Property developer One Living, backed by former Macquarie banker turned investment manager Chris Green’s investment firm, has unveiled plans to bring more institutional capital into housing to help address the national supply crisis.

The New York-based investor has focused his firm, GreenPoint Partners, on addressing the supply shortage hitting middle market housing in Australia.

It is backing the new One Living business to develop more than 1000 units along the eastern seaboard. The new firm is starting with a development on Mona Vale Road, on the border of Mona Vale and Pymble, in Sydney’s Northern Beaches, with around 140 apartments planned. They are eyeing off more sites across the city.

With cost pressures rising in the industry, One Living’s model is to be a vertically integrated developer-builder, so it can respond directly to the housing gap by removing the cost inefficiencies embedded in traditional residential delivery.

“We are building a platform designed to operate at scale and starting in a market where there’s a clear need for quality, attainable housing,” One Living joint managing director Joseph Scuderi said.

“It’s that missing middle – it’s that attainable end of housing… that’s what most Australians invest into and what Australians can actually afford.”

<img alt="Mona Vale" data-entity-type="file" data-entity-uuid="798dfa93-4941-4db6-a696-31e9dc18e81c" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%202.31.50%E2%80%AFPM.png?VersionId=mKBqi5C_DmeiXS.AtJkcR8LQIxqCqmFi" />

GreenPoint Partners brings years of experience assembling and scaling real estate operating businesses across major markets. And Green sees a big opportunity in Australia.

“For its size, sophistication and importance to the community, Australia’s living sector has remained largely under-institutionalised, which represents significant opportunity,” Green said. “GreenPoint identified that gap, assembled the right team, and is backing One Living to build a platform that is aligned to market needs.”

Green said being a builder-developer would give the company the capacity and flexibility it required to deliver reasonably-priced homes.

“We want it to be at that attainable level; not super high end luxury but at that attainable level,” he said.

<img alt="Mona Vale" data-entity-type="file" data-entity-uuid="74a5344a-4b26-4d4a-ada3-056b1220be77" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%202.32.15%E2%80%AFPM.png?VersionId=vY8hXHO4reBMdO8ZXMWCNtGZJofUPQ3j" />

&nbsp;

One Living will undertake a component of affordable housing in its schemes, which it will own and operate, and it could also run build-to-rent on some sites.

Green praised local policy settings.

“The NSW government is being very supportive, strategic and pragmatic in terms of how do we generate more supply of housing,” he said. “We think it’s actually positive for development and the bit that’s been lacking at that attainable level is that it’s lots of relatively small private developers, whereas we want to create an institutional platform.”

One Living is also&nbsp;looking at high-density projects and could take on more institutional funding in the future.

“The way we will be able to achieve economies of scale is through size,” Green added.

Joel Robinson

One Living enters Sydney's new apartment market with Northern Beaches site acquisition

It's been several years since there's been an opportunity to buy a brand new townhome in Melbourne's coastal suburb of Mordialloc. Even apartment developments in recent times have been few and far between in the area.

Local developer LDS Property identified the gap in new housing, securing a site on White Street, directly opposite&nbsp;Woodlands Golf Club Mordialloc. They've recently launched&nbsp;<a href="https://www.apartments.com.au/new-townhouses/wm-residences-mordialloc-102-white-street-mordialloc-vic-3195">WM Residences</a>, just 13 townhouses which they have already started building.

Projects by Buxton Director Heath Thompson, who is selling WM Residences, says the townhouses x that perfect middle ground be

"Mordialloc residents have had limited options to downsize within the suburb, often forcing them to look elsewhere despite long-standing ties to the area," Thompson says.

"With very little comparable new supply coming to market, projects like WM Residences are well placed, particularly as buyers look to capitalise on current conditions amid constrained supply."

[smartcode_project:default project_id=134646 project_image_fid=6109]

The development, designed by regarded architecture firm&nbsp;<a href="https://www.apartments.com.au/architects/ewert-leaf">Ewert Leaf</a>,&nbsp;adopts a deliberately restrained architectural approach, focusing on simplicity, durability and liveability rather than overt design gestures.

The boutique scale is central to the offering. With only 13 three-bedroom residences, each home is configured to prioritise functional layouts and everyday use, supported by private terraces and secure two-car garages.

Ewert Leaf’s design response leans into a calm, neutral material palette. Interiors are defined by oak flooring, white walls and soft finishes, creating a consistent and understated backdrop. The approach avoids trend-driven detailing in favour of longevity, with an emphasis on natural light and spatial clarity.

[smartcode_project:default project_id=134646 project_image_fid=6110]

Beyond aesthetics, the homes are designed to meet contemporary performance expectations. Each residence targets a minimum 6-star energy rating, incorporating double glazing, comprehensive insulation and all-electric Bosch appliances.

The project’s location supports a walkable coastal lifestyle, sitting within close proximity to Mordialloc’s foreshore, Main Street retail strip and the train station. Local cafés and dining venues, including Suburbia Deli and Hendriks Café, are within a short walk, reinforcing the area’s established neighbourhood character.

[smartcode_project:default project_id=134646 project_image_fid=6116]

While <a href="https://www.apartments.com.au/developments/mordialloc-vic-3195">Mordialloc</a> is often defined by its beach and pier, the project taps into other areas of day to day living, offering easy access to local food, casual dining and transport, rather than positioning itself purely as a lifestyle retreat.

WM Residences reflects a continued trend across Melbourne’s coastal suburbs towards smaller-scale, design-led townhouse developments, particularly on infill sites where proximity to amenity is already established.

With construction commenced prior to its market entry, the project aligns with a growing preference among buyers for developments with visible progress and defined delivery timeframes.

[smartcode_project_cta:default project_id=134646]

WM Residences fills gap in Mordialloc townhouse market

&nbsp;

Developer GURNER™ Group has revealed $1.65 billion in residential sales nationally across the 12 months to December 2025, driven largely by the continued momentum of its Docklands wellness-focused precinct, Elysium Fields.

The sales result was generated across seven projects in Victoria and New South Wales, headlined by Elysium Fields, GURNER™’s $2.75 billion mixed-use precinct planned for Harbour Esplanade in Docklands.

The project has recorded more than $500 million in sales across the first three towers, equating to around 580 apartments sold.

The first tower, Helios, has now sold out of its 240 private residences, with GURNER™ preparing to release a premium penthouse collection comprising 15 three-bedroom penthouses in coming weeks.

[smartcode_project:default project_id=144441 project_image_fid=370975]

Elysium Fields is being developed on the long-held 20,000 sqm Docklands site at 208-226 Harbour Esplanade, which had remained undeveloped for more than two decades prior to GURNER™ taking over the project around four years ago.

Construction has now commenced across four towers ranging between 18 and 30 storeys, with Hamilton Marino and Maxcon appointed as builders.

Once complete, the precinct is expected to comprise around 1,100 residences, alongside retail, hospitality and public realm uses integrated throughout the site.

[smartcode_project:default project_id=144441 project_image_fid=370981]

Designed by Fraser &amp; Partners in collaboration with GURNER™ Design House, the project has been positioned around the developer’s broader focus on wellness-led residential living.

“We don’t sell apartments. We create a true luxury lifestyle that simply doesn’t exist elsewhere in the market today,” Founder and Executive Chairman Tim Gurner said.

“To deliver that requires an extraordinary level of detail, coordination and discipline across multiple verticals, from design and hospitality through to wellness and service.”

“We’ve always believed that living extends far beyond the physical residence. It’s about how you feel the moment you arrive, how you live day-to-day, and the ecosystem that supports that.” 
[smartcode_project:default project_id=144441 project_image_fid=370977]

The project’s design places a heavy focus on landscaping, wellness amenities and biophilic design principles.

Plans include around 3,700 sqm of landscaped gardens and open space throughout the precinct, alongside a retail and dining offering spanning approximately 5,000 sqm.

The broader public realm strategy centres around what GURNER™ describes as the “Path of Life”, an urban forest and landscaped pedestrian environment intended to connect the various buildings and wellness spaces across the precinct.

The apartments themselves will incorporate a range of wellness-focused inclusions, including purified air and water systems, circadian lighting, antimicrobial surfaces, and optional in-home wellness upgrades.

[smartcode_project:default project_id=144441 project_image_fid=370980]

Gurner said the company’s experience through its Saint Haven wellness clubs had directly informed the residential offering now being incorporated into Elysium Fields.

“We’re seeing a clear global shift toward longevity, performance and proactive health,” Gurner said.

“Our role is to deliver that in a way that feels seamless, highly private and beautifully resolved within the environments we create.”

A large component of the wellness offering is planned through the resident amenity and health facilities proposed within the precinct.

That includes plans for bathing and recovery facilities spread throughout the towers, incorporating mineral pools, saunas, steam rooms, flotation therapy, red light therapy and wellness lounges.

The developer is also seeking approvals for what it describes as a “reverse ageing medical clinic” within the precinct.

[smartcode_project:default project_id=144441 project_image_fid=370978]

According to project information released by the group, the proposed facility would include cryotherapy, IV infusion therapy, infrared and dry saunas, PEMF beds, MRIs, DEXA scans, brain scans and blood analysis services.

Within the first tower, Helios, residents will also have access to a dedicated amenity offering known as the Sky Private Club.

The upper 15 levels of the building will include private lounges, dining spaces, rooftop amenities and optional private wellness studios integrated within residences.

The Helios tower itself comprises 260 apartments ranging between 60 sqm and 300 sqm, including a collection of penthouses.

That includes a planned two-storey penthouse spanning around 600 sqm with uninterrupted bay views.

The Elysium Fields precinct is being delivered in partnership with Digital Harbour Holdings, a consortium that includes the Liberman family, which controls the development rights across the Docklands site.

[smartcode_project:default project_id=144441 project_image_fid=370979]

The sales result comes as GURNER™ continues expanding its national development pipeline beyond Victoria.

“We have a strong pipeline across Australia and are now focused on scaling into key markets including New South Wales and Queensland, while continuing to build on our Melbourne base,” Gurner said.

“We currently have more than $3 billion in the market, growing to over $5 billion by October, and expect to materially outperform last year in the 2026 calendar year.”

The result also reflects the continued strength of the upper-end apartment market in Melbourne, particularly for owner-occupier-focused product with large-scale amenity and lifestyle offerings.

[smartcode_project_cta:default project_id=144441]

Record result anchored by the Group’s “utopian” Elysium Fields precinct – defying market headwinds in Docklands.

Elysium Fields drive Gurner to $1.65 billion in apartment sales over 2025

National Australia Bank (NAB) will fund <a href="https://www.apartments.com.au/new-apartments/palmera-residences-gold-coast-18-garfield-terrace-surfers-paradise-qld-4217">Palmera</a>, a $1 billion, 52-level luxury residential tower being developed by Central Equity in one of the Gold Coast’s most tightly held coastal locations at Northcliffe.

The project, launched recently by <a href="https://www.apartments.com.au/developers/central-equity">Central Equity</a>, one of Victoria’s largest private residential developers, comes at a time when construction funding for large residential developments has become increasingly competitive as lenders tighten exposure to the sector.

Multiplex has been appointed the builder, and construction is now underway.

[smartcode_project:default project_id=108274 project_image_fid=365784]

Since its first project, Central Equity has delivered more than 85 residential developments with a combined end value exceeding $8 billion.

Palmera reflects Central Equity’s growing focus on the Gold Coast luxury apartment market and continues a relationship between Central Equity and NAB that dates back to the late 1980s, when the bank funded one of Melbourne’s earliest inner-city residential towers at a time when high-rise apartment living in the CBD was largely unproven.

“NAB’s funding of Central Equity’s $36 million CBD development in the late 1980’s to the financing of the billion-dollar tower today highlights the long-term relationship between the two organisations in delivering major residential projects” said Central Equity Founder and Chairman Eddie Kutner.

He said NAB’s early support was instrumental in helping establish the company’s development model.

“When we commenced our first residential tower in the late 1980s the concept of funding off-the-plan apartments was still largely untested in Australia,” Kutner said.

“NAB recognised the opportunity early and supported the project when others were uncertain. That relationship has now continued for more than 37 years across many developments.”

[smartcode_project:default project_id=108274 project_image_fid=365771]

Central Equity was established in 1987 when Melbourne’s CBD and Southbank precinct were still dominated by warehouses and commercial buildings. Fewer than 100 residents lived in Southbank at the time, and large-scale residential development in the inner city was not widely considered.

Recognising changing demographics and lifestyle preferences, the company began developing high-rise residential projects designed to bring permanent residents into the city centre.

Central Equity has provided accommodation for approximately 40,000 residents across Melbourne’s CBD and Southbank, while also incorporating supporting infrastructure including essential lifestyle facilities like retail spaces, childcare facilities and neighbourhood activity centres.

Central Equity has spent many years assembling the Palmera development site on the corner of Garfield Terrace and Frederick Street in Northcliffe, creating a supersite of around 3,300 sqm.

The developer said the Palmera apartment tower reflects its long-term view of the Gold Coast as a growing and increasingly diversified economy.

[smartcode_project:default project_id=108274 project_image_fid=365768]

Supported by infrastructure including the light rail network, major road upgrades expanded education, hospital and medical facilities and continued expansion at the Gold Coast Airport with more international and domestic flights.

Positioned in the tightly held Northcliffe precinct, the 52-level tower will deliver 347 apartments, targeting buyers seeking a high-end coastal lifestyle, from downsizers to interstate investors.

Designed by Marchese Partners with interiors by DBI, Palmera has been conceived as a next-generation residential offering, featuring a collection of oversized apartments, with premium three-bedroom residences offering sweeping northern views stretching from Surfers Paradise through to Burleigh Heads.

[smartcode_project_cta:default project_id=108274]

NAB funds $1 billion Surfers Paradise apartment development, Palmera

Two years after completing one of the newest developments in North Sydney, developer <a href="https://www.apartments.com.au/developers/aqualand-australia">Aqualand</a> is turning its attention to the rapidly evolving St Leonards apartment market.

The developer, which completed AURA by Aqualand on North Sydney's Walker Street, has lodged plans for a 5,918 sqm site at <a href="https://www.apartments.com.au/new-apartments/33-37-herbert-street-st-leonards-nsw-2065">33-37 Herbert Street, St Leonards,</a> seeking approval for a pair of residential towers rising above a shared podium opposite Royal North Shore Hospital.

The proposal forms part of the broader transformation underway across the St Leonards-Crows Nest precinct, where former industrial and commercial sites are increasingly being redeveloped into high-density mixed-use projects tied to major transport infrastructure.

<img alt="Aqualand" data-entity-type="file" data-entity-uuid="2cc428cf-fe70-4cac-9cd5-264ad53af62c" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%209.51.56%E2%80%AFAM.png?VersionId=otKSnHtbjAvAddOnovyXQMgcAwE6DMe1" />

According to the planning documents, the site sits “within the St Leonards–Crows Nest Strategic Centre, identified by the NSW Government as a key area for accommodating future jobs and housing across Sydney.”

The proposal has been designed by fjcstudio, formerly FJMT Studio, and is being progressed through the State Significant Development pathway due to its scale and affordable housing provision.

The scheme would comprise 413 apartments, including 46 affordable housing units, alongside retail and commercial uses fronting Herbert Street. The project would also include communal open space, landscaping, a swimming pool, gymnasium, children’s play areas and podium-level resident amenities.

Planning documents show the development would consist of a part-13, part-39 storey tower form positioned above a four-storey podium.

“The development comprises a unified podium that activates the street interface, and two setback towers to accommodate new housing supply while maintaining an appropriate human scale at ground level,” fjcstudio noted in its Design Report.

The northern and southern towers have been shaped to respond to the surrounding skyline while also limiting overshadowing impacts to nearby public open space, particularly Talus Reserve.

The design report said the differing tower heights were intended to “contribute to a varied skyline while responding to the surrounding built form context and solar access considerations.”

<img alt="Aqualand" data-entity-type="file" data-entity-uuid="36da62dc-ff9e-41f2-a7e3-7be38373751c" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%209.51.45%E2%80%AFAM_0.png?VersionId=Mo6Rp2r.XRLTzIfg_PEEpw8NepDH8UBs" />

The site sits directly opposite Royal North Shore Hospital and within walking distance of both St Leonards Station and the new Crows Nest Metro station.

While the site itself sits just outside the formal Crows Nest Transport Oriented Development boundary, the planning documents repeatedly reference its alignment with the broader TOD objectives reshaping the Lower North Shore.

“The site is located adjacent to St Leonards Station and in close proximity to Crows Nest Metro which is within the Crows Nest Transit Orientated Development Accelerated Precinct which has been identified by the NSW Government to support housing delivery,” the Design Verification Statement noted.

According to fjcstudio, the project has been designed to respond to the broader transition occurring across St Leonards, where increasing residential density is being concentrated around transport infrastructure and employment hubs.

“The broader precinct is undergoing significant change, with a mix of existing mid-rise buildings and newer high-density developments,” the report stated.

“Recent and approved projects indicate a consistent shift toward taller built form, typically organised as tower-and-podium typologies with more active ground levels.”

The proposal includes close to 6,000 sqm of retail and commercial space across the ground floor and podium levels, designed to create a more activated street edge along Herbert Street.

Aqualand’s plans would also introduce a landscaped podium shared between the two towers, with communal open space in the form of a podium rooftop designed to support resident interaction and improve urban greening outcomes. The scheme would also introduce pocket parks at the northern and southern ends of the site, including a landscaped area at the corner of Herbert and Ella streets designed to improve pedestrian amenity and soften the streetscape.

&nbsp;

The proposal is being progressed through the NSW Government’s Housing Delivery Authority pathway, which was introduced to accelerate housing supply across the state. The application was declared State Significant Development in April 2025 following an expression of interest process.

<img alt="Aqualand" data-entity-type="file" data-entity-uuid="faf6d97d-2671-454f-b85a-fe1c6a7be608" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%209.51.49%E2%80%AFAM.png?VersionId=diVd28OBVr5.YV.7prrOz.uAanwwwm7a" />

St Leonards has been particularly active with new developments in recent weeks. Developer SP Setia’s <a href="https://www.apartments.com.au/news/nsw/first-look-sp-setia-targets-st-leonards-skyline-with-40-storey-tod-tower">plans for a new 42-storey tower</a> recently went on exhibition through the same pathway, while <a href="https://www.apartments.com.au/news/nsw/first-look-stockland-plans-52-storey-538-apartment-st-leonards-tower">Stockland’s 52-storey tower proposal</a> was also recently unveiled.

Aside from the St Leonards project, which is expected to take around nine months to move through the approvals process ahead of a potential 2027 launch, Aqualand is also preparing to launch Boronia, a new apartment project in Roseville comprising around 111 apartments on Larkin Street.

The developer also has approvals in place for the next stage of the Barangaroo precinct, which will feature new residential, retail, hospitality and community uses, alongside a new metro entry across the five-hectare site.

More than 50 new retail destinations are planned for Central Barangaroo, alongside a 270-metre-long boulevard connecting Hickson Park to Nawi Cove. Together with Harbour Park, more than 50 per cent of the precinct will comprise public open space and parkland.

First look: Aqualand joins St Leonards apartment party

Rba Insights

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 Westpac senior economist Matthew Hassan discusses what is troubling the RBA. 
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jrobinson-rf4aSBido9

What troubles the RBA? Westpac's Matthew Hassan

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The third meeting of the Reserve Bank of Australia for 2018 saw no change in the official cash rate.
The central bank's last move saw it go to 1.5 percent at the August 2016 meeting, so rates have been held steady for 18 meetings.
It was 19 meetings ago that they last came down. 
Almost every economist predicted a hold at the first meeting of the year. 
31 of 32 experts in Finder.com.au's RBA survey had predicted a cash rate hold.
Just Mark Crosby from Monash University expected a rise to 1.75 percent. 
Canstar group executive Steve Mickenbecker said they couldn't see the RBA raising rates.
"The Reserve Bank will want to see inflation, in particular wages growth, before it increases rates," Mickenbecker said.
He said so much has been happening that you have to ask if the Reserve Bank's decision matters anyway.
“The big banks have brought out low rate promotional offers on their base products.
"They usually don't deliver rate reductions for existing borrowers and they are often not even available to existing customers.
“Borrowers now have a huge choice of loans that have an interest rate starting with a three. 
"Canstar's website lists 324 loans with an interest rate below 4%."
“Rates are going to go up, and with the deals around now, it is also a good time to consider whether fixing for a few years might be right for you.”
CoreLogic's head of research Tim Lawless says a softening slowdown will likely be welcomed by the RBA.
"Housing market conditions are likely to be moving further down the RBA’s list of priorities, considering the market is showing every sign of moving through a soft landing, with the pace of value decline easing over recent months," he said.
"The controlled slowdown in the housing sector is likely to be a welcome outcome from the RBA, who are more likely to be focussing on labour markets, where the rate of unemployment, although lower than a year ago, crept higher, from 5.4% to 5.5% in February. 
"With some slack in labour markets, wages growth remains close to record lows, which is keeping a lid on inflation and household consumption. 
"National dwelling values were flat last month, however <a href="/expert-insights/buying/six-of-eight-capital-cities-record-falling-values-in-first-quarter-corelogic">six of the eight capital cities saw dwelling values slip lower in March</a>, albeit at a reduced rate of decline relative to other months.
"Despite the hold decision from the RBA, mortgage rates remain close to historic lows, particularly for owner occupiers who are paying down both their interest and principal.
"Investors are facing a mortgage rate premium of around 60 basis points, but relative to long term averages, their mortgage rates are low. 
"While the RBA has flagged the next move in interest rates will be a rise, it remains likely that any hike to the cash rate is well in the future. 
 
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RBA keeps rates on hold for record 18th consecutive meeting

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The Reserve Bank of Australia should follow the example of other central banks and be clearer about when and how rates will change, called “forward guidance”, to make its policy more effective.<a href="https://theconversation.com/profiles/giovanni-pellegrino-452180"></a>
At the moment the RBA follows an approach to implement monetary policy known as <a href="http://www.rba.gov.au/monetary-policy/" target="_blank">inflation targeting</a>. This means it has a numerical target for inflation (an average 2-3% inflation over the medium term) and a framework to achieve that target (how it thinks monetary policy affects the economy, and how it communicates policy decisions).
Australia’s cash rate is at a historical low of 1.5%. So if there’s any adverse shock to our economy (for example, a large correction in house prices), the RBA would have little room to reduce the cash rate before getting to 0% – the zero lower bound on nominal interest rates.
At that point, you can’t cut rates anymore. <a href="https://www.sciencedirect.com/science/article/pii/S0014292117301605" target="_blank">Research shows</a> economic shocks can have a more severe impact on economic activity when the policy rate is at, or near, zero.
Instead the RBA should be more explicit about the conditions that would lead to a rate change. <a href="https://www.chicagofed.org/publications/working-papers/2016/wp2016-07" target="_blank">Research shows</a> this has stimulated economic recovery before.
<h2>How rates work at the moment</h2>
To understand forward guidance it helps to understand conventional thinking about monetary policy. The RBA controls inflation by adjusting the cash rate, which is the interest rate on overnight loans in the interbank market.
Changes in the cash rate change longer-term interest rates in the economy. These then influence households’ and businesses’ spending and investment plans. These decisions also determine demand and inflation.
For example, suppose inflation is below target. A cut in the cash rate reduces longer-term interest rates, which encourages people to buy goods and services (falls in long-term deposit rates and government bonds reduce the incentive to save) and invest (commercial and mortgage loans are cheaper). Rising demand sends prices up, which brings inflation back to target.
As with other central banks around the world, the RBA also explains the rationale for its policy decisions. For example, in the <a href="http://www.rba.gov.au/publications/smp/" target="_blank">Statement of Monetary Policy</a>, released four times a year, the bank sets out its assessment of current domestic and international economic conditions, along with an outlook for Australian inflation and output growth.
The purpose of these announcements is to enhance the credibility of the inflation target. If people trust the RBA will implement policy to achieve the inflation target, they will make plans around what they spend and how they price goods and services based on this. This makes inflation easier to control.
<h2>How being clearer about rates helps</h2>
While the RBA might not be able to influence the current cash rate, it can still influence longer-term rates by making announcements about its future policy decisions. Long-term interest rates usually change depending on what people expect of future cash rate changes.
So if monetary policy can influence these expectations, it can move long-term rates.
Of course, words are cheap. To make these declarations credible the RBA would need to communicate its plans for the future cash-rate, with modelling and forecasts justifying those plans.
Economists could then judge whether the RBA is meeting its objective through good luck or good policy. If it’s through good policy, it enhances the RBA’s credibility and, in a virtuous circle, this gives the bank policy more influence over expectations.
A prominent example of forward guidance comes from the United States’ central bank, the Federal Reserve. In December 2008, when the federal funds rate (the US equivalent of the Australian cash rate) was first at the zero lower bound, the Federal Reserve <a href="https://www.federalreserve.gov/newsevents/pressreleases/monetary20081216b.htm" target="_blank">announced</a>:
The committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.
Translated, the Fed anticipated keeping the federal funds rate at zero for a considerable time. This communication was meant to influence the public’s expectations about the future course of US monetary policy, and to have consumers and businesses expect an expansionary monetary policy for some time.
During the recovery, the Fed refined its communication strategy to become more explicit about the economic circumstances that would lead to a change in policy. For example, in June 2013, the committee that sets rates <a href="https://www.federalreserve.gov/newsevents/pressreleases/monetary20121212a.htm">anticipated that</a>:
this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-½%.
This type of announcement gives people more information about the strategy the Fed will take with rates, rather than simply providing forecasts about what it expects future economic conditions to be like (which doesn’t need to have any information about policy strategy).
<a href="https://www.aeaweb.org/articles?id=10.1257/aer.104.10.3154" target="_blank">Recent evidence</a> confirms this had an impact on businesses’ expectations. Right after the June 2013 announcement by the Federal Reserve, there was an increase in the number of quarters until businesses expected the US policy rate to increase above 25 basis points.
<a href="https://images.theconversation.com/files/210482/original/file-20180315-104659-5fu59l.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/210482/original/file-20180315-104659-5fu59l.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></a>
FOMC= Federal Open Market Committee (which sets rates) Swanson and Williams: the zero bound and interest rates, Author provided
<a href="https://www.chicagofed.org/publications/working-papers/2016/wp2016-07" target="_blank">Other research also</a> suggests forward guidance influenced private sector expectations and stimulated the economic recovery after the global financial crisis.
At the moment, the RBA doesn’t produce statements about future monetary policy and how this would change if the economic environment changed. But the bank could do this.
The RBA has the luxury to develop its communications policy during a time of economic calm, unlike the Federal Reserve, which was forced to experiment with new policies during the worst recession since the Great Depression.
<img src="https://counter.theconversation.com/content/93292/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">If the RBA waits until a future crisis, it would limit the power forward guidance could have in our economy.
<a href="https://theconversation.com/profiles/efrem-castelnuovo-145615" target="_blank">Efrem Castelnuovo</a>, Principal Research Fellow, Melbourne Institute of Applied Economic and Social Research, and Professor of Economics, Department of Economics, <a href="http://theconversation.com/institutions/university-of-melbourne-722" target="_blank">University of Melbourne</a>; <a href="https://theconversation.com/profiles/bruce-preston-452859">Bruce Preston</a>, Professor of Economics, <a href="http://theconversation.com/institutions/university-of-melbourne-722" target="_blank">University of Melbourne</a>, and <a href="https://theconversation.com/profiles/giovanni-pellegrino-452180" target="_blank">Giovanni Pellegrino</a>, Postdoctoral Research Fellow, <a href="http://theconversation.com/institutions/university-of-melbourne-722" target="_blank">University of Melbourne</a>
This article was originally published on <a href="http://theconversation.com" target="_blank">The Conversation</a>. Read the <a href="https://theconversation.com/why-the-rba-needs-to-talk-about-future-interest-rate-policy-93292" target="_blank">original article</a>.
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j.ballantyne1990-6AQqhLzZaK

The RBA should be clearer about when it will change interest rates

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The latest data from the Reserve Bank (RBA) shows that the expansion of housing credit is occurring at a historically sluggish pace as tighter credit policies and slower housing market conditions dampen investment participation in the housing market.
The RBA releases its financial aggregates on the last working day of each month and it provides valuable insight into outstanding credit to all mortgage lenders in Australia.  
The latest data shows that in January 2018, housing credit expanded by 0.5% which was actually greater than the 0.4% expansion the previous month.  Splitting the data by owner occupier and investors, owner occupier credit expanded by 0.6% compared to 0.2% for investors.
<img src="https://www.corelogic.com.au/sites/default/files/2018-03/2018-03-05-pulseimg1.png" alt="CoreLogic monthly change in housing credit owner occupier vs investor" width="655" height="297">
The first chart shows the monthly change in housing credit for owner occupiers and investors, while owner occupier credit expansion is tracked fairly steady, there is a clear slowing of credit expansion to investors currently.  The slowdown is being fueled by switching of investor loans to owner occupier and macroprudential policies which limit credit growth to investors.  
The macroprudential policies have come in two waves, the first wave limited lenders from growing investor credit by more than 10%pa while the second wave limited new interest-only lending (which is largely utilised by investors) to 30% of new originations.  The first chart suggests that the first wave actually tightened investor credit growth more than the second wave, highlighted by the fact that in December 2015 investor credit recorded no change while the slowest rate of expansion since the second wave of policies has been 0.2% which is not as severe of a slowdown as that experienced following the first wave of macroprudential policies.
<img src="https://www.corelogic.com.au/sites/default/files/2018-03/2018-03-05-pulseimg2.png" alt="CoreLogic Annual change in housing credit, owner occupier vs investor" width="658" height="303">
The second chart focusses on the annual change in housing credit and shows the benchmark for the 10% speed limit for investor lending which was introduced by APRA in late 2014. This chart also highlights a relatively steady expansion in owner occupier credit but a slowing expansion of investor credit.
<img src="https://www.corelogic.com.au/sites/default/files/2018-03/2018-03-05-pulseimg3.png" alt="CoreLogic housing's share of total outstanding credit to lenders" width="666" height="271">
At the end of January 2018, the total value of outstanding housing credit was $1.731 trillion which was an historic high.  As a share of the total value of credit outstanding to lenders, residential housing accounts for a record-high 62.0%. The data shows a clear preference for lending for residential housing over recent years especially when you consider at the end of 2007, just prior to the GFC, housing accounted for a much lower 51.9% of total outstanding credit.
<img src="https://www.corelogic.com.au/sites/default/files/2018-03/2018-03-05-pulseimg4.png" alt="CoreLogic share of total outstanding housing credit to investors" width="665" height="292">
The fourth chart highlights outstanding investor credit as a share of total outstanding housing credit.  In January 2018, outstanding credit to investors was recorded at $587.9 billion which represented 34.0% of total housing credit.  Although investors make up a significant proportion of outstanding credit, as a share investor credit has been falling since its peak of 38.7% in June 2015.  In fact, the share of credit to investors is at its lowest level since May 2013.
Based on the most recent data from APRA, Australian lenders have comprehensively met the macroprudential targets for investment credit growth and interest only lending.  Considering annual investment credit growth, at 3.0%, continues to track well under the 10% speed limit and interest only lending  is also well under the 30% benchmark, it’s possible investment credit growth could lift over coming months.
Investors do face other headwinds though, with capital gains cooling, yields tracking well below average and depreciation benefits less appealing since the federal government budget last year.
Overall, the expansion in housing credit is now largely being driven by the owner occupier segment of the market.  With mortgage rates expected to rise some time over the next two years and dwelling values falling, it will be interesting to see how long the steady expansion in owner occupier credit can last.
Cameron Kusher is head of research for CoreLogic. You can contact him <a href="https://blog.corelogic.com.au/about/">here</a>.
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ckusher-ujnxiKuFQs

Overall housing credit growth lower after investor loan drop: Cameron Kusher

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The weekly ANZ/Roy Morgan consumer confidence rating fell by 3.5 per cent last week. Sentiment towards household finances and the economy fell, despite a recovery in global stock markets and strong jobs data. However, the index remains above its long-term average of 112.9.  
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Consumers’ inflation expectations rose to 4.7 per cent last week, up from 4.4 per cent in the previous week. This is the equal highest reading in 13 months. The consumer assessment comes at a time when US markets are pricing-in higher inflation. The strongest US wages growth since June 2009 prompted the market sell-off a few weeks ago.
Assistant Governor Michele Bullock spoke on “Household Indebtedness and Mortgage Stress” in Sydney this morning. The Assistant Governor allayed concerns about household debt and mortgage stress. She highlighted that the “the overall level of stress among mortgaged households remains relatively low”. She also cited the HILDA survey, suggesting that “mortgage repayments were not at levels that would indicate an unusual or high level of financial stress for most owner-occupiers”. In fact, “the number of households experiencing financial stress has fallen steadily since the mid-2000s”. This view is in contrast to some private sector surveys which have pointed to rising financial/mortgage stress and the negative impact on household consumption.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/2/21/comm1.jpg" alt="">
Reserve Bank Board minutes: The minutes from the February 6 Board meeting were issued. The Board’s neutral policy bias remain intact with a period of record low interest rate stability ahead for the foreseeable future. It noted that “inflation also remained low, but was expected to increase gradually as the economy strengthened and wage pressures rose over the forecast period.”
The consumer confidence figures have implications for retailers, and other consumer-focussed businesses. The Reserve Bank Board minutes provides guidance on interest rate settings.
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What does it all mean?
·         Political uncertainty in Canberra, falling home prices and lingering concerns about stock market volatility weighed on household’s views toward their finances and the economic outlook last week.
·         The weaker consumer confidence rating occurred despite record jobs growth and a recovery in share markets during the survey period. In fact, the Australian S&amp;P/ASX 200 Index, while down so far in February (-1.6 per cent to February 19), has outperformed US equities (Dow Jones Industrial Index, -3.6 per cent).  
·         Aussie households are also acutely aware of global developments. Inflation pressures are building in the US. Rising inflation in the form of wages growth and interest rate anxiety prompted the recent sell-off on Wall Street.
·         The US is enjoying full employment with the unemployment rate at 16-year lows of 4.1 per cent. Strong jobs growth and a tightening labour market have contributed to average hourly earnings jumping to 2.9 per cent on an annual basis in January, the largest increase since June 2009. 
·         And on Friday, the US January core Consumer Price Index increased by 0.35 percentage points - the highest monthly result in 12 years.
·         Despite US economic outperformance, the Aussie labour market is strengthening. In fact, a record 16 consecutive months of jobs growth has been posted with the annual pace of jobs creation (403,100) the highest in 12½ years.
·         Record jobs growth has lifted the consumer sentiment rating off its most recent lows back in August. And while consumer prices remain subdued because of global competition, Aussies’ expectations for price rises are growing. Certainly buoyant business conditions and profits are pre-conditions for pay rises. Skilled job vacancies are beginning to emerge in some industries.
·         The Reserve Bank Governor Philip Lowe recently spoke about the benefits of stronger wage growth. He was concerned that annual wage growth near 2 per cent was seen as the new norm. Governor Lowe said that a 2.5 per cent inflation rate was consistent with a 3.5 per cent lift in wages. 
·         In today’s February meeting minutes, the Board surmised that “it was possible that ongoing strength in the demand for labour might result in wage growth picking up by more than anticipated, both in Australia and abroad.”
·         The Reserve Bank appears comfortable with the rebalancing of the Aussie housing market and overall levels of household debt. Putting things into perspective, Assistant Governor Michele Bullock concluded that “the overall level of stress among mortgaged households remains relatively low” and “mortgage stress has fallen over the past decade”.
·         The Assistant Governor also remarked that risks from “household mortgage stress are not particularly acute at the moment”, with large mortgage buffers and other data suggesting “mortgage stress has fallen over the past decade”. Similarly, for investors, Ms. Bullock noted that these mortgagees tend to have higher deposits, higher incomes, more assets, have been “resilient to the recent (regulatory) changes” and that the risk to financial stability from this source also “remained low”.         
What do the figures show?
Consumer Sentiment
·- The weekly ANZ/Roy Morgan consumer confidence rating fell by 3.5 per cent to 115.3. Confidence is down by 3.2 per cent over the year, but well above the average of 113.5 since 2014 and average of 112.9 since 1990.
- All five components of the index fell in the latest week:
- The estimate of family finances compared with a year ago was down from +5.9 to +4.2;
- The estimate of family finances over the next year was down from +25.2 to +23.6;
- Economic conditions over the next 12 months was down from +13.2 to +7.0; 
- Economic conditions over the next 5 years was down from +16.5 to +6.3; 
- The measure of whether it was a good time to buy a major household item was down from +36.9 to +35.6.  
- The measure of inflation expectations 2 years ahead rose to 4.7 per cent from 4.4 per cent.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/2/21/comm2.jpg" alt="">
 
Household Indebtedness and Mortgage Stress speech:
- Last paragraph: “The information we have suggests that, while there are some pockets of financial stress, the overall level of stress among mortgaged households remains relatively low.”
- “Appropriately prudent lending standards will continue to play an important role in ensuring that the financial system remains stable and households borrow responsibly.”
- On mortgage serviceability: “As recently as 2016, mortgage repayments were not at levels that would indicate an unusual or high level of financial stress for most owner-occupiers.” From the HILDA survey: “the median ratio of mortgage servicing payments to income has been fairly stable through time, remaining around 20 per cent in 2016”. Also, “financial stress for owner-occupiers with mortgage debt has not changed much over the past decade, and is actually lower than in the early 2000s. Around 12 per cent of such households indicated that they would expect difficulty raising funds in an emergency in 2016.”
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/2/21/comm3.jpg" alt="">
- On measures of financial stress: “Banks' non-performing housing loans have been trending upwards over the past few years, although they remain very low in absolute terms at around 0.8 per cent of banks' domestic housing loan books. Much of this rise is attributable to a rise in non-performing loans in the mining-exposed states of Western Australia and Queensland – not unexpected given the large falls in employment and housing prices in some of these regions.”
- On investor borrowing: “The recent increases in interest rates on investor loans, in response to APRA's measures to reduce the growth in investor lending, has probably affected the cash flows of investors. Interest rates on outstanding variable-rate interest-only loans to investors have increased by 60 basis points since late 2016. However, over the past few years, lenders have been assessing borrowers' ability to service the loan at a minimum interest rate of at least 7 per cent. So while interest rates and required repayments have likely risen, many borrowers should be relatively resilient to the recent changes.”
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/2/21/comm4.jpg" alt="">
 
Reserve Bank Board minutes:
- Last paragraph: “Taking into account the available information, the Board judged that holding the stance of monetary policy unchanged would be consistent with sustainable growth in the economy and achieving the inflation target over time.”  
- “Members noted that global growth could continue to surprise on the upside, given the synchronised nature of the current upturn. Stronger demand could induce higher global inflation than expected, which would have implications both for financial asset prices and exchange rates. Stronger global growth would boost growth and inflation in Australia, particularly if the exchange rate were to depreciate.”
- “Household debt levels remained elevated and members agreed that household balance sheets still warranted careful monitoring.”
- “Strong competition in the retail sector, which had placed downward pressure on the prices of consumer durables and food for some time, was expected to persist in the next few years.”
- Business conditions had remained at a relatively high level in recent quarters. Private non-mining business investment had increased by more than expected in the September quarter, to be nearly 10 per cent higher over the preceding year. Members noted that the prospects for private non-mining investment were more positive than they had been for some time.”
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/2/21/comm5.jpg" alt="">
- “Members observed that, while standard variable interest rates for housing loans had been little changed since mid 2017, the average outstanding variable rate had declined slightly as new and refinanced loans were typically being offered at lower rates.”
- “The unemployment rate was expected to decline a little further over this period to 5¼ per cent, consistent with GDP growth rising to be above potential.”  
- “Over 2017, progress had been made in reducing the unemployment rate and bringing inflation closer to target.”
- “There was still a risk that growth in consumption might turn out to be weaker than forecast if household income growth were to increase by less than expected.” 
- “Members noted that there had continued to be positive spillovers from the pick-up in public infrastructure investment, particularly in New South Wales and Victoria.”
- “The Australian dollar had appreciated a little on a trade-weighted basis over prior months, but had remained within the relatively narrow range in which it had been over the preceding couple of years.”
<h1>What is the importance of the economic data?</h1>
- The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.
The Reserve Bank releases minutes of its monthly Board meeting a fortnight after the event. The minutes give a guide to Reserve Bank thinking on interest rate settings.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/2/21/comm6.jpg" alt="">
<h1>What are the implications for interest rates and investors?</h1>
- Consumer confidence has improved since bottoming in August last year. Sentiment was at 4-year highs at the beginning of the year on the back of strong jobs gains and record low interest rates. The economic backdrop has not fundamentally changed despite recent share market volatility. 
- Political uncertainty in Canberra is nothing new to most Aussies. Hung parliaments and small government majorities have been the norm since 2010.
- But Aussie households are becoming acutely aware of building global inflationary pressures. All eyes will be on tomorrow’s quarterly Wages Price Index print.
- The Reserve Bank expects inflation to only increase gradually as the economy continues to strengthen on the back of robust business investment and infrastructure-related government spending. The global economic backdrop is supportive.
- The Bank’s liaison program also implied a recovery in retail sales following recent global competition-related weakness, a gradual rise in rents and a moderation in average outstanding variable mortgage rates.
- In an environment of weak income growth, household consumption and elevated mortgage debt remains an uncertainty this year. It is expected that as spare capacity in the labour market recedes over the year, this could boost wages growth, albeit gradually. 
- On a positive note, the Reserve Bank believes that Aussie mortgage stress is “relatively low”. And while debt levels are high, the number of owner-occupiers currently experiencing acute financial stress is not growing rapidly. 
- CommSec doesn’t expect a change in interest rates until late 2018 at the earliest.
 
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Reserve Bank content, but consumers cautious: CommSec

jonathanchancellor-7SQnKwU6yx

Housing market conditions had generally eased in areas where growth had earlier been strong: RBA minutes

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The RBA have noted they are aware of the number interest-only loans which were penned before the recent tightening of mortgage lending.
Speaking at the Responsible Lending and Borrowing Summit on Tuesday, RBA assistant governor Michele Bullock said a "large proportion of interest-only loans are due to expire between 2018 and 2022".
Bullock said most of her focus has been on owner-occupiers, who account for around two-thirds of housing debt outstanding.
She said investors have less incentive than owner-occupiers to pay down their debt.
"Many take out interest-only loans so that their debt does not decline over time," Bullock said.
"If housing prices were to fall substantially, therefore, such borrowers might find themselves in a position of negative equity more quickly than borrowers with an equivalent starting LVR that had paid down some principal."
 
<img class="lazy620x0" src="http://www.afr.com/content/dam/images/h/0/w/c/e/g/image.imgtype.afrArticleInline.620x0.png/1519080192171.gif" alt="By early 2017, 40 per cent of the debt did not require principal repayments." width="620">
Bullock said there is always a balance to be struck with lending standards.
"If they are too tight, access to credit will be unreasonably constrained, potentially impacting economic activity and restricting some households from making large purchases that they can afford," Bullock suggested.
"If they are too loose, however, borrowers and lenders could find risks building on their balance sheets which, if large enough, might have implications for financial stability."
 
 
 
 
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Large proportion of interest only loans due to expire between 2018 and 2022: RBA

There are clearly households experiencing financial stress: RBA assistant governor

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GUEST OBSERVER
This is an edited extract from RBA Governor Philip Lowe's speech at the recent A50 Dinner.
For a while now we have been expecting the Australian economy to grow more strongly in 2018 and 2019 than it did, on average, over recent years. There are a number of reasons for this. We are all but through the decline in mining investment to more normal levels, there is a large pipeline of urban infrastructure work to be done, the global economy is experiencing a solid upswing, commodity prices are up and financial conditions remain accommodative. All this is helping.
The RBA will be releasing our latest economic forecasts tomorrow in the <cite>Statement on Monetary Policy</cite>. These forecasts will be largely unchanged from the previous set of forecasts. The RBA's central scenario remains for the Australian economy to grow at an average rate of a bit above 3% over the next couple of years. This outlook has not been affected by the volatility in the stock market over recent days. Indeed, it is worth keeping in mind that the catalyst for this volatility was a reassessment in financial markets of the implications of strong growth for inflation in the United States. For some time, many investors had been working under the assumptions that unusually low inflation and unusually low volatility in asset prices would persist, even with above-trend growth at a time of low unemployment. A reassessment of these assumptions now appears to be taking place against the backdrop of strong economic conditions globally.
Looking beyond these financial events, the data we have received on the real economy over the summer have been consistent with our assessment that GDP growth will pick up over 2018. Taken together, the recent domestic and global data on the real economy suggest that 2018 has started on a more positive note than did recent years.
Particularly noteworthy has been the labour market, with employment increasing by 3¼% over the past year. This strong performance has been accompanied by a large number of people joining the workforce, so that the participation rate has returned to around the level reached at the peak of the mining investment boom. There have been noticeable increases in the participation rates of both women and older Australians. At the same time, the unemployment rate has declined to around 5½% and a further gradual decline is expected over the next couple of years.
Business conditions are around their highest level since before the global financial crisis and there has also been an improvement in business confidence. Non-mining business investment has been stronger than we had expected a year ago and the investment outlook has brightened. One ongoing area of uncertainty, though, is consumer spending. Household incomes are growing slowly and debt levels are high. I will return to these issues in a moment.
On the prices front, we continue to experience subdued outcomes, although inflation is higher than it was a year ago. Over 2017, inflation was a bit under 2%, in both headline and underlying terms. Last week's data provided further confirmation of trends we have been witnessing for some time. Increased competition in retailing is contributing to price declines for many consumer durables. And subdued wage increases are contributing to low rates of inflation for a range of market services. The rate of rent inflation also remains low.
The immediate outlook is for a continuation of these broad trends, but for inflation to pick up gradually as the economy and labour market strengthen. We are expecting CPI inflation to be in the 2 to 2½% range over the next couple of years. Underlying inflation, which is less affected by the scheduled increases in tobacco excise, is expected to be a bit lower than CPI inflation.
I would now like to touch on a couple of issues that we are paying close attention to and that could have a significant bearing on the outlook for growth and inflation over the next couple of years.
The first of these is wage growth. Not only are most workers experiencing low wage increases, but following the resources boom some people have moved out of highly paid jobs. The result is that after many years of Australians experiencing strong growth in real incomes, growth in average nominal and real incomes has been much slower over recent times.
The effects of low real wage growth on the economy work in different directions. On the one hand, the restrained growth in labour costs is one of the factors that has boosted employment. But, on the other hand, the slow growth in incomes has weighed on spending, including by making it harder for some households to pay down their debts.
On balance, though, in the current environment, some pick-up in wage growth would be a welcome development. Ideally, this would be on the back of stronger productivity growth. But even if productivity growth were to be around the average of recent years, a faster rate of wage increase should be possible. Indeed, a lift in wage growth is likely to be necessary for inflation to average around the midpoint of the 2–3% medium-term inflation target. Stronger growth in real wages would also boost household incomes and create a stronger sense of shared prosperity.
Our central scenario is for this pick-up in wage growth to occur as the economy strengthens, but to do so only gradually. Through our liaison with business we hear some reports of wage pressures emerging in pockets where labour markets are tight. We expect that over time we will hear more such reports. After all, the laws of supply and demand still work.
I have spoken previously about the factors affecting wages, and they have a global dimension. Globalisation and advances in technology have increased competition, and greater competition means less pricing power. Given the strength and pervasiveness of these forces, it is unlikely that they are going to disappear quickly, so the pick-up in wage growth is likely to be fairly gradual.
A second factor shaping the outlook is the level of household debt. Indeed, the high level of household debt in Australia is remarked upon by international investors almost as often as the fact of 26 years of growth.
A while back we had become quite concerned about some of the trends in household borrowing, including very fast growth in lending to investors and the high share of loans being made that did not require regular repayment of principal. Our concern was not that developments in household balance sheets posed a risk to the stability of the banking system. Rather, it was more that they posed a broader macro stability risk – that is, the day might come, when faced with bad economic news, households feel they have borrowed too much and respond by cutting their spending sharply, damaging the overall economy.
We have worked closely with APRA, including through the Council of Financial Regulators, to address these issues. This work, together with other steps taken by APRA, has helped improve the quality of lending in Australia. In the housing market, there has also been a change. National measures of housing prices are up by only around 3% over the past year, a marked change from the situation a couple of years ago. This change is most pronounced in Sydney, where prices are no longer rising and conditions have also cooled in Melbourne. These changes in the housing market have reduced the incentive to borrow at low interest rates to invest in an asset whose price is increasing quickly.
On balance then, from a macro stability perspective, the situation looks less risky than it was a while ago. We do, however, continue to watch household balance sheets carefully as there are still risks here.
Challenges
I would now like to move to the second question that I get asked frequently. Beyond the short term, what are the challenges facing the Australian economy?
When I spoke at this forum last year I talked about four challenges:
<ul>
<li>the need to reinvigorate productivity growth</li>
<li>finding ways of capitalising on the opportunities in Asia</li>
<li>providing the infrastructure needed for a growing population and to support productivity</li>
<li>making sure that our public finances were on the right track and that our tax system was internationally competitive.</li>
</ul>
This is by no means a complete list; at a minimum, you could add some of the issues I have just spoken about. But it remains a reasonable list and I thought it useful to offer an update.
Improving our productivity remains the key to further improvement in our living standards. Average growth in labour productivity has been a bit higher since the peak in the mining boom than it was in the preceding five years, although capital deepening has been an important part of the story here. Late last year the Productivity Commission provided some guidance about how we might lift our performance with the release of the first of its five-yearly reports – the <cite>Shifting the Dial</cite> report. This is another example of Australian policy institutions tackling important issues through serious and systematic reviews. A central theme of the report is the importance of services and cities. Most Australians now work in the service sector and live in cities, so how we deliver services and how our cities function have a major influence on our future living standards. This is yet another area where we will benefit from a strong innovation mindset.
On building our links with Asia, we continue to see progress. New trade agreements are opening up new opportunities for Australian business in the region and the share of Australia's exports going to Asia continues to rise. Last year, the value of Australia's merchandise exports increased by more than 15% to each of China, Japan, Korea, Taiwan, Indonesia and the Philippines. Exports of resources have been an important part of the story, but it is broader than that, with strong growth in exports of services too. Person to person links also continue to deepen, with half of all international visitors to Australia last year coming from Asia.
On infrastructure, the story is also a positive one. Increased public investment in infrastructure in our largest states is currently providing a boost to the economy and it is also building productive capacity for the future. With our population continuing to grow at a relatively fast rate for an advanced economy – around 1½% a year – this is an area for us to continue to focus on. As we do this, we need to pay close attention to the governance of decisions around project selection, the control of construction costs, usage pricing and the allocation of risk between the public and private sectors. Good governance is important in these areas to support sound decision-making and to retain public trust and confidence in governments' spending plans.
Finally, on the fiscal side, the latest estimates are that things are on track to meet the Australian Government's projection of returning the budget to balance by 2020/21. Australia's record of careful management of public finances meant that when the financial crisis hit a decade ago, fiscal policy was able to play a role stabilising the economy. Ensuring that our public finances are on a sustainable footing is important to ensuring that we have similar flexibility in the future. The issue of how the tax system affects the competitiveness of Australia as a destination for investment is one of ongoing political debate. There have been some cuts in company tax and parliament is considering further changes.
Reduction of Monetary Stimulus Globally
I would now like to turn to the final question that I often get asked: as other central banks raise interest rates, won't the RBA have to, too?
It is understandable that this question is asked. Over time, there is a common element to movements in interest rates around the world. The level of interest rates in all countries is influenced by movements in the neutral global real interest rate. During the financial crisis, the neutral global rate fell and this has had an important influence on the setting of interest rates in all countries, including here in Australia. If we had not lowered our interest rates as global rates fell, the Australian economy would have grown by less and inflation would have been even lower than it turned out to be.
The fact that there is a common element in interest rates, however, does not mean that interest rates need to move in lock-step with one another. Countries with a floating exchange rate, like Australia, still retain considerable flexibility to set interest rates based on their domestic considerations. We did not lower our interest rates to the extraordinarily low levels seen elsewhere after the financial crisis. Our circumstances were different: we didn't have a meltdown in the financial system and we experienced a very large cycle in commodity prices and mining investment.
Just as we did not move in lock-step on the way down, we don't need to do so in the other direction. It's understandable that some other central banks are raising rates. They lowered their rates by more than us and, in a number of countries, the unemployment rate is now below conventional estimates of full employment at a time when above-trend growth is expected.
Our circumstances are a little different. We are still some way from what could be considered full employment and our central scenario for inflation is for it to remain below the midpoint of the medium-term target range for the next couple of years.
We expect, though, to make further progress in reducing unemployment and having inflation return to the midpoint of the target range. If we do make that progress, at some point it will be appropriate for interest rates in Australia to also start moving up. So, given recent developments in Australia and overseas, it is likely that the next move in interest rates in Australia will be up, not down. If this is how things play out, the likely timing will depend upon the extent and pace of the progress that we make. As I have discussed, while we do expect steady progress, that progress is likely to be only gradual. Given this, the Reserve Bank Board does not see a strong case for a near-term adjustment in monetary policy. It will of course keep that judgement under review at future meetings.
I hope that these remarks this evening have helped you understand the Australian economy, our opportunities and some of the challenges we face. I look forward to answering your questions.
Philip Lowe is Governor of the Reserve Bank of Australia.
Read the full <a href="https://www.rba.gov.au/speeches/2018/sp-gov-2018-02-08" target="_blank">speech to A50 dinner</a>.
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The next few years for the Australian economy: RBA Governor Philip Lowe

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The RBA has released its January chart pack which contributed to their decision to leave cash rates on hold again at 1.5 percent.
The full pack can be <a href="http://www.rba.gov.au/chart-pack/" target="_blank">found here.</a>
Consumer sentiment is has been fluctuating over the year.
Click here <a href="https://www.propertyobserver.com.au/images/2018/1/4/chart1.jpg" target="_blank">to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/1/4/chart1.jpg" alt="">
Housing prices and house hold debt are both peaking, however the house prices are just beginning to level out.
Click here <a href="https://www.propertyobserver.com.au/images/2018/1/4/chart2.jpg" target="_blank">to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/1/4/chart2.jpg" alt="">
National house price growth has considerably stumbled since the middle of 2017.
Click here <a href="https://www.propertyobserver.com.au/images/2018/1/4/chart3.jpg" target="_blank">to enlarge.</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/1/4/chart3.jpg" alt="">
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