass migration to the capital cities in the absence of specific policies to reverse these trends.
Summary
The debate about whether inner or outer suburbs will thrive will drag on, of course, since that is the very nature of confirmation bias.
But the conclusions drawn by the RBA and independent research institutes are about as black and white as it is possible to find.
Ships will sail around the world, yet "the Flat Earth Society will continue to flourish"...yet those listen to what the data is clearly telling them rather than continue to rally in vain against it, will prosper.
You can visit <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) or Pete's <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blog</a>.
His new book '<a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>' is out now.
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pwargent-M4siyDbqQY

City centre v outer suburbs: Which will provide greater capital growth?

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OK, let's see how short I can keep this post, rather than duplicate some excellent summaries of last night's budget which have already been well covered elsewhere.
In short, what I was expecting to see was tax levies to fund some hefty infrastructure spending, and that didn't prove to be wildly wide of the mark.
The budget now forecasts the deficit to be shifted back to surplus over the coming few years ahead, ongoing steady economic growth and a moderate rise in unemployment.
One of the big reasons for the expected infrastructure spend is explained by this chart of actual versus expected mining capital expenditure from the ABS:
<div><img src="https://www.abs.gov.au/ausstats/abs@.nsf/be4aa82cd8cf7f07ca2570d60018da27/1ecf42b5ec12e8bcca2573460014f2df/Body/1.3B92!OpenElement&amp;FieldElemFormat=gif" alt="Chart: Financial year actual and expected expenditure- Mining Capital Expenditure" width="400" height="155"></div>
<div>Source: ABS</div>
Note how mining investment is expected to fall by a punchy 25% this year from around $100 billion to $75 billion, a fall of about $25 billion in just one financial year.
That's a fairly hefty hole in economic activity which needs to be plugged.
And Hockey's budget has delivered, creating an $11.6 billion infrastructure growth package  to boost total infrastructure investment by Commonwealth, state and local governments as well as the private sector, to over $125 billion by 2019-20.
This is expected to see trucks moving in a matter of months.
<a href="https://www.macrobusiness.com.au/wp-content/uploads/2014/05/M140513AA.pdf" target="_blank">Commsec</a>:
"The Infrastructure Growth Package provides an additional $11.6 billion for infrastructure. This will bring the government’s investment to $50 billion by 2019-20 which, combined with State and private sector funding, will catalyse over $125 billion of additional infrastructure investment nationwide. 
"The government has committed an additional $3.7 billion to upgrade national highways and other key roads and is delivering vital infrastructure through the Western Sydney. 
"The Badgerys Creek airport development is expected to create 35,000 jobs by 2035, increasing to 60,000 jobs over time. By 2060, the new airport has the potential to drive an increase in Australia’s economic output to almost $24 billion."
There's some big stuff in here for roads, rail and ports, so transport and construction stocks are some to look at in the month ahead (particularly for me, since I am entering the infamous Sydney Morning Herald shares race later today).
Western Sydney will be a huge beneficiary of the budget with the Connex project, a second airport and a huge expenditure on road upgrades.
As to how it will all be paid for, there are plenty of cutbacks to welfare which will be unpopular, to foreign aid which will be ignored and to medical benefits (possible a negative for some healthcare stocks, particularly PRY which benefits from government revenue streams).
Most notably tax payers who earn $180,000 will now pay an extra two cents in the dollar on their top marginal rate bringing the top rate to an eye-watering 48.5%.
I doubt this will do much to discourage top-bracket taxpayers from looking towards negatively gearing investment property as a means of reducing their tax bill, the negative gearing rules of course once again remaining utterly unmentioned in the budget.
You can visit <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) or Pete's <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blog</a>.
His new book '<a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>' is out now.
Photo courtesy of Flickr/<a href="https://creativecommons.org/licenses/by/2.0/" target="_blank">Creative Commons</a>.
An original version of this article stated the mining investment figures in millions instead of billions.
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Infrastructure budget delivers for Western Sydney

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Cameron Kusher of RP Data drew the ire of a few pundits recently as he highlighted a number of points as to <a href="/expert-insights/buying/slight-fall-in-number-of-negatively-geared-property-investors">why negative gearing won't be abolished</a>.
There are four main points which advocates put forward in favour of abolishing negative gearing:
<ol>
<li>
Rents wouldn't rise Nobody knows for certain whether this is actually true. But let's face it, the inevitable hand of self-interest means that if negative gearing rules were quarantined landlords would probably take the opportunity to at least try it on by jacking up their rental charges (cf. the colossal 57% increase in rents in Sydney last time the rules were tweaked, 1985-1987). Let's suppose for the sake of argument that rents stayed flat.... 
</li>
<li>
Government would save billions This was one of Kusher's main points:  "The government only owns and rents out 4.1% of the housing stock. Conversely dwelling approvals data shows that a very small proportion of new housing approvals are granted to the public sector." Common sense dictates that if the government scraps the prevailing negative gearing legislation it would have to step up its public housing expenditure. "If negative gearing was to be removed the government would likely have to play more of a role in constructing new homes and managing a portfolio of properties. On balance, they probably play see that foregoing almost $8 billion in taxation revenue is more cost effective than developing and managing a greater proportion of housing stock." <img src="https://3.bp.blogspot.com/-HfOBu6rlp88/U24XeBqSg0I/AAAAAAAANGY/mV9lzdx4Ksg/s1600/camkusher.jpg"> So much for all the billions in tax savings: the biggest furphy of the lot. Indeed, according to contemporary commentary the principal reason that negative gearing rules were reintroduced in the first place in 1987 was the spiralling waiting list for public housing, particularly in New South Wales where numbers increased alarmingly by nearly 40% to 140,000. Again, let's suppose that the government recovered in full the foregone funds from its negative gearing subsidies and a grandfathering or quarantining of the prevailing rules proved to be fiscally neutral. 
</li>
<li>
Renters would buy up the properties sold Kusher again: <img src="https://3.bp.blogspot.com/-_nBJi-3W908/U24KdlkeXuI/AAAAAAAANGI/Wmf9ohsWcg8/s1600/CKusss.jpg"> This is obviously true. If property investors sell their properties, are renters who have not been able to buy previously really going to be in a position to suddenly step in and buy them? That seems unlikely, unless renters already had pre-existing deposits and closing costs ready to roll. But again, let's suppose that investors sold their properties and renters somehow did find the deposits and the appropriate financing to buy up the surplus stock with no associated decline in lending standards (also unlikely).  This is where the housing affordability arguments become circular and contradictory... Higher home ownership rates? On the one hand, people say "we should be like Germany with its stable housing market where most people rent" and on the other they argue "renters should be able to buy into the property market". One or the other argument might make sense, but I can't see how they both can. Certain economists believe that artificially pumping up home ownership rates beyond their natural levels promotes boom/bust cycles.  Look at countries where home ownership rates are artificially high, such as Singapore, where dwelling prices are up by 60% since 2009. Hardly a model for affordable housing, and rents are preposterously high in the city too (at least, they have certainly seemed to me to be when I've visited friends in the city - I'm happy to stand corrected on this point if it's incorrect on a city-wide basis). Britain too experimented with making home ownership a part of the very fabric of society through Maggie Thatcher's selling off of council houses, pushing UK home ownership rates to exceptionally high levels of around 70% by the end of the century. This all seemed to be a tremendous success when house prices were booming in the 1980s (and again in the 1990s and first half of the 2000s) with the stakeholder economy benefiting from an unprecedented boom in credit and wildly exaggerated wealth effect. However, it's commonly acknowledged that the UK housing market has also been one of the most manic-depressive boom/bust markets in the world ever since ownership rates increased. Meanwhile, ownership rates until recently appeared to be in the process of heading all the way back down to from whence they came...until, that is, the government stepped in with its Help to Buy and Funding for Lending wheezes - the cycle repeats... 
</li>
<li>Negative gearing doesn't increase supply</li>
</ol>
This point is logical enough, since negatively geared properties are mostly comprised of existing housing stock.
<div>Let's disregard all of the above factors which are precluding the negative gearing rules from being quarantined.</div>
Suppose for a moment that:
(a) the negative gearing rules are quarantined or grandfathered out;
(b) a large number of property investors sell their properties;
(c) renters buy up the surplus stock increasing home ownership rates to 70%+;
(d) rents don't rise;
(e) a decline in lending standards doesn't lead to a mass of defaults when interest rates rise;
(f) no boom/bust market ensues; and
(g) dwelling prices fall by, say, 20% (which presumably is the main underlying point of this entire debate after all).
Ongoing supply? 
As I <a href="https://petewargent.blogspot.com.au/search?q=construction+costs" target="_blank">looked at here</a>, our major residential developers in Australia are not generating strong margins. Far from it in fact.
So if dwelling prices are to fall, who is going to build the new housing stock? 
If you think developers are going to do anything other than maximise shareholder returns, as indeed they are compelled to do, then you likely also believe in tooth fairies.
The Reserve Bank itself highlighted the reason why margins on multistorey apartment block residential developments are so slender: construction costs on infill sites are too high for it to be otherwise.
<img src="https://2.bp.blogspot.com/-g-Oo-rk32eU/UyzA8AHYD4I/AAAAAAAAL_o/UftvW2FtvtA/s1600/CC.gif">
This chart shows why a long drawn out fall in apartment prices in Sydney was never feasible since it would have quickly taken the price per dwelling below its equivalent replacement cost.
Land developer Stockland's (SGP) underlying profit in FY13 was hampered by weak housing conditions, with that financial period encompassing the period from 1 July 2012 when sentiment was  still in the process of picking up.  Stockland's (SGP) residentiual division recorded an EBIT margin of 19.9% in FY2013.
<img src="https://1.bp.blogspot.com/-HLTcTuf2p2A/Uyz4daslyXI/AAAAAAAAMAM/OZEeDiagq_k/s1600/stockland+resi.jpg"> The Mirvac Group (MGR) managed to improve group gross margins on its residential developments to just 22% from a desperately poor 18% in the prior year.
 <img src="https://4.bp.blogspot.com/-jAnKNC6uhSY/Uyz3uhTUatI/AAAAAAAAMAA/bqbqdKWpz8w/s400/Mirvac+margins.jpg">
<div>Lend Lease might yet prove to be the biggest basket case of the lot, the group reportedly struggling to turn a decent worthwhile ROI on some of its resi developments even at today's higher dwelling prices.</div>
<div> </div>
<div>Lend Lease's (LLC) entire Australian geographical segment is recording EBITDA of only $500-$600 million and NPAT of around only $400-$500 million from colossal annual revenue streams of  $7.5 billion plus.</div>
<div> </div>
<div> <img src="https://2.bp.blogspot.com/-DE-MRz3KKWI/Uyz5EFxBebI/AAAAAAAAMAo/hRJtqfrVRQs/s400/LL.jpg">
</div>
<div> </div>
<div>I'm sure that $7.734 billion top line figure is keeping a few execs living in the manner to which they have become accustomed, but those kind of net margins are hardly likely to see shareholders sending the champagne corks flying.</div>
Even back up at a PE of above 14, the share price is still at only at around half of its former glory.
<img src="https://chartbigchart.gtm.idmanagedsolutions.com/custom/etrade-australia/chart.asp?symb=LLC&amp;time=10yr&amp;freq=1dy&amp;type=1&amp;compidx=aaaa%3a0&amp;uf=0&amp;ma=2&amp;maval=25&amp;lf=268435456&amp;style=2061&amp;size=1&amp;comp=">
Lend Lease's FY14 H1 results for its Australian geographical segment have disappointed as development and construction profits have once again slipped back.
<div>
<img src="https://1.bp.blogspot.com/-TkgUgqpwV68/Uyz6QeInzXI/AAAAAAAAMA0/h1MHVaibJqE/s1600/LLAustralia.jpg"> </div>
<div> </div>
<div>Implications</div>
If you're not familiar with accounting convention, what this means simply is that if dwelling prices fall, developers ain't barely going to be making a profit even before financing charges, and it will almost immediately be a case of 'see you later new dwelling supply'.
Say, for the sake of argument dwelling prices fall by 20%.
You can be more or less certain that absent new subsidies, major developers would instantly put any new planned projects on ice until upwards price pressure returned. In case it's still not clear why, this table explains the basic maths:
<table border="1" cellspacing="0" cellpadding="0"><tbody>
<tr>
<td valign="top" width="205">
<div> </div>
</td>
<td valign="top" width="48">
<div align="center">FY13 </div>
</td>
<td valign="top" width="47">
<div align="center">FY??</div>
</td>
</tr>
<tr>
<td valign="top" width="205">
<div>Turnover</div>
</td>
<td valign="top" width="48">
<div align="center">100</div>
</td>
<td valign="top" width="47">
<div align="center">80</div>
</td>
</tr>
<tr>
<td valign="top" width="205">
<div>COS</div>
</td>
<td valign="top" width="48">
<div align="center">(80)</div>
</td>
<td valign="top" width="47">
<div align="center">(80)</div>
</td>
</tr>
<tr>
<td valign="top" width="205">
<div>EBIT margin</div>
</td>
<td valign="top" width="48">
<div align="center">20</div>
</td>
<td valign="top" width="47">
<div align="center">-</div>
</td>
</tr>
</tbody></table>
In our cities with booming population growth this would be disastrous for renters. 
<div>Even in the event of interest rates remaining at their lowest levels in a generation, developers would soon have zero incentive to build since if dwelling prices are sliding, since they'd only be breaking even before financing charges were booked. </div>
There would be no corp tax to pay since there wouldn't even be a net profit upon which to raise tax, so the government would be getting zinged on its own revenues there too...and zinged again would they be on stamp duty foregone as the supply of new dwellings evaporated.
So much for all the billions in tax savings. As for the capital gains tax take, which forms a part of the individual income tax assessment: when prices are falling...oops there goes another revenue stream
So <a href="https://www.stockland.com.au/assets/crs2013/financial-report-2013.pdf" target="_blank">when Stockland discussed in 2013</a> "the prolonged downturn in the Australian residential land market" as adversely impacting results, they aren't being facetious.
They are simply noting what is plainly the case for developers in their resi divisions - there ain't barely no money in it, which is why it has taken a significant upturn in Sydney's prices to see dwelling approvals at last begin to flow through, after a woeful lull across the past decade.
Conclusion
If dwelling prices fall over any meaningful period of time in a city such as Sydney, we would quickly see supply dry up and with a population growing at 80,000 plus per annum we'll be back into chronic undersupply territory in just a few short years.
This is why negative gearing rules probably won't be quarantined or grandfathered out.
And this also why, if affordable housing is considered to be a genuine target, the government would probably need to look at tackling supply through subsidies as I posted about <a href="/expert-insights/buying/how-to-fix-australias-affordable-housing-problem">here</a>, while at the same time easing demand through considering other property tax reform and not the NG rules.
As I've noted before though, I'm sceptical as to whether there is any real desire to make housing more affordable from those in power.
You can visit <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) or Pete's <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blog</a>.
His new book '<a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>' is out now.
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If negative gearing is quarantined cities like Sydney will be facing chronic undersupply

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An interesting release <a href="https://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/3401.0Main+Features1Mar%202014?OpenDocument" target="_blank">from the Australian Bureau of Statistics yesterday</a> which has been reported as Australia's immigration having peaked.
Is it true?
Perhaps yes, but it's also probably best not to get suckered into confirmation bias and to put the numbers into a bit of a wider context.
Mainly as a point of interest, short term visitors to Australia dipped a little in March to 561,000 having hitting a record high at end of last year.
<div class="separator"><img src="https://2.bp.blogspot.com/-6TRKjyufCdY/U2sJFjaklyI/AAAAAAAANCM/eOqYaVdeRdc/s1600/STA.jpg"></div>
<div>All very interesting, but what we're far more interested in is long-term arrivals and net long-term migration into Australia.</div>
On a rolling 12 monthly basis, long term arrivals indeed dipped to 'only' 766,270.
<div>This remains simply miles above Australia's long term average figure. </div>
<div> </div>
<div>The "populate or perish" notion has been around since World War II but interestingly it was only in the mid 1990s that we really started to see the massive annualised increases in long-term arrivals. </div>
<div class="separator"><img src="https://4.bp.blogspot.com/-Xn8C1mE0iK8/U2sJo_UMtdI/AAAAAAAANCU/RuOPyiiF7oY/s1600/LTA1.jpg"></div>
Of course, some choose to depart these shores too, and the rolling 12 monthly long-term departures equivalent figure for March was 380,910.
Netting the two off against each other over the long-term and dropping the figures into a chart reveals the following trend:
<div class="separator"><img src="https://4.bp.blogspot.com/-fi_Do9-SAiY/U2sKoADxedI/AAAAAAAANCg/KXjUb-VePss/s1600/LTM.jpg"></div>
That is, net long term migration into Australia of 385,360 on a rolling annual basis. That's huge. 
It's true that figure is down a little on the peaks we saw in January 2013 (411,000) and September 2009 (409,000), but it's still a massive net long-term migration figure into Australia.
This is particularly so when it's considered that the immigration is focused so heavily on only four capital cities. 
Remember too that it's estimated that in Australia there is one birth every 1 minute and 42 seconds as compared to one death only every 3 minutes and 36 seconds.
For that reason when the full demographic statistics are released for 2013 next month it wouldn't be at all surprising to see that Australia's population increase across the year by 400,000+ people to a total of around 23.3 million.
As of 8 May 2014, the <a href="https://www.abs.gov.au/ausstats/abs%40.nsf/94713ad445ff1425ca25682000192af2/1647509ef7e2" target="_blank">ABS population clock</a> estimates that the Aussie population is 23,481,800.
For what it's worth, I'd be unsurprised to see the net long-term migration into Australia fall a little back towards the 300,000 level over the next couple of years. 
It's still impossible to describe that as anything other than very strong growth, though.
You can visit <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) or Pete's <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blog</a>.
His new book '<a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>' is out now.
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Has immigration into Australia peaked?

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Dwelling price-to-income ratio charts in Australia and in certain other developed countries have shown a dramatic run-up which have benefited existing owners tremendously, particularly over the past couple of decades.
<div class="separator"><a href="https://3.bp.blogspot.com/-scVICW5CkIU/U2CL5ASxdmI/AAAAAAAAM2o/HQWNaynN8jg/s1600/Dereg.jpg"><img src="https://3.bp.blogspot.com/-scVICW5CkIU/U2CL5ASxdmI/AAAAAAAAM2o/HQWNaynN8jg/s1600/Dereg.jpg" width="400" height="316"></a></div>
Most of the causes are obvious enough and have been well documented: there are now many more dual income households than there were previously, there has been and remains an ongoing colossal boom in Australia's population, there has been a structural shift to much lower inflation and interest rates, and so on.
Ultimately, though, all this new debt had to come from somewhere, so how on earth did that happen? The quick and dirty answer lies in the deregulation of the Aussie financial system which took place in the 1980s, a process often alluded to, but less often explained. A quick look at eight key points... 
Regulation
During the 1980s Australian banking went relatively quickly from being one of the most stringently controlled systems in the world to one of the least controlled, as part of a wider movement which was to some extent reflected in other countries.
Crucially, Australia had previously employed very strict controls on its bank borrowing and lending practices, with few available substitutes to the traditional banks.
Normally such sweeping  industry changes as occurred in that decade would be a pain-inducing and drawn-out exercise, but deregulation was especially swift and effective Down Under because it met with so little resistance from the banks themselves.
This was because the banks saw that although they may have previously benefited from the controls as they carved up housing market loans, they would now stand to benefit more from deregulation since it would allow them to compete more readily with the non-financial institutions.
With the rise of technology and electronic banking, the banks also knew that they had to become more flexible to compete with the non-banks.
The challenges with the pre-existing controls
One of the problems facing the banks was that with there being a ceiling imposed on interest rates they could lend at and on term deposits, in times of high inflation it was exceptionally difficult for them to tempt customers to deposit funds with them (and further, banks offered zero percent interest on current accounts, largely as part of an informal or unspoken cartel agreement between themselves).
With a below market ceiling on lending rates imposed upon the banks, there was in any case little willingness or indeed capability to offer more appealing interest rates on term deposits.
Meanwhile, non-bank financial intermediaries such as building societies began to offer more tempting and competitive deposit rates, which in turn facilitated the ability to lend more. With deregulation, there came too an increase in the velocity of the circulation of funds, which in turn led to an increased focus on the control of monetary aggregates by the central bank.
Government controls over housing finance changed
In the 1980s there was an imposed ceiling on lending rates for housing but this was changed in 1986. From April 1986, while a ceiling remained in place for pre-existing loans (the interest rate cap was set at 13.5% at that time, for the record), new loans written had no such ceiling. 
Since new loans were written at about the same level for some time thereafter, there was initially little effect, but eventually the removal of controls did have an impact.
The traditional distinction between savings banks and trading banks was removed in 1989 and prior to that, in the mid 1980s, 15 foreign banks were given licences to operate in the Australian market. The major change in market was that a number of building societies and credit unions converted to banks.
Becoming a bank allowed these institutions a much greater capacity to expand their capital base, and from the early 1990s forth, a number of factors contributed to the banking system shifting its focus from lending to business towards housing.
Summarily, a lot of bank loans to businesses became impaired during the 1990s recession, so lending for housing got the green light. With <a href="https://www.rba.gov.au/speeches/2010/sp-ag-300310" target="_blank">reduced assets ratios</a> also now required by the banks, it was time for the banks to get lending on homes...and how.
<div><img src="https://www.rba.gov.au/speeches/2010/images/sp-ag-300310-graph1-small.gif" alt="Graph 1: AFI Housing Credit"></div>
Between 1991 and 1995 the share of banks' business loans fell from 63% to 48%, but the share of loans for housing soared from 30% to 46%. Lower inflation, falling interest rates and the strong performance of housing loans saw the percentage of housing loans roar up to nearly 60% by 2010.
Why bother control housing finance at all?
Why would a government even have tried to control housing finance rates in the first place? It's a very valid question!
There is no strong economic argument in favour of such a strategy, but the basic idea I suppose to was to incentivise folk to divert more of there resources towards housing than they may otherwise have been inclined to do.
Personally, I generally prefer free markets all things being equal, but I guess at least part of the underlying notion was that if people invested more heavily in housing, them in turn the housing stock would be of better quality. 
As someone born in a city with some of the worst housing developments imaginable, I can see there is some logic buried deep in there somewhere - slums and infested housing estates can create far deeper social problems than just unsightly dwellings, but what about...
Market distortions?
However, the flaws in the logic of the borrowing rate cap were equally apparent. The government was encouraging people to allocate increasingly disproportionate amounts of their resources towards housing, pushing up prices, squeezing out lower income earners, and so on.
A far better idea, one would have thought, would have been a form of subsidies for the construction of dwellings and for those who rented them - not only a clear benefit for those able to purchase dwellings through borrowing (even cash buyers were excluded from this benefit).
A ceiling or cap on housing finance interest rates generally benefits higher salary earners with clean credit histories and the ability to save deposits, with no such benefit to lower income earners who could only afford to rent. And let's face it, if a bank is forced to lend at a capped interest rate, it's going to do so preferentially to persons with a higher salary and a bigger deposit.
Combining a ceiling on housing loans with a ceiling on deposit rates (which themselves were effectively anyway capped by the below market rates accrued from housing loans) tends to hit up lower income earners with a double whammy: paying them crappy rates of interest on their savings (on average most lower income earners hold a higher percentage of their net worth in savings) and squeezing them out of the housing market.
This leads on to a whole other debate about the most appropriate form of housing subsidies for lower income groups...but that's one for another day.
Impacts of the 1986 deregulation
So in 1986 the control over interest rates was removed for new loans, but the cap remained in place for existing loans. The impact of this was a tad confusing!
Older borrowers now benefited from lower rates since they had arranged loans before 1986, although on average the older they were the lower the outstanding mortgage balance, so perhaps you could argue the outcomes of that came out in the wash a little.
And the deregulation also distorted the market in another way, making the labour market more immobile. There was very little incentive for existing owners to move to a location which might be more convenient for employment, since they would lose their entitlement to an interest rate cap upon inception of any new housing loan.
Other encouragement for housing finance
Therefore, as banks became able to offer more competitive rates on deposits, in turn this allowed them to increase their loan books.
It was expected that there would be another change from deregulation: stability. Why? Because before deregulation, when interest rates were rising banks became less competitive on deposit rates thus throttling their lending capability, yet when rates were falling exactly the opposite was true.
But what actually happened was that this great uncertainty for banks was removed by deregulation, giving them far greater control over their level of competitiveness on deposit rates in order to attract business, and thus this made them equivalently far readier to provide housing finance. 
Indeed, you could argue that it now became a race to allocate as much of the new lending as possible to the housing markets.
Product innovation
Another enduring impact of deregulation was that new products sprang up all over the shop such as variable repayment loans or so-called "low-start" mortgages. Banks became more inclined to focus on the ability of borrowers to repay monthly payments rather than capping loans at a low multiple.
There was  product innovation aplenty in the Aussie mortgage market as lenders sought to cater for a wider range of potential borrowers and found new ways to assess their borrowing capacity - an easing in lending standards played its part of course, increasing loan risk, but the over-arching effect was that households had wider access to credit.
With no ceiling on lending rates, banks were now able to charge higher spreads and require bigger deposits on riskier loans, so in due course became more inclined to take them on.
And then of course lenders introduced what the Americans called HELOCS - home-equity loans,as well as redraw facilities and reverse mortgages, all of which allowed households to borrow against the equity they had built up in their place of residence. Lenders also introduced interest-only loans and shared-equity loans which made it easier for households, particularly first home buyers to purchase their home. When interest rates fell, the net result was a borrowing bonanza, and not only in Australia.
<div class="separator"><a href="https://1.bp.blogspot.com/-KdhavBa_ogA/U2DO6dvxmkI/AAAAAAAAM28/qgM4akIxrpw/s1600/OCR.jpg"><img src="https://1.bp.blogspot.com/-KdhavBa_ogA/U2DO6dvxmkI/AAAAAAAAM28/qgM4akIxrpw/s1600/OCR.jpg"></a></div>
Interest rates are now more important
Pundits like to argue that in theory interest rates have little impact on housing markets, but due to the deregulation of the Aussie financial system and higher household debt today, this is incorrect, as partly evidenced by the impact of rate cuts since 2010.
What is explained above should clarify why shifts in interest rates were formerly somewhat limited in their ability to impact housing markets - since both lending and deposit rates were strictly controlled - yet today the availability and expectations around the cost of capital can be a key driver of market sentiment.
Moreover, since household debt levels are so much more elevated today than they were in the 1970s, the scope for monetary policy and adjustments in interest rates to stimulate or clobber housing markets - and indeed other parts of the Aussie economy - is greater than it was before.
Conclusion
This is all worth remembering when the next round of chart packs rolls around dating back to the mid-1800s which apparently prove that dwelling price multiples will inevitably revert to a long-term median.
They prove nothing of the sort, since credit markets have evolved beyond all recognition in the last 30 years. Unless, that is, you are expecting banks willingly to slice their percentage of lending for housing in half back to less than a third their loan books.
It strikes me that if you want to see house prices back at the oft-quoted "three times incomes", you'd need some kind of trigger. One such trigger could be a severe recession with very high unemployment.
It's simply way too easy for employed, dual-income couples in the current environment to service mortgage repayments with rock bottom borrowing rates. If you really want to see a downward reversion in dwelling prices, then we need to see higher interest rates which would quickly remove the speculative heat from the market.
<div class="separator"><a href="https://1.bp.blogspot.com/-KdhavBa_ogA/U2DO6dvxmkI/AAAAAAAAM28/qgM4akIxrpw/s1600/OCR.jpg"><img src="https://1.bp.blogspot.com/-KdhavBa_ogA/U2DO6dvxmkI/AAAAAAAAM28/qgM4akIxrpw/s1600/OCR.jpg"></a></div>
You can visit <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) or Pete's <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blog</a>.
His new book '<a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>' is out now.
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Interest rates are more important than they have ever been

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Month end - again
Been blinkin' busy of late, and yesterday I was appalled to discover that according to my calendar it's already the start of a new month!
That being the case, with all the usual caveats about why spending too much time looking at monthly and quarterly dwelling price data might not be a smart idea, we can run a few calculations to show what RP Data will report in a few days time as their dwelling price movements for the month, quarter and year to date.
<div>
<a href="https://1.bp.blogspot.com/-yDRXr-mmbhI/U2A20wikabI/AAAAAAAAM1U/wtIDKYYc5eM/s1600/RPDq12014.jpg"><img src="https://1.bp.blogspot.com/-yDRXr-mmbhI/U2A20wikabI/AAAAAAAAM1U/wtIDKYYc5eM/s1600/RPDq12014.jpg"></a>
</div>
So, nationally dwelling prices were recorded as being +0.3% for the month, +2.6% for the quarter and an extremely strong +3.9% for the 2014 year to date, with the national figures being skewed by exceptionally strong growth in Sydney.
The strongest gains in 2014 have been in Sydney (+5.0%) as we <a href="/expert-insights/buying/crystal-ball-gazing-property-market-predictions-for-2014">confidently predicted</a> in our 2014 forecasts, with Melbourne just a tick behind (+4.9%).
Forecasting
I also explained in the same article why I'm not a big believer in property price forecasts...particularly those which claim to forecast to one decimal place!
Anyone who tells you that they have a model to predict prices to that level of accuracy is either (a) lying or (b) delusional.
It doesn't matter what econometric model you choose to build, eventually it will blow up due to an unforeseen X factor.
All you can really do is start with borrowing rates, household debt levels, market sentiment and fundamentals, economic and employment forecasts etc. and then build a base case from there.
But think of all the unpredictable events we've seen in recent years - the US sequester and fiscal cliff, the US debt ceiling crisis, Cyprus debt crisis, changes in monetary and fiscal policy...you just can't predict and factor in all that stuff.
So you either make a forecasts with a huge range (e.g. 12% to 30% growth in 2014) or you make a weighted average forecast, accept you'll probably be wrong and risk ending up looking like a total doofus (e.g. our own <a href="/expert-insights/buying/crystal-ball-gazing-property-market-predictions-for-2014">6% to 9%</a> in 2014 for Sydney).
As to whether or not Sydney overshoots the top of our expectations? Well, we're only a third of the way through the year, and that remains to be seen.
This all rather contrary to my investment philosophy in any case, which is that property should be seen as a 20-30 year investment decision, and ideally much longer still.
If you're banking on market price movements within a few years, then you're probably in the wrong game.
Other cities
You'll note from the <a href="/expert-insights/buying/crystal-ball-gazing-property-market-predictions-for-2014">same article</a> that we were generally less optimistic than almost everyone else about property prices in 2014, since we felt that houeshold debt levels were generally too high and annualised wages growth tracking too low to facilitate anything like the levels of nationwide dwelling price growth we've seen in cycles past.
Anyways, back to RP Data's figures.
Melbourne was next up for the year to date (+4.9%), though there's been plenty of chatter around easing auction clearance rates, and RP Data recorded a small fall for the month of April itself (-0.5%).
Some signs of life in Adelaide at last too! - although year-on-year the South Australian capital has still been the worst performing major capital city by a wide margin.
Still, prices have under-performed in Adelaide for so many years that some level of catch-up at last now appears due.
Other providers 
<div>Incidentally, I don't have any allegiance to particular data providers.</div>
<div> </div>
<div>And since I have no barrow to push on that front and have even less interest in the bickering between them (just look at all of them is my reckoning, and if necessary, give any outlying results the flick) below is what Australian Property Monitors recorded for the first quarter for houses and units.</div>
 
<a href="https://1.bp.blogspot.com/-_oT6dawPwtU/U2A4GLzG3aI/AAAAAAAAM1g/gHePLGV-THQ/s1600/APM+Q1.jpg"><img src="https://1.bp.blogspot.com/-_oT6dawPwtU/U2A4GLzG3aI/AAAAAAAAM1g/gHePLGV-THQ/s1600/APM+Q1.jpg"></a>
Sydney still clearly leading the recovery, both in terms of houses and apartments. Note, however, that these figures have been impacted by revisions to the December quarter figures. Without the revisions, Melbourne would have recorded extremely strong house price growth of more than 6% in the first quarter.
SQM Forecasts
<div>Our forecast for Sydney was 6% to 9% growth in 2014, taking the broad view that price growth could eventually be derailed as the year draws to a close and yields begin to sag, just as they did in 2003.</div>
<div> </div>
<div>At this stage that looks like that forecast be a touch under-cooked since prices are growing strongly, the market is tight and as yet there is no sign of interest rate hikes on the horizon to dampen sentiment.</div>
<a href="https://www.sqmresearch.com.au/NationalOutlookReport2014MediaRelease.pdf" target="_blank" style="line-height: 1.3em;">SQM Research forecast</a> very strong growth of 15-20% in Sydney in 2014. 
Natch these forecasts will be benchmarked against a different price series from the Australian Bureau of Statistics (ABS) at the end of the year, but for a bit of light interest as much as anything else, I've been tracking their annual forecasts against RP Data's Daily Home Value Index. A bit of mental gymnastics tells me that since a third of the year has gone and Sydney's dwelling price index has been humming along at 5% YTD price growth, then prices should be tracking right at the bottom end of SQM's forecast range:
<div>
<div class="separator"><a href="https://4.bp.blogspot.com/-VCZ8faEN_uE/U2A6l_2ELbI/AAAAAAAAM14/gDX2r-x_Ym4/s1600/SQM2014SYD.jpg"><img src="https://4.bp.blogspot.com/-VCZ8faEN_uE/U2A6l_2ELbI/AAAAAAAAM14/gDX2r-x_Ym4/s1600/SQM2014SYD.jpg"></a></div>
And indeed, so they are.
</div>
<div>
And below are SQM's national forecasts benchmarked against RP Data's index for the first four months of the year.
<a href="https://2.bp.blogspot.com/-5v6TwFilem0/U2A65csTnZI/AAAAAAAAM2A/nbrhiJzcs-A/s1600/SQM2014AUS.jpg"><img src="https://2.bp.blogspot.com/-5v6TwFilem0/U2A65csTnZI/AAAAAAAAM2A/nbrhiJzcs-A/s1600/SQM2014AUS.jpg"></a>
Only a third of the year gone, but at this stage I'd take a bet that their national dwelling price forecast could prove to be bang on the money when benchmarked against the ABS series.
You can visit <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) or Pete's <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blog</a>.
His new book '<a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>' is out now.
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Dwelling prices rise further in April

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Demand
Some time ago I went for dinner for a friend's birthday at a restaurant in Surry Hills and when the conversation got on to real estate, as it does in Sydney all too often, the lass sitting next to me who had only recently moved to Sydney (living in the inner west) said: 
"You know, I can't see property prices falling around here - there's just so much demand for property and not enough of it".
I had to laugh inwardly to myself, as I wondered how someone who'd been looking for an apartment since moving to the harbour city for all of about three weeks had been able to grasp what plenty of economists - and for that matter property market commentators - never venture to get a handle on. 
That is, how tight Sydney's property market is in those popular suburbs where the supply is all but fixed. As it transpired, she was correct, with prices in the inner west rising relentlessly since that time and vacancy rates remaining wretchedly tight.
<blockquote>
In the right Sydney suburbs where supply is fixed, vacancy rates are as close to zero as we're ever likely to see.
</blockquote>
It just goes to show how a little bit of legwork can give you a genuine feel for what's happening in suburbs at a micro level, to add to what is being reported on a macro level.
Crash risks 
An oversupply of property is <a href="https://petewargent.blogspot.com.au/2014/04/crash-risks" target="_blank">one of the factors</a> which heightens the risk of a property crash, and in 2003 it appeared that Sydney might be a particularly risky proposition.
Not only had dwelling prices boomed, the rate of population growth was falling sharply (in part due to interstate migration) and vacancy rates jumped to 4.3% in the harbour city and some 5.3% in the outer ring suburbs according to the REIA.
As prices cooled, construction of dwellings dropped sharply as one would expect in a typical market cycle.
In fact, construction levels fell to such woeful levels by 2008/9 that the crash predictions being peddled at that time didn't appear to make much sense unless, of course, you believed that unemployment would increase very sharply, which in the event, it didn't - with some skill and a bit of luck.
Of course, demand for investment properties will ebb and flow with sentiment and the interest rate cycle, but ultimately in a city with a rapidly growing population if construction doesn't keep pace with requirements (which will likely happen where prices are easing) eventually this will come home to roost in the guise of a tightening market until upwards pressure on prices eventually returns.
<div>
<img src="https://2.bp.blogspot.com/-RmQ0LdgPD0o/U05gmU7bKOI/AAAAAAAAMl8/vFSYWuDiy7I/s400/ckusherrrr.jpg"> 
</div>
Source: RP Data
Those who work in the industry tell me that large developers are still genuinely struggling to break even on large scale unit developments even at today's higher prices - and this is indeed being borne out in the relatively slender net profit margins being reported by residential developers on the securities exchange.
Based upon that information, it strikes me that short of grants, concessions or other incentives being made available to developers, a drawn out fall in prices would see dwelling approvals and subsequently construction dry up once again.
This is why it is so important to understand replacement cost when reading the property market cycle.
The Reserve Bank itself gave a pretty handy rundown <a href="https://www.rba.gov.au/speeches/2013/sp-so-230413" target="_blank">here</a>.
<div><img src="https://www.rba.gov.au/speeches/2013/images/sp-so-230413-graph8.gif" width="400" height="386"></div>
The above figures for infill sites relate to multistorey apartment blocks and give a useful indicator as to replacement cost of property in Sydney.
As a very general rule of thumb, when apartment prices fall below replacement cost...au revoir construction.
On the flip side, median house prices in Sydney long ago became decoupled from any kind of sensible price/income ratio, and as such are marching to their own drum and may be more prone to a correction.
Crisis looms? 
And so, here we are today.
The REINSW reported this afternoon that March 2014 vacancy rates in Sydney had fallen to near crisis levels falling by 0.3% to only 1.4%.
<div class="separator"><a href="https://2.bp.blogspot.com/-aXekV3_smeQ/U18L1yj0aUI/AAAAAAAAM0w/qe7FZlwm4sU/s1600/REINSW.jpg"><img src="https://2.bp.blogspot.com/-aXekV3_smeQ/U18L1yj0aUI/AAAAAAAAM0w/qe7FZlwm4sU/s1600/REINSW.jpg"></a></div>
Reported the REINSW: “Sydney is going backwards in regard to properties available for rent. Something must be done to ensure that there is a greater level of choice for those seeking to secure a rental property in Australia’s biggest city."
In Sydney's inner 10 kilometre ring, vacancy levels have fallen to desperately low levels of only 1.3%, which would come as no surprise whatsoever to anyone who ventures to actually look at what's happening in the market.
A vacancy rate of 1.3% across such a dense property market is described by the REINSW as"verging on crisis levels".
There are some question marks over whether the new stock which is sold offshore is being let or left empty, but to date, with humble apologies, I have no worthwhile data to present on that. 
That may be one to look into.
Elsewhere in the state, of course, demand is significantly lower since most of the speculation is taking place in Sydney's favourably located suburbs and vacancy rates are correspondingly considerably higher.
<div>
Construction picking up
As prices have picked up, so too is now construction in Sydney, and over the coming years vacancy rates will likely eventually rise again, but the rates of vacancy likely to be significantly higher in areas where large new developments are taking place (cf. what has reportedly played out in Melbourne in recent years).
Naturally anyone buying property in Sydney today needs to be extremely wary of buying in a suburb or sector of the market which will soon be inundated with a deluge of new apartments, and that's most particularly the case for persons buying expensive off-the-plan or high rise stock.
In the right suburbs where supply is fixed, it's pretty much as you were with vacancy rates as close to zero as we're ever likely to see.
You can visit <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) or Pete's <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blog</a>.
His new book '<a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>' is out now.
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Is the Sydney vacancy rate really verging on "crisis levels"?

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Confusao...
A lot of confusing property market commentary around at the moment...perhaps even more so than usual!
I read one article from a US pundit stating that "Australia's property prices are rising faster than ever". That makes for an interesting headline, but none of the real data shows anything remotely close to that. 
RP Data's figures instead demonstrate that, Sydney aside, Australian dwelling prices have essentially done absolutely diddly squat since their previous peak in 2010.
<div class="separator"><a href="https://3.bp.blogspot.com/-qFV8NloyU9I/U1ri3dno2RI/AAAAAAAAMww/EODYFg432kU/s1600/RPD2010.jpg"><img src="https://3.bp.blogspot.com/-qFV8NloyU9I/U1ri3dno2RI/AAAAAAAAMww/EODYFg432kU/s1600/RPD2010.jpg"></a></div>
Source: RP Data
Price changes in real terms
Of course, the above figures are in actual or nominal terms.
In real terms, when adjusted for incomes dwelling prices have gone backwards everywhere except for Sydney over the past four years or so.
Pundits often state that "asset prices can't outpace inflation", but since wages can outpace inflation, so too can dwelling prices. 
<blockquote>
Sydney has been one of the weakest performing property markets over the past decade, with house prices lagging incomes significantly since 2003.
</blockquote>
Given that incomes tend to increase over time, and given that the speed limit on asset valuations largely boil down to the availability of credit and borrowers' ability to service that credit, you might expect that over time dwelling prices could mirror household income growth, while acknowledging that interest rates and the make-up of the average households will also shift.
Sydney
It's now around a decade since Sydney's preceding property boom finished.
Here is what has happened to rents over the time since December 2003 as compared to average weekly earnings ordinary time earnings.
<div class="separator"><img src="https://3.bp.blogspot.com/-1bGJXjrEpn0/U1rkAErYQ-I/AAAAAAAAMw8/ZJTrxkoyy7Q/s1600/Rentsvhouseprices.jpg"></div>
The earnings figures I've used here are the average weekly ordinary time earnings (AWOTE) from the Reserve Bank which increased by a little over 50% over the past decade, which is, of course, well ahead of the rate of inflation, as noted in previous posts.
The recently released <a href="https://www.propertyobserver.com.au/https://www.abs.gov.au/ausstats/abs@.nsf/mf/6401.0?OpenDocument" target="_blank">inflation data from the </a><a href="https://www.propertyobserver.com.au/https://www.abs.gov.au/ausstats/abs@.nsf/mf/6401.0?OpenDocument" target="_blank">Australian Bureau of Statistic</a>s showed that Sydney rents mirrored earnings growth remarkably closely in the harbour city over the past decade, also increasing by around 54%.
As for house prices, contrary to the incendiary commentary from our well-meaning but misguided US friends, Sydney has been one of the weakest performing property markets over the past decade, with house prices lagging incomes significantly since 2003.
<div class="separator"><a href="https://4.bp.blogspot.com/-Z7SkqXRKdDY/U1rk8ixUhYI/AAAAAAAAMxQ/CnMZzX7rghE/s1600/wagesvhouseprices.jpg"><img src="https://4.bp.blogspot.com/-Z7SkqXRKdDY/U1rk8ixUhYI/AAAAAAAAMxQ/CnMZzX7rghE/s1600/wagesvhouseprices.jpg"></a></div>
The chart above explains why I've long suggested Sydney as being the best risk-adjusted bet for investors in Australia over the past five years, since I believe that over the medium term eventually prices would catch up again sending the market up to its next cyclical and irrational peak.
The chart also explains why SQM Research felt that Sydney could show 15-20% growth in 2014.
Recall also that the official cash rate in Australia in the boom years 2000 to 2003 hovered between 4.25% and 6.25%.
Today the cash rate is only 2.50% which is a nontrivial 275 basic points below where it was in December 2003, so it is not unfeasible that we even might yet see the red light overshoot the blue.
<div class="separator"><a href="https://2.bp.blogspot.com/-YWdThY4Q_sU/U1s74tMMJ3I/AAAAAAAAMxg/LnvvnbFOsIM/s1600/OCR2014.jpg"><img src="https://2.bp.blogspot.com/-YWdThY4Q_sU/U1s74tMMJ3I/AAAAAAAAMxg/LnvvnbFOsIM/s1600/OCR2014.jpg"></a></div>
Since average earnings might grow, say conservatively, by say another 2.50% or so in 2014, this would mean Sydney dwelling prices would have to record exceptionally strong growth in the ABS house price index of around 20% to again hit their previous eye-wateringly high levels.
Historically the most expensive city
Sydney has historically been Australia's most expensive city.
Louis Christopher of SQM Research said that "Sydney is like a high PE stock. It trades at high levels because people expect prices to continue performing in the future".
He's right.
Throw in record low interest rates, Sydney's massive population growth, the new impact of self-managed super funds (SMSFs) being able to invest directly in residential property and the fact that the great stock market crashes around the world have seen a global shift from equities to prime location real estate, and I'd take a bet that some time in the coming decade the red line will again have crept closer to the blue.
Global shift
We opined a long time ago that there has been a global shift towards storing wealth in real estate in prime locations, one which has been accelerated by the financial crisis, rock bottom interest rates and a trend towards capital flight from countries across eastern Europe and Asia.
Note that as foreign funds wind their way to these shores, rarely will they be invested in remote or rural areas. 
On the contrary funds will flow to the inner suburbs of Sydney and Melbourne.
It's no coincidence that I've been heavily invested in real estate in cities like Sydney and London, and nor is it any coincidence that we have offices in those two cities. 
Reports <a href="https://in.reuters.com/article/2014/04/25/us-realestate-china-internet-idINBREA3O12120140425" target="_blank">Reuters</a>:
"As property prices cool in Hong Kong and Singapore, which have long been magnets for Chinese investment, more money is flowing to real estate markets such as New York, London and Sydney. 
"Chinese have overtaken Russians for the first time as the biggest buyers of apartments in Manhattan, according to real estate brokers."
<a href="https://www.theaustralian.com.au/business/property/chinese-look-to-australia-for-their-overseas-home/story-fniz9vg9-1226893718109#mm-premium" target="_blank">Juwai also reported</a> this week that Chinese investors are unsurprisingly focusing on Sydney and are buying in suburbs such as Chatswood, Epping, Camperdown, Epping, Mosman and East Sydney.
You can visit <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) or Pete's <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blog</a>.
His new book '<a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>' is out now.
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What's going on in Sydney's property market?

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It appears that the high levels of growth experienced by Sydney last year, and into the December quarter, is slowing down, with new data showing an increasingly moderate March quarter result for this year.
In an APM report commissioned by Fairfax Media it was revealed that the only area of Sydney seeing a higher growth rate than that in the December quarter is the Lower North, now at 8% growth compared to 5.3%.
APM noted a dramatic slowdown of growth from the December quarter 2013, to the March quarter 2014 for every area in Sydney other than the lower north shore. This included a drop from 8.9% to 1.7% growth in the ‘City and East’, and from 9.2% to 4.3% in the Upper North Shore and North West.
This comes as no surprise to observer Pete Wargent, who previously tipped the lower north shore’s growth at the end of last year as the “ones to watch” in an <a href="https://allenwargent.com/wp-content/uploads/2013/12/AW-SYDNEY-BE-SU13.pdf" target="_blank">AllenWargent ‘Buyers Eye’ Sydney - Summer 2013 report</a>. In particular, he pointed to those with “key transport links to the city via Sydney ferries and the north shore train line”.
Just this morning, he took to Twitter to share his jubilation at clients purchasing in his suggested areas.
Previously, Wargent has also expressed his enjoyment, noting “The lower north shore is now absolutely flying!”
He also indicated his expectation for Milsons Point and Waverton to outperform in 2014.
“Next on our hit-list will include three suburbs in particular to the west and south-west, a little further out than the traditional capital growth hotspots, in order to catch the ripple effect of capital growth which is repeated in most property market cycles,” he said.
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jduke-EHk3XBmHkn

Sydney property price growth winding down, but lower north shore surging

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There has been a lot of lively debate about Australia's housing markets over the past decade, and I make no apologies for having situated myself towards the bullish end of the spectrum for most of that time.
I was never in agreement with the crash predictions before, during or immediately after the financial crisis, largely due to supply-related issues and falling interest rates.
Then there were claims that credit growth would not be able to see prices rebound, instead seeing prices melt away - that didn't fit with my (perhaps old school) view that property prices cycle and would be more likely to pick up again when interest rates fell.
But what about the residential construction boom? 
The pessimistic view over recent years has been that land prices would be too high and therefore could not allow a construction recovery to replace the fading mining construction.
My own view has been there certainly would be a construction recovery since low interest rates (and the associated ease of financing) and rising dwelling prices would make it so. Developers tend to need rising prices and reasonable financing costs to become incentivised to build.
As will be considered, the actual answer to the riddle, as is so often the case, appears likely to lie somewhere betwixt and between the two extremes.
Dwelling units commenced 
Recent data showed building activity which runs to December 2013 to be still relatively sedate.
However, building activity to December 2013 is retrospective data.
What we're really interested in is what is in the pipeline, which is shown by the dwelling units commenced figures.
<div class="separator"><a href="https://2.bp.blogspot.com/-xCwizOvXEaI/U074T49U63I/AAAAAAAAMmc/ICQyHwRgS8o/s1600/UNITS+COMM.jpg"><img src="https://2.bp.blogspot.com/-xCwizOvXEaI/U074T49U63I/AAAAAAAAMmc/ICQyHwRgS8o/s1600/UNITS+COMM.jpg"></a></div>
What the data showed is that Australia's residential construction is now firmly on track...but...it's almost exclusively being driven by a massive increase in the number of units and apartments being built.
As you can see, apartments and units now account for more than four in every 10 new dwellings being built, which represents a huge structural shift on what we have seen in decades gone by. This is particularly so, as you might expect, in cities such as Sydney, Melbourne and Darwin where desirable land made available for development has been scarce.
In seasonally adjusted terms, the number of dwelling commencements increased by 8.2% in the three months to December, with multi-unit commencements increasing by a whopping 21.3% in the quarter. 
The rolling annualised number of apartments and units commenced in the December quarter therefore hit an all-time record high, and I wouldn't mind a bet that a new record high is recorded in the March 2014 quarter too.
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Since the September 2009 quarter, the rolling number of apartments and units commenced has nearly doubled, showing a massive increase in starts of 96%.
The key takeaway is that Australia's apartment construction boom is underway.
A few observations 
Firstly, the level of dwelling construction is now clearly set to boom, following on from the building approvals data which has soared to decade highs.
This is great news for the Australian economy, and the construction is certainly needed.
When adjusted for the boom in population growth, dwelling unit commencement figures have actually been declining in relative terms over the last few decades adding to the upwards pressure on dwelling prices.
However, apartment construction in itself is unlikely to plug the hole left by the mining boom, since the construction value per dwelling is clearly lower for apartments and units than it is for detached houses. 
The Reserve Bank will certainly need other sectors of the economy such as commodity exports and retail sales to do their share of the lifting, and therefore the cash rate may not be adjusted upwards towards a normalised level for a little while yet.
Thus, while futures markets have priced out further interest rate cuts (and even Bill Evans and Westpac have given up the ghost on forecasting any more cuts), on balance market are not yet expecting to see a hike until some time in the middle of 2015.
Given that there is a lag in the effects and outcomes of monetary policy and that multi-unit dwellings can take two to three years to come online, I believe that this apartment construction boom is one which could run and run over the few years ahead.
For this reason, budding property investors need to be very savvy about what property types they buy and where.
State by state thoughts 
The final observation is that the apartment commencement data is very uneven by state.
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This little snippet of data provides one small clue as to why as an property investor, I favour Sydney over Melbourne.
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Very strong data was recorded for Queensland dwelling commencements (+15.8% quarter on quarter) and especially South Australia (+25.2% quarter on quarter) where dwelling commencements were pulled forward due to the Housing Construction Grant.
On the other hand dwelling commencements fell in Canberra/ACT (-13.3%), Tasmania (-12.6%), Western Australia (-1.3%) and Northern Territory (-26.6%).
Perhaps surprisingly, New South Wales showed a pick-up of only 2.8% in the quarter (although from a high-ish base) yet Victoria showed a monster pick-up in multi-unit commencements of 33%.
This little snippet of data provides one small clue as to why as an property investor, I favour Sydney over Melbourne.
Both cities have fantastic fundamental attributes for investors, including vast ongoing population growth and diverse employment markets.
But Sydney has one key difference, being the artificial supply constraints due to its geographical footing.
Since Greater Sydney is enclosed by the Blue Mountains, national parks and an ocean, the only realistic direction for us to build significantly more dwellings is upwards.
Unfortunately, gaining approval to build larger multi-unit dwellings in desirable locations is devilishly difficult, as objections are sure to be raised at every step in the process.
We have seen this week that Parramatta's new 90 storey Aspire tower will include 700 apartments and will be the tallest residential tower in the southern hemisphere - at a monstrous 336 metres this will even surpasss the truly awesome Q1 tower up on the Goldie - which provides another clue to how the Sydney of tomorrow will look.
That is, that there will be certain hubs and business districts with Manhattan-style tower block accommodation. The land value per dwelling in these developments is very low at just a few percent, the new apartments are very expensive, and personally I would steer well clear.
Instead, investors should look at the well-established boutique apartment blocks with materially higher land value content (50-60%+), where NIMBY-ism and planning restrictions will keep the new supply permanently restricted to an absolute minimum.
You can visit <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) or Pete's <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blog</a>.
His new book '<a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>' is out now.
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Pete Wargent

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