Melbourne developer Spacious Group has completed Voyage Altona, one of the closest new apartment developments to Altona Beach.

Off the plan purchasers have started moving into the 49-apartment project on Pier Street, with the remaining move-in-ready one-, two- and three-bedroom apartments starting from just over $500,000.

Display apartments have now been fitted out, allowing prospective buyers to inspect the completed residences by appointment.

[smartcode_project:default project_id=112195 project_image_fid=372638]

The completed apartments feature open-plan living and dining areas which extend onto private balconies and terraces, while full-height glazing maximises natural light throughout the interiors.&nbsp;

Hybrid timber-look flooring, stone benchtops, Miele appliances, porcelain-tiled bathrooms and generous storage feature throughout the building which also features landscaped communal areas, expansive shared terraces, lift access and secure on-grade parking.

Drawing inspiration from its bayside setting, Voyage adopts a restrained palette of warm neutral tones and textured finishes. Many of the apartments take advantage of views across Port Phillip Bay, while the indoor-outdoor living spaces have been designed to make the most of the coastal outlook.

[smartcode_project:default project_id=112195 project_image_fid=3286]

Voyage was developed to address what Spacious Group identified as an undersupply of higher-quality apartment product in Altona, with a focus on owner-occupiers looking to remain within the bayside community.

"Voyage responds to very strong local buyer demand for quality, owner-occupier-focused product," says Barry Plant Projects Director Jarrod Farey, who has handled sales since the project's launch.

"The project delivers an elevated lifestyle proposition, with its design and quality of finish far exceeding anything previously produced in the area, as well as its proximity to Pier Street Village and the beach."

The majority of purchasers have been local downsizers and owner-occupiers looking to stay within the Altona community but who previously had limited opportunities to buy a brand-new apartment.

[smartcode_project_cta:default project_id=112195]

Joel Robinson

Spacious Group completes Voyage Altona in Altona's beachside precinct

Homecorp has secured approval for a $360 million apartment development at Budds Beach, paving the way for one of the Gold Coast's most amenity-rich residential projects to launch later this year.

Gold Coast City Council has approved Lýon Residences, a 32-level tower that will deliver 178 two and three-bedroom apartments across a prominent corner site at 8-10 Acacia Avenue and 25-27 Oak Avenue.

The approval comes as developers continue to invest in premium lifestyle-driven apartment projects on the Gold Coast, where owner occupiers are increasingly prioritising amenity as much as apartment size and location.

<a href="https://www.apartments.com.au/new-apartments/l-on-residences-25-27-oak-avenue-surfers-paradise-qld-4217">Lýon Residences</a> has been designed around a resort-style wellness offering, headlined by a Moroccan-inspired spa precinct featuring treatment rooms, a Nordic sauna and steam room, hot and cold plunge pools, a soaking pool and a residents-only juice bar.

The rooftop will include a heated infinity pool and spa, residents' lounge with private kitchen and bar, gymnasium, yoga and Pilates studio, outdoor entertaining areas and barbecue facilities overlooking the Surfers Paradise skyline.

<img alt="Lyon" data-entity-type="file" data-entity-uuid="2d3e29af-8793-486e-a684-52cef862241f" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-15%20at%204.32.26%E2%80%AFPM.png?VersionId=ayG2zpLf3SS6Zy8XmKDcQods4kVWb0gm" />

Homecorp Founder and CEO Ron Bakir said Budds Beach provided the ideal location for the company's latest luxury apartment project.

"Budds Beach represents one of the most unique and sought-after pockets of the Gold Coast, and Lýon Residences has been designed to reflect that sense of rarity and refinement," Bakir said.

The project arrives as wellness continues to become a defining feature of new residential developments both in Australia and internationally.

The latest Global Wellness Institute figures show wellness real estate remains the fastest-growing segment of the global wellness economy and is forecast to exceed $1.8 trillion by 2030. Australia continues to rank among the world's 15 largest wellness real estate markets, with developers increasingly integrating health, recreation and community facilities into apartment projects.

Queensland is also experiencing strong population growth, with the Gold Coast continuing to outperform many other Australian cities as demand for new housing remains elevated ahead of the 2032 Olympic and Paralympic Games.

Bakir said the project had been designed to respond to that shift in buyer expectations.

"Strong population growth and sustained demand across the Gold Coast continue to highlight the need for well-designed new housing supply. Lýon Residences responds directly to this demand while setting a new benchmark for residential living," he said.

Each apartment has been designed to maximise views across the coastline, the Nerang River and the Gold Coast hinterland.

Located just minutes from Surfers Paradise beach and the Broadwater, the development also offers easy access to the light rail network, Broadbeach and Burleigh Heads.

Early site works are underway, with construction expected to commence later this year.

Homecorp approved for Budds Beach apartment tower, Lýon Residences

New apartment developments with uninterrupted, north-facing views over Perth's Swan River are exceptionally rare.

Recognising just how limited those opportunities are, <a href="https://www.apartments.com.au/developers/edge-visionary-living">Edge Visionary Living</a>, one of Perth's most respected builder-developers, targeted <a href="https://www.apartments.com.au/developments/applecross-wa-6153">Applecross</a>, assembling an unrepeatable 6,342 sqm riverfront site on the corner of Moreau Mews and Canning Beach Road to create one of Perth's only new north-facing apartment developments directly overlooking the Swan River.

Today, <a href="https://www.apartments.com.au/buildings/riviere-residences-applecross-59-canning-beach-road-applecross-wa-6153">Rivière Residences</a> offers buyers a unique opportunity to choose between completed residences ready to move into now and off-the-plan homes in the final stage, Rivière West.

[smartcode_project:default project_id=28384 project_image_fid=3823]

Across the completed East and Central buildings, residents are already enjoying the development's luxury amenity, while two of the precinct's hospitality venues are now open.

The completed component of the development gives buyers the advantage of experiencing the finished product firsthand, including its uninterrupted river views, while still having the opportunity to secure a residence in the final stage.

"People are wowed by the view and the quality of the apartments,"&nbsp;Edge Visionary Living Sales Executive, Holly McSweeney, says.

"They're looking for the convenience of lock-and-leave living, but they're not looking to downsize on quality."

[smartcode_project:default project_id=28384 project_image_fid=3826]

The rarity of the development hasn't been lost on prospective buyers, McSweeney says.

For McSweeney, it all comes back to a location that is becoming increasingly difficult to replicate.

"Location, location, location," she says. "We are nestled right on the front of the Swan River. You can never get built out, so wherever you are in Rivière Residences, you've got views of the river forever."

The unique waterfront position has resonated particularly strongly with local downsizers. McSweeney says many buyers are long-time Applecross residents looking to transition from large family homes into a luxury apartment without sacrificing space, quality or the lifestyle they've enjoyed for decades.

<iframe allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share" allowfullscreen="" frameborder="0" height="315" referrerpolicy="strict-origin-when-cross-origin" src="https://www.youtube.com/embed/N_FowNW0wu8?si=vb25XFq1wZ-iufAW" title="YouTube video player" width="560"></iframe>

A major focus for Edge in recent years has been resident amenity. Across its apartment portfolio, from beachfront developments in Scarborough to luxury towers in South Perth, the developer has increasingly invested in the spaces beyond the apartment itself.

The strategy has largely been shaped by downsizer demand. Many buyers are moving from large family homes with swimming pools and established gardens. While they're looking to leave the maintenance behind, they don't want to compromise on lifestyle.

At Rivière, <a href="https://www.apartments.com.au/architects/hillam-architects">Hillam Architects</a> designed the resident facilities as an extension of each apartment. A 25-metre heated swimming pool takes advantage of the north-facing river outlook, complemented by a large gym, sauna and steam rooms, private dining spaces, residents' lounges, a cinema, games room, and dedicated wine and whisky rooms.

[smartcode_project:default project_id=28384 project_image_fid=372542]

The waterfront location has also proved to be a major drawcard. Residents are within walking distance of the Raffles Hotel, South of Perth Yacht Club, the Heathcote Cultural Precinct and the cafés, restaurants and boutiques along Ardross Street.

Beyond the location and amenity, McSweeney says many buyers take confidence from Edge's fully integrated development model.

Having delivered apartments across Perth for decades, Edge now designs, develops and constructs its projects in-house, giving the company greater control over quality, delivery and the finished product.

"What I love is when people walk through their apartment for the first time and say, 'This is better than what we imagined,'" McSweeney says. "We hear that all the time."

Completed apartments in the East and Central buildings are now available to inspect by appointment, while Rivière West, the final stage of the precinct, is expected to be completed in the first quarter of 2027.

[smartcode_project_cta:default project_id=28384]

North-facing Swan River views drive demand at Rivière Residences in Applecross

Nearly 60 per cent of apartments at McNab Group's $220 million The Tannery development in Brisbane's West End have sold ahead of the project's public launch, including a suburb-record $2.57 million sale for a two-bedroom apartment.

The early sales campaign has secured buyers for 50 of the project's 87 apartments, highlighting continued demand for larger owner-occupier apartments that combine generous floorplans with premium lifestyle amenities in one of Brisbane's most tightly held inner-city suburbs.

[smartcode_project:default project_id=143337 project_image_fid=374768]

McNab Group Executive Chairman Michael McNab said selling more than half the project before launch reflected changing buyer expectations.

"Selling more than half the project before public sales open tells us buyers are actively seeking apartments that offer something genuinely different," McNab said.

"Today's buyers are looking beyond four walls. They want homes that genuinely enhance the way they live, with spaces that support health, connection and everyday wellbeing."

[smartcode_project:default project_id=143337 project_image_fid=374767]

A key point of difference for the project is the adaptive reuse of the heritage-listed Dixon's Tannery building, which will become The Retreat, a residents-only wellness precinct rather than being redeveloped into additional apartments.

The Retreat will feature a sauna and steam room, hot and cold plunge pools, a commercial-grade gym, Pilates studio, cinema, library, co-working spaces and private dining room. Rooftop amenities will include a swimming pool, landscaped gardens, outdoor entertaining areas and dog-friendly spaces.

[smartcode_project:default project_id=143337 project_image_fid=374760]

Designed by Cottee Parker Architects with interiors by Tom Mark Henry and landscape architecture by Aspect Studios, The Tannery comprises 87 two, three and four-bedroom apartments across 11 levels overlooking the Brisbane River.

Cottee Parker principal Dee Passenger said preserving the original tannery building had been central to the project's design.

"The easy option would have been to maximise the site's development potential with additional apartments. Instead, McNab has chosen to preserve the original tannery as a shared wellness retreat, ensuring this important piece of Brisbane's history remains at the heart of the community."

Passenger said sustainability also played a key role in the design, with materials from the original industrial site salvaged and repurposed throughout the development.

[smartcode_project:default project_id=143337 project_image_fid=374761]

Motiv CEO Carly Cottam said buyers had responded strongly to the combination of larger apartments, wellness facilities and the West End lifestyle.

"We are seeing more buyers looking for homes in the sky that provide the space and functionality of a traditional home, while benefiting from the convenience and lifestyle that apartment living brings," Cottam said.

She said purchasers included both owner occupiers and investors, with demand coming from local buyers as well as interstate purchasers.

Coinciding with the public launch, McNab also announced a partnership with Queensland Ballet, whose neighbouring Thomas Dixon Centre shares historical ties with the original Dixon family.

Located on a 4,465 sqm site at 439 Montague Road, The Tannery overlooks the Brisbane River and is around 10 minutes from the CBD.

Construction is underway, with completion expected in the second half of 2027.

[smartcode_project_cta:default project_id=143337]

More than half of residences sold before public sales as McNab announces significant partnership with Queensland Ballet

McNab's The Tannery nears 60 per cent sold before public release, sets two-bedroom West End record

Iwan Sunito's vision for a landmark mixed-use precinct in Sydney's Inner West has taken a major step forward, with approval granted for the $1.9 billion Five Dock development first unveiled earlier this year.

The approved scheme by <a href="https://www.apartments.com.au/developers/one-global-capital">One Global Capital</a> will deliver an 80,500 sqm mixed-use precinct comprising 840 apartments, integrated hotel accommodation, commercial and retail space, alongside publicly accessible open space designed to create a new destination for the growing suburb.

"This is a significant milestone for One Global Capital and for the future of housing delivery in Sydney," Sunito said.

"The Housing Delivery Authority was established to identify major housing projects capable of delivering meaningful supply more efficiently, and we are delighted that Spencer Street has been recognised as one of those projects.”

He said the declaration reflected the rapid progress achieved since acquiring control of the site.

"In less than seven months we have progressed from taking control of the site to securing entry into one of the NSW Government's most important planning pathways. It reflects the experience of our team, the strength of our consultant group led by Urbis, and our long-term commitment to delivering transformational projects that contribute to Sydney's future."

When the project was revealed earlier this year, Sunito described the opportunity as one of the strongest development sites he had worked on.

"I probably hadn't appreciated the uniqueness of the site until more recently when putting together the concept plans," Sunito said.

"The proximity to the water, and the golf course opposite, is unlike any other part of Parramatta Road. We have a unique position and view corridors over the water that makes this one of the best sites I've worked on."

The development has evolved since its initial announcement, with the approved plans increasing the residential component from the originally proposed 750 apartments to 840 homes while retaining the project's focus on creating an integrated neighbourhood rather than a standalone residential development.

Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/a-city-within-a-city-iwan-sunito-flags-1-5-billion-mixed-use-precinct-in-five-dock">"A city within a city": Iwan Sunito flags $1.5 billion mixed-use precinct in Five Dock</a>

The precinct will combine apartments with hotel accommodation, commercial workplaces, retail offerings and public spaces, creating a mixed-use environment intended to serve both residents and the broader Five Dock community. The proposal also continues the collaboration between One Global Capital and internationally recognised architect <a href="https://www.apartments.com.au/architects/koichi-takada-architects">Koichi Takada</a>, whose previous work with Sunito includes Infinity, Arc and Skye North Sydney.

Takada previously said the design was driven by a philosophy of integrating nature into the built environment.

"The concept for this development is born from our design approach to naturalising architecture," Takada said.

"The public realm benefits from biophilic design that integrates generous landscaping, and the development is optimised for natural daylight, airflow and water views to foster wellbeing, sustainability and spaces that foster community interaction."

Sunito has consistently described the project as a "city within a city", with a strong emphasis on creating a destination that extends beyond housing.

"We want to create a development that's not only to be seen, but to be experienced by the whole local community," he said.

The approval comes as Five Dock continues its transformation ahead of the opening of the Sydney Metro West line, with the new Five Dock station set to significantly improve connections between the Inner West, Parramatta and the Sydney CBD.&nbsp;

The precinct will also benefit from its proximity to the Parramatta Road corridor, nearby waterfront parklands and established retail and dining offerings that have made Five Dock one of Sydney's most tightly held Inner West suburbs.

Iwan Sunito secures approval for $1.9 billion Five Dock mixed-use precinct

Reserve Bank

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RBA Assistant Governor Michele Bullock has sounded a caveat, saying the essence of macroprudential policy lay in recognising potential system-wide risks and reacting accordingly, implying the bank and APRA could further tighten lending rules to contain buildup of potential risks from a runaway housing market.
“We are continuing to monitor their ongoing effects and are prepared to do more if needed,” she said at a speech during an event organised by financial news service Bloomberg.
Her speech ‘Has the way we look at financial stability changed since the GFC?’ looked at the history of the RBA’s role since it was formed to the way it monitors the financial system now in the aftermath of the global financial crisis in 2008.
“At the big picture level, the way we look at it hasn't changed that much. But we are even more attuned to the tail risks than we were and more attuned to the need to take action if we sense that the risks are building,” she said.
Her words come amid concerns of property prices picking up sharply and the steps taken by the Australian Prudential Regulation Authority to cap investor lending not having the desired effect after an initial slowing of growth.
The OECD recently warned that a crash in Australia’s housing market could plunge the country into depression.
She stated that the central bank’s mandate was “to ensure that financial disturbances in any part of the financial system do not ultimately threaten the health of the economy”. 
Coming back to the question at how GFC has changed its outlook towards financial stability, Bullock said, “It hasn't fundamentally changed the way think about financial system stability, though we now have a deeper understanding of the nature of the risks and the potential channels of contagion.” 
She added that the bank had “also built significant capacity to better monitor risks both in the banking and non-bank sectors”.
“The experience with losses in commercial property in the late 1980s, the collapse of HIH in 2001 and the housing boom in the early 2000s perhaps made Australian regulators a little more circumspect. APRA had therefore maintained a strong supervisory focus on the Australian financial institutions.”
She cited that APRA reacted to the risks that were building in the housing market in 2014, especially from investment lending, but putting in place an annual 10 percent cap on growth in investment lending for banks.
“There was very strong demand for residential housing loans, particularly by investors. Price competition in the mortgage market had intensified and discounts on advertised variable rates were common. There also seemed to be a relaxation in non-price lending terms. The share of new loans that were interest only was drifting up and the growth of lending for investment properties was accelerating. Unsurprisingly in this environment, the growth in housing prices was strong, particularly in Melbourne and Sydney.”
“The regulators judged that more targeted action was needed to address the risks – to put a bit of sand in the gears.” 
“So APRA indicated that it would be alert to annual growth in a bank's investor housing lending above a benchmark of 10 per cent. It also set some more prescriptive guidelines for serviceability assessments and intensified its scrutiny of lending practices.”
“ASIC also undertook a review of lending with a focus on whether lenders were complying with responsible lending obligations.”
But while the measures worked for a time, “the resilience of both borrowers and lenders has no doubt improved…” and “the initial effects on credit and some other indicators we use to assess risk may fade over time.”
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Bullock says RBA 'prepared to do more' to curb risks in housing market

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<h1 class="page-title">Statement by Philip Lowe, Governor: Monetary Policy Decision</h1>
At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.
Conditions in the global economy have continued to improve over recent months. Business and consumer confidence have both picked up. Above-trend growth is expected in a number of advanced economies, although uncertainties remain. In China, growth is being supported by higher spending on infrastructure and property construction. This composition of growth and the rapid increase in borrowing mean that the medium-term risks to Chinese growth remain. The improvement in the global economy has contributed to higher commodity prices, which are providing a significant boost to Australia's national income.
Headline inflation rates have moved higher in most countries, partly reflecting the higher commodity prices. Long-term bond yields are higher than last year, although in a historical context they remain low. Interest rates are expected to increase further in the United States and there is no longer an expectation of additional monetary easing in other major economies. Financial markets have been functioning effectively and stock markets have mostly risen.
The Australian economy is continuing its transition following the end of the mining investment boom, expanding by around 2½ per cent in 2016. Exports have risen strongly and non-mining business investment has risen over the past year. Most measures of business and consumer confidence are at, or above, average. Consumption growth was stronger towards the end of the year, although growth in household income remains low.
The outlook continues to be supported by the low level of interest rates. Financial institutions remain in a good position to lend. The depreciation of the exchange rate since 2013 has also assisted the economy in its transition following the mining investment boom. An appreciating exchange rate would complicate this adjustment.
Labour market indicators continue to be mixed and there is considerable variation in employment outcomes across the country. The unemployment rate has been steady at around 5¾ per cent over the past year, with employment growth concentrated in part-time jobs. The forward-looking indicators point to continued expansion in employment over the period ahead.
Inflation remains quite low. With growth in labour costs remaining subdued, underlying inflation is likely to stay low for some time. Headline inflation is expected to pick up over the course of 2017 to be above 2 per cent, with the rise in underlying inflation expected to be a bit more gradual.
Conditions in the housing market vary considerably around the country. In some markets, conditions are strong and prices are rising briskly. In other markets, prices are declining. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Growth in rents is the slowest for two decades. Borrowing for housing by investors has picked up over recent months. Supervisory measures have contributed to some strengthening of lending standards.
Taking account of the available information the Board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.
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jchancellor-FAypfDUnLy

Rental growth slowest in two decades: RBA Governor Philip Lowe's March 2017 statement

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At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 percent.
Tim Lawless, CoreLogic head of research said the RBA is unwilling to drop rates because this would likely add further fuel to the housing market.
"They don’t want to push rates higher as this will stifle consumption and investment more broadly as well as potentially place some upwards pressure on the Australian dollar," he said.
"While interest rates remain at their current low level, and in the absence of additional macro prudential measures, we should expect housing demand from investors and owner occupiers to remain strong, particularly in those cities where economic conditions remain strong and migration rates remain high. 
"No doubt, one of the key topics of conversation at this month’s RBA board meeting will be around housing market conditions and the ongoing rebound in the rate of capital gains over the second half of 2016 and first two months of 2017.
"The CoreLogic monthly hedonic index shows capital city dwelling values have increased by 7.8 percent since the May ‘16 rate cut. 
"The renewed exuberance in the housing market over the past eight months is due to more than just low mortgage rates. 
"The reacceleration in capital gains also coincides with a substantial rebound in investment purchasing activity which has been a key driver of market demand and upwards price pressures."
 
 
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Unchanged RBA March 2017 cash rate decision

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Opening Statement to the House of Representatives Standing Committee on Economics by Philip Lowe, Governor, Reserve Bank.
Thank you for the opportunity to appear today to explain how we see the Australian economy as well as to discuss some of the work we have been doing at the Reserve Bank.
At the equivalent hearing a year ago, the tone of the global economy was pretty sombre. We had seen turbulence in Chinese financial markets. Commodity and equity prices were declining. Some overseas central banks had pushed their interest rates into negative territory. And global growth forecasts were being lowered again.
Twelve months on, the global economy looks to be on a firmer footing. In China, the growth target for 2016 was achieved despite the nervousness early in the year. In the United States, growth has strengthened and the economy is operating at close to full employment. And in Europe, the recovery is continuing, although it has a fair way to go in some countries. The Federal Reserve increased interest rates in December and further rises are expected this year. Elsewhere in the major economies there is no longer an expectation of further monetary easing, although some central banks are still continuing to expand their balance sheets. 
Commodity prices have moved higher. Long-term bond yields have also increased and most investors are no longer paying governments to look after their money for 10 years. Headline inflation has risen in most countries, and is much closer to target than it has been for some years. And forecasts for global growth have been revised up over recent months. This is the first time this has happened for quite a few years.
So, overall it is a more positive picture. That is the good news. There are, though, still a number of significant risks on the horizon.
In China, the growth target was achieved last year partly through a further build-up in debt especially to finance infrastructure investment and property development. This strategy was clearly helpful in the short run and it supported commodity prices, and Australia has benefited from that. But it runs counter to the Chinese authorities' goal of addressing the high levels of debt and getting domestic finances on a more stable footing. 
So we can't be sure about the longer-run implications. Recently, the Chinese authorities have taken some steps to tighten things up a bit. They have also been managing a depreciation of their currency against the US dollar and increased capital outflows as Chinese citizens send funds abroad. It's a difficult balancing act.
Turning to the United States, we can't be confident about how things will play out. It is possible that the new administration's policies could boost US and global growth. More infrastructure investment, tax reform and deregulation could all work to that end. On the other hand, if there were to be a retreat from the open international trading system, that would be damaging to the global economy, including to us here in Australia. We have much to lose if this were to occur. It is too early to tell which way things will go. Like others, we are in ‘wait and see’ mode.
In Europe, while there have been no major problems for some time, there are still a number of faultlines. Some of these could be put under pressure in the year ahead, in many cases depending on the outcomes of elections.
So there are still a number of risks in the global economy, although they no longer seem tilted to the downside. There are reasonable scenarios in which global growth picks up further and other scenarios in which it disappoints again.
I would now like to turn to the domestic economy.
A year ago, we were expecting the Australian economy to grow by around 2½–3 per cent in 2016. We haven't yet received the final figures for the year, but the outcome is likely to be lower, at around 2 per cent. The September quarter was surprisingly weak, largely reflecting temporary factors. We are not expecting a repeat of this for the December quarter, with most of the available indictors suggesting a return to reasonable growth in the quarter.
Looking forward, we still expect the Australian economy to grow by around 3 per cent this year and next. For most of the time since 2012 we have been facing headwinds from declining mining investment and falling commodity prices. Then, around the middle of last year, the headwind from falling commodity prices turned into a gentle tailwind as commodity prices lifted. And the headwind from falling mining investment should blow itself out before too long as mining investment returns to more normal levels. We will also benefit over the next few years from large increases in production of liquefied natural gas.
Economic conditions continue to vary significantly across the country. They are weaker in those parts of the country adjusting to the lower levels of mining investment and they are stronger elsewhere. Nationally, measures of business conditions have picked up noticeably recently. For some time we have been waiting for a lift in non-mining business investment. It has been a long time coming. Encouragingly, in New South Wales and Victoria we have now seen a reasonable pick-up in investment. However, we are yet to see this in most other states, where the unwinding of the mining investment boom continues to affect the overall business climate. With the decline in mining investment coming to an end, we hope to see a broader pick-up over time.
One area that we are watching closely is the cycle in residential construction activity, as the upswing has helped support the economy over recent years. The rate of new building approvals has slowed, but there is a large amount of work still in the pipeline, particularly for apartments, so we still expect some further growth in this part of the economy this year. There has, however, been some tightening in conditions for property developers in some markets.
In the broader housing market, the picture remains quite complicated. There is not a single story across the country. In parts of the country that have been adjusting to the downswing in mining investment or where there have been big increases in supply of apartments, housing prices have declined. In other parts, where the economy has been stronger and the supply-side has had trouble keeping up with strong population growth, housing prices are still rising quickly. In most areas, growth in rents is low. And recently we have seen a pick-up in growth in credit to investors, which needs to be watched carefully.
In terms of consumer prices, a year ago we had expected the inflation rate to remain above 2 per cent. It has turned out to be lower than this last year, at around 1½ per cent. Wage growth has been quite subdued, reflecting spare capacity in the labour market and the adjustment to the unwinding of the mining investment boom. We anticipate the subdued outcomes to continue for a while yet. Increased competition in retailing is also having an effect on prices, as is the low rate of increase in rents.
We do not expect the rate of inflation to fall further. Our judgement is that there are reasonable prospects for inflation to rise towards the middle of the target over time. The recent improvement in the global economy provides some extra assurance on this front. Headline inflation is expected to be back above 2 per cent later this year, boosted by higher prices for petrol and tobacco. The pick-up in underlying inflation is expected to be more gradual.
Since we appeared before this Committee last September, the Reserve Bank Board has kept the cash rate unchanged at 1.5 per cent.
At its recent meetings the Board has been paying close attention to the outlook for inflation as well as two other issues: trends in household borrowing and in the labour market.
One of the ways in which monetary policy works is to make it easier for people to borrow and spend. But there is a balance to be struck. Too much borrowing today can create problems for tomorrow, because debt does have to be repaid. At the moment, most households with borrowings do seem to be coping pretty well. But the current high level of debt, combined with low nominal income growth, is affecting the appetite of households to spend, and we are seeing some evidence of this in the consumption figures. The balance that is required is to support spending in the economy today while avoiding creating fragilities in household balance sheets that could cause problems for the economy later on. This is also something we need to watch carefully.
Trends in the labour market are also important. As in the housing market, the picture in the labour market varies significantly around the country. Overall, the unemployment rate has been steady now for a little over a year at around 5¾ per cent. In a historical context this would have been considered a good outcome, although, today, a sustainably lower unemployment rate should be possible in Australia. The other aspect of the labour market that is worth noting is the continuing trend towards part-time employment. Over the past year, all the growth in employment is accounted for by part-time jobs. There is a structural element to this, but it is also partly cyclical. We expect that the unemployment rate will remain around its current level for a while yet.
The Reserve Bank Board continues to balance these various issues within the framework of our flexible medium-term inflation target, which aims to achieve an average rate of inflation over time of 2 point something. Our judgement is that the current setting of the cash rate is consistent with both this and achieving sustainable growth in our economy. We will continue to review that judgement at future meetings.
I would like to turn to some other aspects of the work we do at the Reserve Bank.
In the area of payments, the Reserve Bank is continuing to work with industry on the development of the new payments infrastructure that will allow us all to move money around and make electronic payments more easily. The Bank is building part of the infrastructure that stands at the centre of this new system that will allow funds to be exchanged instantaneously so that customers can have very quick access to their funds. Our work is on schedule and is now being used in industry testing. Financial institutions are also working hard on their internal systems so that customers can take advantage of the new system. Developments look to be on track to allow the first payments to be made through this new system towards the end of the year.
A related focus of the Payments System Board is the important role that new technologies can play in promoting efficiency and competition. In recent meetings the Board has discussed the opportunities that distributed ledger technology could offer in the payments system and in financial market infrastructures. And it is also interested in the potential for fintech to deliver improved customer experiences. The Board is therefore taking a keen interest in the work being done by the Australian Payments Council on digital identity and customers' access to their banking and payments data.
I hope that you have all come across the new $5 banknote, which was issued by the Bank from early September last year. The note was well received by the community. You might also have noticed that last Friday we released the design for the new $10 banknote. Like the new $5, the new $10 will have world-leading security features, including the clear top-to-bottom window and a rolling colour effect that changes as the banknote is tilted. It will also have two raised bumps to assist people with vision impairment. Just like the current $10 note, the new note will feature two of Australia's most famous writers, Dame Mary Gilmore and Banjo Paterson. The printing presses are busy printing the new notes and they will be issued from September this year. We are also finalising the design of the new $50 banknote, which we plan to issue next year.
One other matter that I would like to bring to your attention is that we are in the process of commissioning an external review of the efficiency of our operations. We want to make sure that we are continuously improving as an organisation and we are seeking outside assistance to identify opportunities for improvement. The review will be focused primarily on operational and administrative matters and not on our policy frameworks. It will commence within the next month and I will be in a position to share the key conclusions with the Committee when we meet later in the year.
Finally, at previous hearings members of the Committee asked about the number of women at senior levels of the Reserve Bank. I am pleased to be able to report that we have made further progress here. Of the three assistant governors responsible for monetary and financial policies at the Reserve Bank, two are women. And women run over a third of the departments in the Bank, including those responsible for the Bank's economic analysis function and for the implementation of monetary policy. So it's quite a big change from days gone by when almost all of these important positions were held by men. 
I want to highlight these changes in the hope that they might provide some inspiration to women who are thinking of studying economics, finance and business. There are fantastic career opportunities out there and it would be great to see more women studying these disciplines, and perhaps considering a career at Australia's central bank. We are currently working on some initiatives to encourage this, at both the school and university level.
 
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Most households with borrowings seem to be coping pretty well: RBA's Philip Lowe

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Philip Lowe, Governor, Reserve Bank of Australia's speech to the Australia-Canada Economic Leadership Forum.
Thank you for inviting me to address this year's Australia-Canada Leadership Forum. It is a real pleasure for me to be here.
The original plan for this session was to have Bank of Canada Governor, Steve Poloz, also speak. But the timing of the Bank of Canada's next regular monetary policy meeting has meant that this wasn't possible. Like us, the Bank of Canada has a blackout period around their policy meetings. So this means that I will need to wait for a future occasion to welcome Governor Poloz to Australia.
The Bank of Canada and the Reserve Bank of Australia enjoy a very warm relationship. Many of the issues we face are similar and our perspectives are often very close to one another. This is partly because of the similarities in our economies. But it is also because Australians and Canadians are both pragmatic and open-minded people and we don't take ourselves too seriously. So, there is a natural affinity.
On the economic front, we are both medium-sized trading nations. We are both rich in natural resources. We have both had to come to terms with volatile prices for our key exports. We both have strong and resilient banking systems. We both have floating exchange rates and we operate flexible inflation targets. We are both attractive places for non-residents to invest their savings. We both have growing populations. And we both have had to deal with very large increases in housing prices in some of our cities. With all this in common, it is not surprising that we find much to talk about and experiences to share.
Australia and Canada are also both countries that have benefited greatly from international trade. We are both strong supporters of a rules-based open international trading system.
Too often these days, a commitment to open international trade, integration into global capital markets, a strong role for markets and a dynamic financial sector are seen as liabilities, not as assets. Australia and Canada provide strong counter examples. We show that openness can deliver both prosperity and resilience. We both enjoy standards of living that relatively few people elsewhere in the world enjoy. And while our economies have had their ups and downs, they have also proved to be pretty resilient.
Australians and Canadians also understand that the benefits from openness can fall unevenly across our communities. We recognise that while openness makes the size of the pie bigger, it can also affect the distribution of the pie in a way that our societies feel uncomfortable with. This is something that we have both tried to address and have had more success on this front than some other countries.
With that introduction, the main focus of my remarks this morning is on the outlook for the Australian economy. I would like to talk about this outlook in the context of three issues that I hope will have strong resonance with the Canadians in the audience. The first of these is the cycle in investment in the resources sector. The second is developments in the housing market and household borrowing. And the third is inflation targeting in a low inflation, low interest rate environment.
The Outlook
The RBA released its latest economic forecasts a couple of weeks ago.
We expect economic growth to be around 3 per cent over the next couple of years. This is a little faster than our current estimate of the potential growth of our economy. Despite this, we do not expect much change in the current rate of unemployment, which stands at around 5¾ per cent. This is because some of the above-potential growth is a result of the expansion of LNG production, which does not employ that many people.
Given this outlook, we expect underlying inflation to increase, but to do so only gradually. Wage growth remains subdued, but is not expected to decline further, and spare capacity is likely to remain in the economy for some time yet. Our central forecast is for headline inflation to increase to above 2 per cent later this year, boosted by increases in oil and tobacco prices. The increase in underlying inflation is expected to be a bit more gradual.
Commodities and Investment
The first of the three issues that I expect will strike a resonance with Canadians is the shifts in commodity prices and investment in the resources sector. This is a major factor that has shaped economic outcomes in both our countries.
While the general stories are similar, the details are different. One area of difference is the size of the movements in the prices of our main exports, summarised in the terms of trade (Graph 1). Australia's terms of trade almost doubled over the first decade of this century and in 2011 reached their highest level since the gold rushes of the 1850s. The increase in Canada was also large in a historical context, although it was not as large as that in Australia.
<a href="https://www.propertyobserver.com.au/images/2017/02/22/sp-so-2017-02-22-graph1.gif" target="_blank">Click to enlarge</a>
 <img src="https://www.urban.com.au/images/2017/02/22/sp-so-2017-02-22-graph1.gif" alt="">
This difference reflects two factors. The first is that the prices of Australia's main commodity exports – iron ore and coal – increased by significantly more than the price of Canada's main commodity export, oil. The short-run supply curve in iron ore and coal tends to be very steep, so the prices for these steel-making commodities increased very sharply when Chinese investment in property and infrastructure really took off. The second factor is that commodities make up a larger share of Australia's total exports than is the case for Canada.
Both of our countries have also experienced a pronounced cycle in mining investment. Not surprisingly, reflecting the larger movement in our commodity prices, the cycle has been bigger in Australia. Here, mining investment went from 2 per cent of GDP in the early 2000s to 9 per cent in 2012 (Graph 2). Another difference with Canada is that our main export partner, China, has grown at an average rate of almost 10 per cent over this period, compared with just 2 per cent average growth in Canada's main export partner, the United States.
<a href="https://www.propertyobserver.com.au/images/2017/02/22/sp-so-2017-02-22-graph2.gif" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/02/22/sp-so-2017-02-22-graph2.gif" alt="">
 
Both our countries accommodated the increase in mining investment without overheating. Our flexible exchange rates played an important role here.
Given the larger cycle in mining investment here, the impact on the rest of the economy has been more pronounced. While many parts of our economy did well from the boom in mining investment, others did not as they dealt with the higher exchange rate and found it difficult and more expensive to hire workers. One illustration of this broad impact is the substantial decline in Australia in non-mining investment as a share of GDP from the mid 2000s (Graph 2). By way of contrast, Canadian non-mining investment has shown much less variation.
For some time, a major factor shaping our forecasts for the Australian economy has been a rebalancing of investment between the resources and non-resources sectors. We estimate that the decline of mining investment back to normal levels is around 90 per cent done. So this headwind, which has been weighing on GDP growth for some time, will blow itself out before too long.
Another headwind we have had for some years is the fall in commodity prices, but this has turned into a gentle tailwind since mid last year. Since then the prices of all our main commodity exports have risen. This is good news for us, although we are not expecting the higher prices to lead to the type of pick-up in investment in the resources sector that might once have occurred. There has already been a very large expansion in supply capacity and we expect some unwinding of the recent increase in prices as supply increases. The higher prices, though, are providing a boost to our national income and this is expected to have some flow-through effects to the rest of the economy.
The other part of the story has been the expected pick-up in non-mining investment. This pick-up has been a long time coming. As in Canada, the picture is complicated by significant differences across regions. In those parts of Australia where mining investment has been declining, non-mining investment has also been falling because of the significant spill-over effects (Graph 3). Elsewhere, the picture is more encouraging. Non-mining investment has now picked up in New South Wales and Victoria. Survey measures of capacity utilisation have increased and so too have broader-based measures of business conditions. So while the near-term outlook for non-mining investment for the country as a whole remains subdued, we continue to forecast a pick-up later in the forecast period.
<a href="https://www.propertyobserver.com.au/images/2017/02/22/sp-so-2017-02-22-graph3.gif" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/02/22/sp-so-2017-02-22-graph3.gif" alt="">
 
Housing and Borrowing
I would now like to turn to a second issue that I think will strike resonance with Canadians: housing prices and borrowing. This is an issue that is discussed a lot in both our countries. We have both had strong housing markets over recent years and there are concerns about the level of household indebtedness. There are some similarities in the factors at work.
One is that our populations have been growing quickly for advanced industrialised countries. In Australia, population growth has averaged 1.7 per cent over the past decade, while in Canada it has averaged 1.1 per cent. Over the past couple of years the growth rates have moved closer together.
<a href="https://www.propertyobserver.com.au/images/2017/02/22/sp-so-2017-02-22-graph4.gif" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/02/22/sp-so-2017-02-22-graph4.gif" alt="">
Another similarity is that there has been strong demand from overseas residents for investments in residential property, particularly in our wonderful Pacific-rim cities. Not only are these cities attractive places to live, but we also offer investors security of property rights and economic and financial stability. Given the strong demand and its impact on prices in some areas, some state and provincial governments have recently levied additional taxes on foreign investors in residential property.
Our housing markets have also been affected by the global monetary environment. We both run independent monetary policies, but the level of our interest rates is influenced by what happens elsewhere in the world. With interest rates so low and our economies being resilient, it is not so surprising that people have found it an attractive time to borrow to buy housing.
<a href="https://www.propertyobserver.com.au/images/2017/02/22/sp-so-2017-02-22-graph5.gif" target="_blank">Click to enlarge</a>
 <img src="https://www.urban.com.au/images/2017/02/22/sp-so-2017-02-22-graph5.gif" alt="">
Another characteristic that we have in common is that at a time of strong demand from both residents and non-residents, there are challenges on the supply side. I understand that zoning is an issue in Canada, just as in Australia. In some parts of Australia, there has also been underinvestment in transport infrastructure, which has limited the supply of well-located land at a time when demand for such land has been growing quickly. The result is higher prices.
We are also both experiencing large differences across the various sub-markets within our countries. The strength in housing markets in our major cities contrasts with marked weakness in the mining regions following the end of the mining investment boom (Graph 6).
<a href="https://www.propertyobserver.com.au/images/2017/02/22/sp-so-2017-02-22-graph6.gif" target="_blank">Click to enlarge</a>
 <img src="https://www.urban.com.au/images/2017/02/22/sp-so-2017-02-22-graph6.gif" alt="">
The increase in overall housing prices in both our countries has gone hand in hand with a further pick-up in household indebtedness (Graph 7). In both countries the ratio of household debt to income is at a record high, although the low level of interest rates means that the debt-servicing burdens are not that high at the moment.
<a href="https://www.propertyobserver.com.au/images/2017/02/22/sp-so-2017-02-22-graph7.gif" target="_blank">Click to enlarge</a>
 <img src="https://www.urban.com.au/images/2017/02/22/sp-so-2017-02-22-graph7.gif" alt="">
In Australia, the household sector is coping reasonably well with the high levels of debt. But there are some signs that debt levels are affecting household spending. In aggregate, households are carrying more debt than they have before and, at the same time, they are experiencing slower growth in their nominal incomes than they have for some decades. For many, this is a sobering combination.
Reflecting this, our latest forecasts were prepared on the basis that growth in consumption was unlikely to run ahead of growth in household income over the next couple of years; in other words the household saving rate was likely to remain constant. This is a bit different from recent years, over which the saving rate had trended down slowly (Graph 8).
<a href="https://www.propertyobserver.com.au/images/2017/02/22/sp-so-2017-02-22-graph8.gif" target="_blank">Click to enlarge</a>
 <img src="https://www.urban.com.au/images/2017/02/22/sp-so-2017-02-22-graph8.gif" alt="">
This interaction between consumption, saving and borrowing for housing is a significant issue and one that I know both central banks are watching carefully. It is one of the key uncertainties around our central scenario for the Australian economy. It was also cited as one of the key risks for the inflation outlook in the Bank of Canada's latest Monetary Policy Report. We are still learning how households respond to higher debt levels and lower nominal income growth.
Inflation Targeting in a Low Inflation Environment
I would now like to turn to a third issue where there is some commonality of experience: that is dealing with an extended period of low inflation.
For a few years now, both countries have experienced low rates of inflation (Graph 9). Many of the same factors have been at play. Wage growth has been subdued given the ongoing slack in the labour market. We have both also seen downward pressure on retail prices from intensified competition. In its latest Monetary Policy Report, the Bank of Canada noted that this was one issue affecting food prices. The same is true in Australia, but the experience here is broader, with new entrants, including overseas retailers, putting downward pressure on the prices of a wide range of goods.
<a href="https://www.propertyobserver.com.au/images/2017/02/22/sp-so-2017-02-22-graph9.gif" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/02/22/sp-so-2017-02-22-graph9.gif" alt=""> 
We are both expecting inflation to increase, but only gradually so. In our case, we expect the disinflationary effects of the earlier decline in commodity prices and the competitive pressures in retailing to wane. Some pick-up in wages growth is also expected, although wage increases are likely to remain below average for some time yet. Our liaison with businesses does not suggest that a pick-up in wage growth is imminent, but nor does it suggest that a further slowing is in prospect.
Over recent times, both central banks have had to think about the implications for their monetary policy frameworks of sustained low inflation and rapid increases in borrowing and housing prices. Both have recently reaffirmed that inflation targeting remains the right monetary policy framework.[1] We have also emphasised that our inflation targets are flexible, not rigid straightjackets. In our case, the emphasis is very much on medium-term outcomes, rather than the outcome over any particular period.
While there are some differences in emphasis in language, there is a high degree of commonality in our approaches. Governor Poloz has said on a number of occasions that the Bank of Canada takes a ‘risk management approach’ to monetary policy.[2] This strikes a very strong resonance with us at the Reserve Bank of Australia.
At any point in time there are quite a few possible paths that the cash rate could follow to achieve Australia's inflation target, which is to achieve an average rate of inflation over time of 2 point something. Consistent with the Reserve Bank Act, we set out to choose the path that, in our judgement, best promotes the welfare of the Australian people.
In our risk management exercises, we have been seeking to balance the risks from having inflation low for a longer period against the risks from attempting to increase inflation more quickly, which would partly occur through encouraging more borrowing.
If inflation is low for a long period of time, it is certainly possible that inflation expectations adjust, making it harder to achieve the objective. At the moment though, I don't see a particularly high risk of this in Australia. The recent lift in headline inflation is helpful here and most measures of inflation expectations are within the range seen over recent decades.
In relation to the risks from additional borrowing, it is possible that continuing rises in indebtedness, partly as a result of low interest rates, increase the fragility of household balance sheets. If so, then at some point in the future, households having decided that they had borrowed too much, might cut back consumption sharply, hurting the overall economy and employment. It is difficult to quantify this risk, but it is one that is difficult to ignore. As I said, our focus is on the medium term, not just the next year or so.
Another consideration in thinking about the risks are the trends in the labour market. All else constant, if the unemployment rate is high and rising, the stronger would be the case for policy to pursue a quicker return of inflation to the midpoint of the target. To date, we have been satisfied that the labour market is heading in the right direction, if not as quickly as we'd like. After declining over 2015, our unemployment rate has been broadly steady, with employment growth concentrated in part-time jobs. And like the housing market, the labour market outcomes vary significantly across the country. So it is an area that we continue to watch carefully.
In summary then, flexible inflation targeting with a medium-term focus remains the right monetary policy framework for Australia. In both Australia and Canada our monetary policy frameworks have played important roles in our economic stability of recent times. As I mentioned at the start of my remarks, we also share other strengths – a rich commodity base, strong and resilient banking systems, an attractive destination for foreign investment, flexible exchange rates and a commitment to openness and competitive markets. But overall, Australia and Canada provide pretty good advertisements for flexible inflation-targeting frameworks.
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Ratio of household debt to income at record high: Philip Lowe

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Simply, the Reserve Bank believes that economic growth and inflation will lift over 2017, ruling out the need to cut interest rates further.
If the forecasts were to change and the Reserve Bank became less positive, rate cuts would clearly be back on the radar screen, but the Bank believes risks are balanced. Rate hikes seem some way off. 
While the economy went backwards in the September quarter, the Reserve Bank swiftly dismissed the data: “This weakness was not expected to have continued into the December quarter and the forecasts for quarterly GDP growth were little changed.”
Consumer confidence eased over the past week with consumers more negative on their finances. In fact the reading on current finances hit a 7-month low in the latest week. Clearly higher petrol prices would have had an impact – petrol recently hit 18-month highs and it is the single biggest weekly purchase by most families. Interestingly though, consumers believe it’s currently a good time to buy a major household item. So consumers are far from glum, just mindful about their weekly budgets.
Inflation expectations of consumers also lifted last week and again the higher petrol price would have been a key factor behind the move.
What do the figures show?
Reserve Bank Board minutes:
Last paragraph: “Taking account of all the information available, including the updated forecasts, an assessment of the risks affecting these forecasts and the level of the cash rate, the Board judged that holding the stance of policy unchanged would be consistent with sustainable growth in the economy and achieving the inflation target over time.”
“Labour cost pressures were expected to build gradually from their current low levels as spare capacity in the labour market diminished and the effect of heightened competitive pressures on retail prices eased.”
“there were signs that the significant increase in the supply of apartments had begun to affect prices and rents in Brisbane.”
“The fall in GDP in the September quarter had reflected some temporary factors."
“In considering the stance of monetary policy, members viewed the near-term prospects for global growth as being more positive, although recognised the risks from policy uncertainty in the medium term. Stronger growth had contributed to higher inflationary pressures, including higher commodity prices, which had implications for the future stance of monetary policy in the advanced economies in coming years.”
“The large amount of work in the pipeline was expected to support dwelling investment at high levels over the next year or so, although there was some risk of more cancellations than usual if conditions in apartment markets deteriorated.”
“Ongoing spare capacity in the labour market had contributed to subdued wage pressures, although there were some indications that wage growth had reached a trough.”
“Members noted that developments in China continued to be one of the main sources of uncertainty for the Australian economy.”
“the higher terms of trade represented a boost to national income, which provided some upside risks to the domestic forecasts.”
Consumer confidence
The ANZ/Roy Morgan consumer confidence rating fell by 2.3 per cent to 113.7 in the week to February 19. Confidence is up 0.1 per cent over the year and just above the average of 113.2 since 2014. Three of the five components of the index fell in the latest week:
The estimate of family finances compared with a year ago was down from +10 to +2;  The estimate of family finances over the next year was steady at +26;
Economic conditions over the next 12 months was down from +2 to zero;
Economic conditions over the next 5 years was down from +10 to +5;
The measure of whether it was a good time to buy a major household item was up from +35 to +36.
In addition the inflation expectation 2 years ahead, rose from 4.2 per cent to 4.5 per cent. Inflation expectations have now held above 4 per cent for the past 10 weeks.
What is the importance of the economic data?
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.
What are the implications for interest rates and investors? 
CommSec expects the Reserve Bank to remain on the interest rate sidelines for an extended period. 
One factor to watch is the oil price, and in turn, the local petrol price. The Reserve Bank says global inflation has moved higher and singled out the oil price as a key influence. At home, the Reserve Bank has also noted that petrol prices had lifted in the quarter after subtracting from inflation “over much of the previous few years.”
At present a stronger Aussie dollar is capping petrol prices and could lead to some relief for motorists in the short- term. 
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Craig James is the chief economist at <a href="https://www.comsec.com.au/default.aspx">CommSec</a>.
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Reserve Bank and consumers fixated on petrol: Craig James

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Amid all talk of runaway home prices, especially in Sydney and Melbourne, and tightening of mortgage criteria by banks, RBA assistant governor Luci Ellis said low income households with disproportionately high debts pose a risk.
“It is rarely the median borrower who defaults. Risk comes from the tails of the distribution,” she said at the Australasian Housing Researchers Conference where the main theme was housing and inequality.
Ellis said that ,”Because higher-income households are more likely to be owner-occupiers, they are also more likely to have mortgage debt” but they were better able to service it than lower-income households which tend “to have quite a lot of debt relative to their incomes”. 
“Sometimes this is because they have temporarily low incomes, but overall it does speak to the need to be aware of pockets of potential stress within a more benign overall picture.”
<a href="https://www.propertyobserver.com.au/images/2017/02/17/RBAHouseholdDebt.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/02/17/RBAHouseholdDebt.png" alt="">
Ellis also said if “we are concerned about inequality of housing outcomes, perhaps we should focus less on the type of tenure, and more on security of tenure.”
She’s said participation in the housing market “need not be about owning your own home”.  
Many rent, but renters are more likely to move than home owners, which could be disruptive and costly.
She questioned “whether all those moves by renters were desired by those households. Many renters are happy with their current home, but are required to move because the lease expired or the landlord sold the property.”
She said some earlier studies had suggested that transaction costs induce home owners to move less often than they might otherwise do, which makes it harder for them to take advantage of changing labour market opportunities, but that effect wasn’t clear in Australian data.
Earlier this week, NSW Premier Gladys sought former Reserve Bank governor Glenn Stevens’s advise on ways to improve housing affordability. 
Tackling the affordability issue is one of her priorities, Berejiklian has said since becoming Premier in January.
Meanwhile, Macquarie Bank recently tightened its lending criteria, asking home loan borrowers for details on almost every little aspect of their living expenses, from grocery, internet to shoes.
 
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Housing and Inequality: RBA’s Luci Ellis says ‘security of tenure’ more important than type

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Former Reserve Bank governor Glenn Stevens will advise the NSW government on ways to improve housing affordability which Premier Gladys Berejiklian said was one of her priorities since she became Premier in January.
Stevens’ appointment, the first position since he left the RBA in September after a decade as its chief, could again raise the issue of negative gearing ­reform, which he strongly backed during his central bank tenure, according to a report in The Australian.
Stevens was cited in the report as saying, “Housing affordability is a growing challenge for many residents of NSW and I look forward to working with the government on measures that might help ­address it.”
The affordability measures are expected to be unveiled during or before the next budget.
“The NSW government understands that housing affordability is top of mind for many people across the state,” Berejiklian said. “That is why we have made it a key priority and why we have asked Mr Stevens to lend his expertise to tackling this issue.”
But Berejiklian did not say about whether she would push the federal government on negative gearing if Stevens indicated it would ease affordability pressures.
During his time as governor, the central bank told a parliamentary inquiry “there is a case for reviewing negative gearing, but not in isolation”.
The most recent house price figures, compiled by CoreLogic RP Data, show a 16 per cent ­annual increase in Sydney dwelling prices, and a 1 percent increase in January.
That has pushed the median Sydney home price to $850,000, compared to $640,000 in Melbourne and $490,000 in ­Brisbane.
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Former RBA governor Glenn Stevens to advise NSW govt on housing affordability

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The Reserve Bank of Australia has concerns on the apartment market, warning a flood of new apartments could come onto the market in certain areas, pushing down prices and causing heavy losses for developers.
The concerns were voiced in its latest Statement on Monetary Policy. The central bank pointed out that residential building approvals have been almost 50 per cent higher than their long-term average over the past two years, helped by low interest rates and buoyant housing prices in the eastern states.
While residential building approvals, especially for higher-density apartments, have fallen in recent months, the RBA statement noted dwelling investment should hold up as developers start work on projects that are already in the pipeline.
It said private dwelling investment continued to grow at an above-average rate over the year, but fell unexpectedly in the September quarter, largely because poor weather disrupted construction. 
Residential building approvals, especially higher-density dwelling approvals, have fallen in recent months (Graph 3.6). Nevertheless, the large amount of work in the pipeline should continue to support a high level of dwelling investment for the foreseeable future.
<a href="https://www.propertyobserver.com.au/images/2017/02/13/Graph3.6.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/02/13/Graph3.6.png" alt="">
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<img src="https://www.urban.com.au/images/2017/02/13/ResiDwellPipeline.png" alt="" style="font-size: 12.16px;"> 
The central bank pointed out that that "an approved apartment takes around three times as long to complete as a detached house".
It added that the longer lag between the decision to approve a higher-density dwelling and its completion makes it easier to forecast dwelling investment levels further into the future.
But it also "means that the impact on the supply of housing, including prices and vacancy rates, may be less predictable than in the past".
 By late last year, the residential dwelling pipeline was equivalent to 12 per cent of GDP, and the number of dwellings yet to be completed accounted for 2.5 per cent of the country's total supply of housing.
"This large pipeline of work primarily reflects strong growth in building for higher-density dwellings (such as apartments)," the RBA says.
<a href="https://www.propertyobserver.com.au/images/2017/02/13/ResiActivity.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/02/13/ResiActivity.png" alt=""> 
It noted the average completion time for an apartment in 2016 was around six quarters, almost three times longer than for detached houses, and twice as long as for townhouses.
It acknowledged the large pipeline of dwelling investment will continue to support economic activity and employment over the next couple of years.
But the RBA pointed out there are risks involved with the high level of activity and the shift to higher-density buildings especially as the apartment construction "is geographically concentrated, particularly in inner-city Melbourne and Brisbane".
Their statement also said a risk existed that developers might not be able to respond in time to signs of over-supply and waning house prices, "so a general oversupply is more likely to build up".
The RBA warns that "if these risks materialise, there could be an increase in the proportion of newly completed apartments that fail to settle and a rise in the share of work yet to be commenced that is not undertaken".
The central bank said conditions in the established housing market differ significantly across the country (Graph 3.7; Graph 3.8). 
<a href="https://www.propertyobserver.com.au/images/2017/02/13/Graph3.7.png" target="_blank">Click to enlarge</a>
 <img src="https://www.urban.com.au/images/2017/02/13/Graph3.7.png" alt="">
 
<a href="https://www.propertyobserver.com.au/images/2017/02/13/Graph3.8.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/02/13/Graph3.8.png" alt="">
Conditions in the housing market in Sydney and Melbourne strengthened over the second half of 2016, but they have remained relatively subdued elsewhere. In the private treaty market, the average discount on vendor asking prices has decreased, but the average number of days that a property is on the market has increased from the lows of 2015, mainly reflecting developments outside Sydney and Melbourne.
In general, price growth for detached houses has been stronger than for apartments, particularly in the capital cities where the supply of new apartments has increased the most. 
For example, in the second half of 2016, apartment prices declined noticeably in Brisbane while growth in prices for detached houses increased. Conditions in Perth remain particularly weak; prices and rents have continued to decline and the vacancy rate has increased further (Graph 3.9). 
Rental growth in the rest of the country remains subdued and vacancy rates have been steady near their long-run average for some time.
<a href="https://www.propertyobserver.com.au/images/2017/02/13/Graph3.9.png" target="_blank">Click to enlarge</a>
 <img src="https://www.urban.com.au/images/2017/02/13/Graph3.9.png" alt="">
Low interest rates support demand
The RBA said low interest rates are support housing demand.
"Over recent months, loan approvals have picked up, largely reflecting stronger demand from investors. Bank lending standards have been tightened over the past couple of years, which is a positive development given the already high levels of debt," it added.
Housing credit growth increased a little in recent months to an annualised rate of around 6½ per cent, but remains below the pace seen in 2015. The pick-up in housing credit growth reflected faster growth in credit extended to investors more than offsetting slower growth in owner-occupier credit, and has been consistent with trends in housing loan approvals (Graph 4.13).
<a href="https://www.propertyobserver.com.au/images/2017/02/13/Graph4.13.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/02/13/Graph4.13.png" alt=""> 
The recent strength in housing loan approvals was concentrated in New South Wales and Victoria, while conditions remain weak in Western Australia (Graph 4.14), it said. The recent increase in overall housing loan approvals is consistent with a pick-up in housing price growth and turnover.
<a href="https://www.propertyobserver.com.au/images/2017/02/13/Graph4.14.png" target="_blank">Click to enlarge</a>
<a href="https://www.propertyobserver.com.au/images/2017/02/13/Graph4.14.png" target="_blank"><img src="https://www.urban.com.au/images/2017/02/13/Graph4.14.png" alt=""></a>
Average loan-to-valuation ratios are continuing to decline, reflecting the effects of tighter lending standards that were in part prompted by the measures introduced earlier by APRA.
According to the central bank, "a significant portion of the increase in investor credit growth is also likely to reflect the extension of credit to investors settling the payment of newly completed apartments that were purchased off the plan at an earlier time." 
The pick-up in investor credit growth also follows reductions in interest rates through the middle of 2016. Since November, most lenders have increased fixed and some variable housing interest rates, especially for investors or borrowers with interest-only loans.
Three of the four major banks have increased their standard variable rates for investor loans by 7–15 basis points but have left owner-occupier rates unchanged. Two major banks also announced increases in interest rates for interest-only loans. Other lenders have increased variable lending rates to both owner-occupiers and investors by 10–15 basis points. Some lenders have indicated that they have implemented these changes in response to higher funding costs and to meet regulatory requirements, such as APRA’s guidance for a maximum growth rate on investor credit of 10 per cent. Overall, these interest rate increases are estimated to have boosted the average outstanding housing interest rate by less than 5 basis points (see Table 4.2). 
<a href="https://www.propertyobserver.com.au/images/2017/02/13/Table4.2.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/02/13/Table4.2.png" alt="">
In addition to increasing the differential between advertised interest rates for new owner-occupier and investor loans, many lenders appear to have reduced the discretionary discounts available to new borrowers, it said.
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Apartment oversupply could push down prices, hurting Melbourne and Brisbane developers: RBA

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GUEST OBSERVER
Global share markets rose over the last week helped by a combination of good economic data and announcements from President Trump progressing his deregulation and tax reform agenda.
Bond yields mostly fell though helped along in Europe by dovish comments from ECB President Draghi. Commodity prices were mixed with oil down but metals up and iron ore at its highest since 2014. The $US rose and this saw the $A pull back.
The message from the first few weeks of Donald Trump’s presidency is that while he and his administration is generating a lot of noise on a lot of issues as long as he continues to make periodic announcements progressing his pro-growth policies – rolling back Dodd-Frank, working towards a “phenomenal” tax plan, making “life good” for airlines, etc – then share markets will respond positively. So while all the noise around the travel ban, whether the Lindt Café siege was “underreported” (I was in Memphis on an Elvis pilgrimage at the time and the siege had plenty of coverage on US TV!), etc, is interesting, investors should continue to turn down all this noise when making investment decisions.
While unwinding the Dodd-Frank financial regulations will take time and face constraints (as it will likely require the support of 8 Democrat Senators, although it may be possible to find work arounds), tax reform is likely to proceed more quickly as Congress has already done significant work on it and it can pass through the Senate using budget reconciliation rules that only require a simple Senate majority – which the GOP has. It now looks likely that the Trump administration will submit a tax plan to Congress in a few weeks – this is almost certain to include a cut in the corporate tax rate (to 20% or so) and possibly also a cut to personal income tax rates. Its less clear whether a “border adjustment tax” (rebating tax on exports and taxing imports) will be included. Taking the US corporate tax rate from 35% to 20% will put massive pressure on Australia at 30% and other countries to follow suit (the OECD average is around 25%).
In Australia, the Reserve Bank left interest rates on hold as expected, but in its Statement on Monetary Policy made little significant changes to its growth and inflation outlook seeing December quarter GDP growth rebound, growth averaging around 3% over the next few years and inflation heading back to 2% by year end.
The Bank’s post meeting statement, a speech by Governor Philip Lowe and the Statement on Monetary Policy all presented a relatively upbeat assessment on the economic outlook. While we have growth outlook, our view remains that it will take longer for inflation to return to target than the RBA is allowing, particularly with wages growth remaining at record lows and the $A trending higher. As a result we remain of the view that the RBA will cut rates again this year, probably in May after the next round of inflation data.
<a href="https://www.propertyobserver.com.au/images/2017/02/10/Screen%20Shot%202017-02-10%20at%202.06.27%20PM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/02/10/Screen%20Shot%202017-02-10%20at%202.06.27%20PM.png" alt="">
Given the improving global growth and inflation outlook though and the desire to avoid adding to financial stability risks, our call for another RBA rate cut is a close one.
Surprisingly, the RBA’s level of concern around the property market does not appear to have increased despite a further pick up in lending to property investors and rapid price growth in Sydney and Melbourne. This appears to partly reflect the RBA’s assessment that lending standards have tightened, the supply of property is set to rise with longer than normal lags and that part of the recent upswing in investor credit may reflect investors paying for properties bought of the plan some time ago. There still remains a case for a precautionary lowering in APRA’s 10% investor credit growth limit though.
Major global economic events and implication
US job openings, hiring and quits remained basically unchanged at relatively high levels, jobless claims fell to ultra-low levels and the trade deficit narrowed slightly in December. 71% of US S&amp;P 500 companies have now reported December quarter profits with 75% beating earnings expectations with an average surprise of +3.6% and 51% beating on revenue. Earnings are now expected to be up 6.3% from a year ago.
Japanese data showed a slight fall in confidence and continuing weak wages growth but improved machinery orders, a rise in Japan’s leading index and an ongoing decline in bankruptcies and the first annual rise in producer prices since March 2015.
Chinese foreign reserves fell below $US3trillion for the first time since 2011 and are down from a high of $US4trillion highlighting that China continues to see capital outflows and is using its reserves to slow the decline in the Renminbi (are you listening President Trump?).
The Reserve Banks of India and New Zealand both left interest rates on hold and both look to have a neutral stance for now but with the RBNZ pencilling in one hike in 2019. 
Australian economic events and implications
Its too early to read much into the December half profit reporting season because less than 20 major companies have reported to date. But so far so good with 67% exceeding earnings expectations compared to a norm of 44%, 67% of companies seeing profits up from a year ago and a stronger than expected result from Rio Tinto confirming that the turnaround in resources sector profits is on track. 
On the data front in Australia, December quarter retail sales volumes rebounded 0.9% adding to confidence that consumer spending and hence GDP growth rebounded in the December quarter. While retail sales unexpectedly fell 0.1% in the month of December, this reflected a sharp fall in hardware, building and garden supplies (possibly reflecting the wind down of Masters) so is unlikely to mean much. Meanwhile new home sales were flat in December according to the HIA but still appear to be tracing out a gradual downtrend since their high in 2015 and December housing finance commitments saw a slight swing back in favour of owner occupiers but not much given the strong gains in investor lending in prior months.
What to watch over the next week?
In the US, the focus is likely to remain on the noise coming out of Washington but also on Fed Chair Janet Yellen's Congressional testimony (on Tuesday and Wednesday) which is likely to repeat the message from the Fed's last meeting that it remains on track to hike further this year but that the process is likely to be gradual. Her response to questions regarding the impact of the new president will no doubt be watched closely but the Fed is basically in wait and see mode on that front. Expect headline CPI inflation (Wednesday) to 
have increased further to 2.4% year on year in January but core inflation to fall slightly to 2.1% yoy, solid growth in underlying retail sales in January, flat industrial production, continuing strength in the home builders' conditions index (all Wednesday) and flat housing starts (Thursday). December quarter earnings results will continue to flow.
Japanese December quarter GDP data (Tuesday) is expected to show growth at 0.3% quarter on quarter or 1.8% yoy.
Chinese inflation data for January (Tuesday) is likely to show a further rise in CPI inflation to around 2.3% yoy and a further uplift in producer price inflation to 6.5% yoy as the slump in commodity prices a year ago continues to drop out.
In Australia expect continued strength in business conditions according to the NAB's January survey, a bounce in consumer confidence (Wednesday) and January jobs data to show a 10,000 gain in employment but unemployment holding at 5.8%.
The Australian December half profit reporting season will ramp up further with 61 major companies reporting (including JB HiFi, CBA, Wesfarmers, Origin and Telstra). Earnings upgrades for resources stocks on the back of the rise in commodity prices has seen the consensus expectation for 2016-17 earnings growth rise to 17%. Resource company profits are expected to more than double, but profit growth across the rest of the market is likely to be around 5% led by retailers, utilities, telcos and building materials companies. Key themes are likely to be: a massive turnaround for resources companies; constrained revenue growth for banks and industrials; and an ongoing focus on dividends.
Outlook for markets
Shares remain vulnerable to a short term pull back as sentiment towards them remains very high, Trump related uncertainty will be with us for a while and various European elections could create nervousness in coming months. However, we see share markets trending higher over the next 12 months helped by okay valuations, continuing easy global monetary conditions, fiscal stimulus in the US, some acceleration in global growth and rising profits.
Still low yields and capital losses from a gradual rise in bond yields are likely to see low returns from bonds. Australian bonds are preferred to global bonds reflecting higher yields and as the RBA remains well behind the US in moving into a tightening cycle.
Commercial property and infrastructure are likely to continue benefitting from the ongoing search by investors for yield, but this demand will wane as bond yields trend higher over the medium term.
National capital city residential property price gains are expected to slow to around 3-4% this year, as the heat comes out of the Sydney and Melbourne markets and rising apartment supply hits.
Cash and bank deposits are likely to continue to provide poor returns, with term deposit rates running around 2.5%.
The $A has had a short term bounce as the $US corrected from overbought levels. This could go further and see a retest of $US0.78. However, the downtrend in the $A from 2011 is likely to resume as the interest rate differential in favour of Australia narrows &amp; it undertakes its usual undershoot of fair value. Expect a fall below $US0.70 by year end. 
<a href="https://www.propertyobserver.com.au/https://plus.google.com/110172465327488162875?rel=author">SHANE OLIVER</a> is head of investment strategy and economics and chief economist at <a href="https://www.ampcapital.com.au/home">AMP Capital</a> and is responsible for AMP Capital's diversified investment funds.
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