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<a href="https://www.apartments.com.au/developers/doma-group">DOMA Group</a> has unveiled plans for Newcastle Quay, a major waterfront precinct set to reshape Newcastle’s harbourfront and further cement the city’s evolution into one of Australia’s fastest-growing urban destinations.

Positioned on a prominent site within the Honeysuckle Precinct, Newcastle Quay will span both sides of Honeysuckle Drive, connecting directly to the Foreshore Promenade and sitting within walking distance of Newcastle Interchange.

The mixed-use precinct is planned to include around 1,000 apartments, more than 28,000 sqm of commercial office space, 6,000 sqm of retail, and a 180-room hotel anchored by a 500-seat conference and exhibition centre, a move expected to significantly lift Newcastle’s ability to attract major business and tourism events.
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<img alt="DOMA Group unveil Newcastle’s future with transformative Newcastle Quay Precinct" data-entity-type="file" data-entity-uuid="0642ca09-67cc-4920-8a7e-d18df9729b4e" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/%3D.png?VersionId=CnDmZxQnOV5LN0ePu7jaFBXC9tPGTrWm" />

The proposal builds on DOMA’s growing Newcastle pipeline, where the developer has already delivered 866 apartments and more than 19,000 sqm of commercial and retail space since entering the market in 2013. A further $2 billion pipeline is also in the works across the city.

The masterplan and executive architecture are led by <a href="https://www.apartments.com.au/architects/sjb-architects">SJB</a>, with building concepts developed alongside Stewart Architecture, Architecture AND and Curious Practice, and landscape design by <a href="https://www.apartments.com.au/landscape-architect/turf-design">Turf Design Studio</a>. More than 11,000 sqm of open space is planned, including a new waterfront park known as Honeysuckle Green, upgrades to Tree of Knowledge Park, and new pedestrian and cycling links throughout the precinct.

At the centre of the development will be the heritage-listed Wickham School of Arts, which DOMA plans to reposition as the civic and cultural heart of the precinct through restaurants, bars, events and public gathering spaces.

The broader vision is to create a genuine day-to-night precinct, blending residential, hospitality, retail, commercial and cultural uses in a way Newcastle has yet to experience at this scale.

DOMA Group Managing Director Jure Domazet said the aim was to create a precinct that becomes synonymous with Newcastle itself.

“Our vision is to create a precinct that not only delivers high-quality commercial, residential, and cultural spaces, but also defines Newcastle’s waterfront for generations to come,” Domazet said.

DOMA’s Chris Farrington said the project would fundamentally change how Newcastle is perceived nationally.

“Newcastle Quay is more than a waterfront precinct, it is a national announcement for this city,” Farrington said.

“A world-class Conference and Exhibition Centre will open Newcastle and the Hunter Region to a national and international audience for the first time, delivering something this city has long deserved.”

The project is expected to generate more than 4,000 full-time equivalent jobs and act as a major economic driver for the Hunter region through tourism, business events, hospitality and commercial investment.

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Minister for Planning and Public Spaces Paul Scully said the final parcel of harbourfront land will be a "true mixed-use precinct destination that includes housing, hospitality and entertainment, commercial spaces, retail, economic and social outcomes."

Joel Robinson

DOMA Group unveils 1,000-apartment Newcastle Quay precinct

ASX-listed developer Stockland is continuing to ramp up its return to the apartment market.

In late 2024, <a href="https://www.apartments.com.au/developers/stockland">Stockland</a> announced it would resume apartment development after a 13-year absence, launching with Stanton Place in Rosebery, a 144-apartment project now under construction.

Last week, the developer unveiled plans alongside the NSW Government for a <a href="https://www.apartments.com.au/news/nsw/first-look-stockland-nsw-gov-unveils-plans-for-3-300-home-waterloo-south-renewal">3,300-home precinct in Waterloo</a>.

Now, Stockland has shifted its focus in St Leonards, lodging a State Significant Development Application (SSDA) to replace an approved 42-storey office tower with a 52-storey residential development comprising more than 500 apartments.

<img alt="Stockland" data-entity-type="file" data-entity-uuid="8979095e-9072-432b-a7da-58b180cf994d" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-20%20at%204.27.36%E2%80%AFPM.png?VersionId=_jbRXYOafCSHjwsz.yQCNIymMyCj8zkF" />

An existing 14-storey commercial office building would make way for a 264.5-metre tower designed by <a href="https://www.apartments.com.au/architects/bates-smart">Bates Smart</a>. The project would deliver 538 apartments, including 30 affordable housing units, alongside retail and commercial uses at the podium and ground plane.

It will rise from&nbsp;<a href="https://www.apartments.com.au/new-apartments/601-pacific-highway-st-leonards-nsw-2065">601 Pacific Highway</a>, a prominent 2,844 sqm triangular site adjoining Mitchell Plaza and fronting Pacific Highway.

The development is being pursued under the Housing Delivery Authority pathway after Stockland’s proposal was declared State Significant Development earlier this year.

<img alt="First look: Stockland plans 52-storey mixed-use tower with 538 apartments in St Leonards" data-entity-type="file" data-entity-uuid="67f40f35-0458-47ab-80c0-a4e98a31838a" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/stockland%201.png?VersionId=rxXe3njr.auuGDuiR0k42uI8Zr4K.gZA" />

The apartment mix includes 217 one-bedroom apartments, 191 two-bedroom apartments, 122 three-bedroom apartments, and eight four-bedroom residences. Six basement levels would accommodate 300 car spaces, bicycle parking, loading areas, and building services.

Bates Smart said the project has been shaped around a series of urban design principles intended to improve the pedestrian experience and respond to the evolving character of St Leonards.

“With a boundary length of almost 75m along Pacific Highway and 70m along Atchison Street to the north, complying simply with the LEP envelope and required setbacks would result in a very wide tower form on the skyline,” the architects noted in the Design Report.

“We propose breaking the tower form into two defined volumes rather than a singular form.”

The podium has similarly been articulated into separate forms to reduce perceived bulk and create a finer-grain response to Mitchell Plaza and Atchison Street. Retail tenancies would activate the lower levels, while commercial space is proposed across the podium floors.

<img alt="First look: Stockland plans 52-storey mixed-use tower with 538 apartments in St Leonards" data-entity-type="file" data-entity-uuid="90149990-0551-40d2-bd48-14b69a015d12" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/stockland%202.png?VersionId=MJC2KIIWFvU9FPGr3IVq09gkRN_gX3m8" />

The design also places a significant emphasis on communal amenity and environmental performance. Residents would have access to landscaped terraces, wellness areas, flexible workspaces, and rooftop communal facilities, while the all-electric building is targeting an average 7-star NatHERS rating. Bates Smart said the project incorporates passive design measures including natural ventilation, integrated shading, and lightweight façade systems.

Planning documents note the site is around 350 metres from St Leonards Station and 400 metres from the metro entrance, placing it within one of Sydney’s most connected emerging residential precincts.

The project arrives amid a wave of large-scale redevelopment proposals reshaping the St Leonards and Crows Nest skyline. Several nearby sites have recently been approved, lodged, or declared under the Housing Delivery Authority pathway as the precinct absorbs significant residential density uplift tied to transit-oriented development policies.

<img alt="Stockland" data-entity-type="file" data-entity-uuid="7805bd7c-dfd7-4b35-8e15-ec4a8bf8e61b" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-20%20at%204.27.26%E2%80%AFPM.png?VersionId=iY12K2m2bQ6EeDnshqfZC9rbLx_oEugP" />

Bates Smart’s report describes St Leonards as transitioning away from its historical commercial identity toward a more mixed-use urban environment.

“In recent years, the character of St Leonards has started to evolve, driven by new development trends along the Pacific Highway corridor,” the report said.

“These projects have increasingly focused on residential accommodation, marking a shift from its purely commercial roots.”

Sekisui House Australia is currently selling Waterstone down near Newlands Park, in a pocket being branded "St Leonards South." Hyecorp recently completed Audrey in the same pocket.

First look: Stockland plans 52-storey, 538-apartment St Leonards tower

ANZ believes the Reserve Bank is in no rush to move again.

Following the release of the May Monetary Policy Board Minutes, ANZ has taken the view that the RBA is now firmly in a holding pattern, with the cumulative impact of previous rate hikes giving the Board scope to assess how the economy evolves from here.

That positioning, in ANZ’s view, makes a June rate hike unlikely.

The bank continues to expect the cash rate to remain unchanged at 4.35 per cent for an extended period, with the RBA adopting what is effectively a wait-and-see approach.

The Minutes point to a Board that sees financial conditions as already restrictive, but without a clear read on just how restrictive they are. That uncertainty has shifted the focus away from immediate policy action and toward monitoring both domestic conditions and global developments, particularly the conflict in the Middle East.

As ANZ interprets it, the Board is deliberately avoiding strong forward guidance.

Instead, it is allowing itself flexibility, acknowledging that monetary policy has limited ability to influence the near-term trajectory of inflation, while also recognising that economic growth is likely to remain below potential for some time.

Despite that pause in momentum, ANZ notes that the Board still carries a tightening bias.

The Minutes reveal that, in weighing up its decision, the Board seriously considered another 25 basis point increase. The key debate centred on the trade-off between inflation and activity, particularly in the context of global uncertainty.

Ultimately, most members leaned toward the inflation side of that equation.

Underlying inflation is still expected to remain above target for an extended period, regardless of how external risks evolve. That has led to a view within the Board that the risks to its inflation objective have increased, and that the current cash rate may not be sufficiently restrictive to fully contain those pressures.

That’s important.

While the decision, for now, is to hold, the underlying tone of the Minutes suggests the door to further tightening has not been closed.

ANZ also points to commentary from Assistant Governor (Economic) Sarah Hunter, who highlighted the risk that inflation could pass through the economy more quickly and broadly than in previous cycles. Both Hunter and a majority of the Board expressed concern that inflation expectations could become less anchored after such a prolonged period above target.

That combination, persistent inflation and the risk of expectations shifting, is what continues to underpin the RBA’s cautious stance.

However, where ANZ diverges from the RBA is on the outlook for activity.

The Board appears relatively comfortable with current spending patterns, effectively downplaying recent declines in business and consumer sentiment. It notes that sentiment has historically been only weakly correlated with actual spending, and that feedback from its liaison program has not yet pointed to a meaningful slowdown in consumption.

ANZ is less convinced.

The bank believes the link between household disposable income, sentiment and spending is more direct than the RBA is currently acknowledging. With inflation continuing to erode real incomes, ANZ expects household spending to soften more materially than the central bank is forecasting.

That divergence matters because it shifts the balance of risk.

If activity weakens more than expected, the trade-off between inflation and growth changes. In ANZ’s view, that would reduce the need for further tightening and reinforce the case for the RBA to remain on hold.

It also suggests that the current policy setting may already be doing more work than the Board fully appreciates.

The broader takeaway from ANZ’s interpretation is that the RBA is walking a narrow path.

On one side sits the risk of inflation remaining elevated for longer than expected. On the other is the growing pressure on households and the potential for a sharper slowdown in activity.

For now, the Board is choosing to wait.

But it is a pause that still carries an underlying tightening bias, rather than a clear pivot toward easing.

In practical terms, that leaves the cash rate anchored at 4.35 per cent for the foreseeable future, with the next move still uncertain.

For borrowers, it reinforces the reality that relief is not imminent.

And for the broader economy, it highlights the delicate balance the RBA is trying to strike, between bringing inflation back to target and avoiding an unnecessarily sharp slowdown in growth.

According to ANZ, it is a balance that is becoming increasingly difficult to maintain.

RBA to hold rates for "prolonged period" rather than hikes: ANZ

<a href="https://www.apartments.com.au/developers/venturecrowd-property-projects">VentureCrowd</a> is down to the final Canopy Villa release at Cumulus Grand Villas in Carrara, as construction continues on the 59-residence gated community positioned above 100 hectares of natural savanna on the Gold Coast.

The remaining Canopy Villa forms part of one of four collections within the <a href="https://www.apartments.com.au/architects/bda-architecture">BDA Architecture</a>-designed community and has attracted interest from buyers seeking larger-format homes that combine privacy, security and low-maintenance living. Positioned within a private cul-de-sac and facing a protected black she oak forest, the four-bedroom villa includes a large private outdoor area suited to pet owners and families wanting more flexible space.

<a href="https://www.apartments.com.au/new-townhouses/cumulus-grand-villas-carrara-17-baltimore-court-carrara-qld-4211">Cumulus Grand Villas</a>, located at 17 Baltimore Court, comprises a mix of three and four-bedroom villas across the Skyline, Canopy, Savanna and Broadview collections. Prices currently range from $1.455 million to $1.895 million, with the final Canopy Villa priced from $1.825 million.

[smartcode_project:default project_id=135663 project_image_fid=360477]

The Canopy Collection villas offer four bedrooms, 2.5 bathrooms and approximately 245 sqm of internal space, alongside double garages and landscaped private areas. Expansive glazing, open-plan living spaces and private balconies have been designed to maximise natural light and outlooks toward the surrounding savanna landscape.

Construction is now underway across the fully funded development, which VentureCrowd says has become an increasingly important consideration for buyers assessing off-the-plan opportunities on the Gold Coast. The project is being delivered by <a href="https://www.apartments.com.au/builders/devcon">Devcon Property Group</a>, which has operated in South East Queensland since 1993 and delivered more than 1,000 homes across the region.

VentureCrowd Director of Property David Whitting previously said the project responds to changing buyer priorities in the prestige Gold Coast market.

“Flexible floorplans have proven particularly relevant for purchasers aged between 40 and 65, including next home buyers, downsizers and investors,” Whitting said.

[smartcode_project:default project_id=135663 project_image_fid=360505]

The buyer profile at Cumulus has reflected that shift toward owner-occupier-driven demand. Stuart Towns and Tracey Loynes recently purchased a Canopy Villa, drawn to both the lifestyle offering and the flexibility the home provided for their next stage of living together.

The couple, who met three years ago, sold their Robina home earlier this year after identifying what they saw as strong long-term investment potential at Cumulus while remaining within the same Gold Coast market. The villa’s private backyard was a major drawcard for their dog Luna, while proximity to golf courses including Emerald Lakes also aligned with their lifestyle interests.

Beyond the residences themselves, the community has been planned around shared lifestyle and recreation amenities. The Infinity Terrace will include a 20-metre heated pool, barbecue facilities, alfresco dining spaces and elevated retreat areas overlooking the surrounding landscape. Walking trails, a private nature reserve, orchard and herb garden are also integrated into the masterplan.

[smartcode_project:default project_id=135663 project_image_fid=360473]

BDA Architecture Director Darren Greenaway said the design approach was heavily influenced by the site’s outlook and secluded setting.

The practice sought to create what Greenaway described as a “little piece of paradise,” drawing inspiration from the elevated views, surrounding greenery and quiet location.

<a href="https://www.apartments.com.au/developments/carrara-qld-4211">Carrara</a> continues to attract buyers seeking larger homes within proximity to the coast but without direct beachfront pricing. Cumulus sits within easy reach of Broadbeach, Pacific Fair, Robina Town Centre and the M1, providing connections north to Brisbane and south toward the Gold Coast Airport and northern New South Wales.

The first stage of Cumulus Grand Villas is targeting completion in 2026.

[smartcode_project_cta:default project_id=135663]

VentureCrowd nears sell-out of Canopy Collection at Cumulus Grand Villas in Carrara

Waverley Council has made a call that many councils have been reluctant to make publicly. Growth is coming, regardless of who controls it.

The release of the Bondi Junction Vision and Master Plan is less about whether the Eastern Suburbs’ primary centre will change, and more about how that change is shaped, funded, and ultimately experienced on the ground. Waverley Council has released a 100-page plan which is effectively the first comprehensive blueprint for Bondi Junction in over two decades, and in doing so, signals a clear shift in how councils are positioning themselves in the current planning environment.

For the past 18 months, the conversation across New South Wales has been dominated by the State Government’s Low and Mid-Rise Housing reforms and the emergence of the Housing Delivery Authority pathway. Both have created faster, more centralised avenues for development approvals, particularly in well-located, infrastructure-rich areas like Bondi Junction.

Waverley Council’s response has been to move early, and decisively.

Rather than react to individual proposals as they come through the HDA or broader State-led reforms, Council has sought to establish a clear, place-based framework that sets the terms for how Bondi Junction evolves. The underlying position is relatively straightforward: if densification is inevitable, it should be tied to infrastructure, public domain improvements, and a cohesive vision for the centre, not delivered piecemeal through ad hoc applications.

<img alt="bondi junction" data-entity-type="file" data-entity-uuid="7f1f729c-ed99-4c6c-bf87-ffbce6991941" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-19%20at%209.58.16%E2%80%AFAM.png?VersionId=ULX4OlXKjeJ5BvNCNGL86evgXCjCfMih" />

At its core, the document is attempting to reposition Bondi Junction from what it largely functions as today, a transport interchange anchored by a major retail centre, into something far more layered. The ambition is to transform it into what the plan describes as the “civic and cultural heart of Sydney’s East,” a place that is active beyond commuting hours and capable of supporting a broader mix of uses, experiences and communities.

That repositioning is built around four key ambitions.

The first is to create a true destination. Bondi Junction already attracts significant foot traffic, with more than 86,000 daily transport users and millions of annual retail visits, but much of that activity is transient. People pass through, rather than stay.

The Master Plan seeks to change that dynamic. It leans heavily into the idea of an “18-hour economy,” extending activity well beyond traditional retail hours through dining, cultural programming, events, and a more active night-time offering. This is not just about adding more hospitality venues, but about fundamentally shifting how the centre operates, from a daytime shopping destination to a place that functions across the full span of the day and into the evening.

Oxford Street Mall sits at the centre of that shift.

Long seen as underperforming relative to its potential, the Mall is identified as one of the key catalyst projects in the plan. It is to be reimagined as a day-to-night spine, combining retail, dining, wellness and cultural uses in a way that creates a continuous flow of activity. Outdoor dining, rooftop venues, laneway activation and a curated events program are all part of the strategy, alongside significant public domain upgrades that aim to improve comfort, safety and usability.

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The second ambition is to transform Bondi Junction into a world-class interchange.

Despite being one of the most heavily used transport nodes in Sydney, the current experience is fragmented. Connections between the station, Westfield, Oxford Street Mall and surrounding streets are often unclear, and major roads create physical barriers that disrupt pedestrian movement.

The Master Plan proposes a more seamless, people-focused network. That includes clearer pedestrian links, improved wayfinding, better integration between transport modes, and a rethinking of how arrival into the centre is experienced. The aim is to shift the perception of Bondi Junction from a place people move through, to a place they arrive in.

The third ambition focuses on greening and open space.

One of the more consistent pieces of community feedback throughout the Vision phase was the need for more greenery, better public spaces, and a more comfortable urban environment. Despite being surrounded by major parks, Bondi Junction itself has relatively limited accessible open space, with much of the public realm dominated by hard surfaces and traffic infrastructure.

The plan responds with a network of new and upgraded public spaces, increased tree canopy, and what it terms the “Parkline,” a green link connecting Waverley Park through to Centennial Park. This is not just about aesthetics. It is about addressing heat, improving liveability, and ensuring that increased density is matched by access to high-quality outdoor space.

The fourth ambition is perhaps the most important from a development perspective: growth that gives back.

Bondi Junction is already the primary location for new housing supply in the Waverley LGA, and that is expected to continue. The area carries a target of 2,400 new dwellings by 2029, with further growth projected beyond that as demand for well-located housing continues to rise. The Master Plan does not seek to limit that growth. Instead, it attempts to shape it.

New housing is to be concentrated around transport, with stepped building heights designed to protect the character of surrounding neighbourhoods. At the same time, the plan introduces a more explicit link between development uplift and public benefit. This is where value capture becomes central.

The document outlines a framework where increased development potential is tied to contributions that fund public domain improvements, community infrastructure, open space, and affordable housing. It is an approach that recognises that much of the transformation of Bondi Junction will be delivered by the private sector, but seeks to ensure that the benefits of that growth are shared more broadly. The Civic Precinct is a key part of that equation.

Leveraging Council-owned land, the plan proposes a consolidated civic and cultural hub centred around Ebley Street. This would include new community facilities, cultural spaces, and potentially a new Council Chambers, creating a focal point for civic life that currently does not exist in Bondi Junction at scale.

It is one of several catalyst projects identified in the Master Plan, alongside the Oxford Street Mall transformation. These projects are intended to anchor change, acting as early interventions that unlock broader investment across the precinct.

Importantly, the Master Plan is not just a design document. It includes a delivery framework that sets out how these ambitions are intended to be realised.

Council is explicit in acknowledging that it cannot deliver the transformation alone. Implementation will require coordination between State agencies, private developers, landowners and the community, with a mix of planning agreements, infrastructure contributions and direct delivery mechanisms used to fund and stage improvements over time.

The plan outlines a mix of short-term, medium-term and long-term actions, from immediate public domain upgrades and planning controls, through to larger-scale projects that will unfold over the next decade or more. In practical terms, the next 12 to 24 months will be the most important.

This is when the Master Plan will move through exhibition, refinement and eventual adoption. It is also the period in which Council will seek to embed the framework into its planning controls, giving it weight in the assessment of future development applications.

Council officers have indicated that once the Master Plan is in place, it could be used as a benchmark when assessing Housing Delivery Authority proposals, and potentially reduce the need for further HDA declarations within Bondi Junction. In effect, it is an attempt to bring planning control back to the local level, while still aligning with State housing targets.

That tension between State-led reform and local planning control is not unique to Waverley. It is playing out across Sydney.

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If delivered as intended, Bondi Junction will become denser, more active, and more complex. It will support more residents, more workers, and a wider range of uses, extending beyond its current retail core into a more layered urban environment.

“The civic and cultural heart of Sydney’s East”: Bondi Junction masterplan revealed

Richard Holden

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EXPERT OBSERVER
Economists expect the cash rate to remain steady for yet another year even though inflation is on the floor. 
The Reserve Bank kicks off its first meeting for the year next Tuesday facing the same dilemma it did throughout last year.
It hasn’t got easier.
The bank has a very public, fairly clear objective: to keep inflation <a href="https://www.rba.gov.au/monetary-policy/framework/stmt-conduct-mp-7-2016-09-19" target="_blank">between 2% and 3%</a>. But it keeps missing it. Over and over and over again, and on the downside.
As the following chart shows, inflation has been below the bank’s target band for nearly all of the past four years.
<hr>
<img src="https://images.theconversation.com/files/256541/original/file-20190131-42594-1p06f0z.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="">
<hr>
During his decade in office, the previous governor Glenn Stephens achieved an average inflation rate of 2.46% – almost bang in the centre of the target band.
During his subsequent two and half years in the job, Philip Lowe has averaged just 1.87%. At no point during Lowe’s term of office has the average fallen within the target band. The rate for December, <a href="https://www.propertyobserver.com.au/http://www.abs.gov.au/ausstats/abs@.nsf/mf/6401.0">released on Wednesday</a>, was 1.8%.
Next Wednesday Lowe will make an unusual address to the <a href="https://www.npc.org.au/speakers/philip-lowe-npc-sydney-address/" target="_blank">National Press Club</a>, during which he will outline his thoughts about the year ahead.
It is a year which The Conversation’s forecasting panel predicted will be free of interest rate adjustments, making it a record 40 months without a rate move – Lowe’s entire term in office.
<hr>
<a href="https://images.theconversation.com/files/256590/original/file-20190131-112389-hml5ue.JPG?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/256590/original/file-20190131-112389-hml5ue.JPG?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></a>
<hr>
<h2>The RBA has more than one target</h2>
Although the inflation target is an important part of the Reserve Bank’s mandate, it is also asked to <a href="https://www.rba.gov.au/monetary-policy/framework/stmt-conduct-mp-7-2016-09-19" target="_blank">focus on other things</a>. Among them are GDP growth, employment, and (probably less explicitly) the Australian dollar and house prices.
And therein lies the problem. Unless the rate moves needed to meet all those objectives point in the same direction, the bank needs to make trade-offs, or sideline one or more of its objectives.
A classic principle of economics is that a policy-maker needs one instrument (or policy tool) for each objective. It is called the <a href="https://www.propertyobserver.com.au/https://www.jstor.org/stable/2282568?seq=1#metadata_info_tab_contents" target="_blank">Tinbergen Rule</a>, after the 1969 Nobel Laureate.
The bank has four or five objectives, but really only one tool – the cash rate, stuck at 1.5% since Lowe took the job.
Throw in the ability to partially shape market expectations through speeches by Lowe and Deputy Governor Guy Debelle (so-called “open mouth” operations), and maybe it has two.
Since Lowe took office, the casualty of this imbalance between instruments and objectives has been the inflation target. And it’s unlikely to change for some time.
<h2>So why is inflation so low?</h2>
Australia is not alone. Advanced economies around the world have had several years of low wages growth, low productivity growth, and low inflation. Populations are ageing, less keen on spending, and have a glut of excess savings.
Add to this the fact that technology and international trade have made a whole range of goods probably permanently cheaper and it’s hard to find inflationary pressure.
Potentially making things worse in Australia is the decline in house prices in Sydney and Melbourne eating into consumer confidence and with it, spending. <a href="https://theconversation.com/vital-signs-so-far-its-more-of-a-house-price-blip-than-a-bust-in-the-making-109568" target="_blank">With well over half of the economy coming from private spending, already soft consumer spending could be hit further.</a>
So far, RBA Governor Philip Lowe has been doing an admirable impression of Mr Micawber, in the Charles Dickens novel David Copperfield. When it comes to inflation, he is hoping “something will turn up”. But it hasn’t, even with historically low levels of unemployment.
Worse still, it doesn’t even seem to really be ticking up in the United States, <a href="https://www.thebalance.com/unemployment-rate-by-year-3305506" target="_blank">despite the lowest year-end unemployment rate since 1969</a>.
<h2>And why does it target inflation?</h2>
The bank targets inflation in order to maintain credibility.
The high levels of inflation in the 1970s and ‘80s – despite quite high levels of unemployment – led to the realisation that expectations had a lot to do with it.
Put simply, if people believe prices are going to rise sharply they will demand steep wage rises, which will cause prices to rise sharply. It becomes a “wage-price spiral”.
Macroeconomists and central bankers realised that a credible commitment to keep inflation low would remove the need for the large wage rises, cutting off the spiral before it got going.
The bank describes the rationale for its inflation target <a href="https://www.rba.gov.au/inflation/inflation-target" target="_blank">this way</a>:
The Governor and the Treasurer have agreed that the appropriate target for monetary policy in Australia is to achieve an inflation rate of 2–3%, on average, over time. This is a rate of inflation sufficiently low that it does not materially distort economic decisions in the community. Seeking to achieve this rate, on average, provides discipline for monetary policy decision-making, and serves as an anchor for private-sector inflation expectations.
That’s been the logic for the past 25 years. We have certainly done away with inflationary spirals. We are in the age of secular stagnation, with an excess of savings chasing too little spending. A world where, since the turn of this century, robust growth has only really been possible when accompanied with financial bubbles–first in dot-coms, then in housing.
<h2>So what’s a central banker to do?</h2>
<a href="https://theconversation.com/vital-signs-its-time-to-discuss-a-new-framework-for-central-banking-101978" target="_blank">There is an active debate</a> among <a href="https://www.rba.gov.au/speeches/2018/sp-dg-2018-04-12" target="_blank">central bankers</a> and leading macroeconomists about whether to abandon the inflation targeting framework.
Luminaries like former US Treasury Secretary <a href="https://www.brookings.edu/research/why-the-fed-needs-a-new-monetary-policy-framework/" target="_blank">Larry Summers</a> argue that inflation targets are, <a href="http://shakespeare.mit.edu/hamlet/hamlet.1.4" target="_blank">to borrow from Hamlet</a>, “more honour’d in the breach than the observance”.
Right now Lowe faces a real dilemma. If he doesn’t cut rates, the inflation target will become more and more of a joke. It will add to pressure on him to articulate a new monetary policy framework for a new secular-stagnation era.
If he does, he risks re-inflating the housing bubble, boosting already sky-high household debt, and giving himself even less wiggle room if a recession hits.
On Tuesday he’ll leave the cash rate at 1.50%. And on the first Tuesday of the next month, and the the next, and the one after that…
But I think he’ll begin serious internal discussions about a new monetary policy framework, and the mechanics of getting into (and out of) a massive bond-buying program (otherwise known as quantitative easing or printing money) if needed to ward off the next recession should the cash rate remain or get so low he can’t cut it further.
He might have already started. He might drop further hints on Wednesday.
<hr>
<a href="https://theconversation.com/profiles/richard-holden-118107" target="_blank">Richard Holden</a>, Professor of Economics, <a href="http://theconversation.com/institutions/unsw-1414" target="_blank">UNSW</a>
This article is republished from <a href="http://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/vital-signs-yet-another-year-of-steady-rates-whats-the-point-of-the-rba-inflation-target-110574" target="_blank">original article</a>.
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rh-YsoTT2xMuQ

Yet another year of steady rates: Richard Holden

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EXPERT OBSERVER
There are two things that can happen to an asset price bubble. It can burst dramatically, or deflate slowly.
Which brings us to the Australian housing market.
Prices in Sydney and Melbourne continue to decline at a modest rate. The <a href="https://www.corelogic.com.au/research/monthly-indices" target="_blank">CoreLogic index</a> has Sydney prices down 6.1% for the last 12 months, and Melbourne down 3.4%.
This barely dents the huge increases in previous years and is consistent with “deflate slowly” scenario.
What could cause a pop?
<h2>Interest-only loans could do it</h2>
As I have <a href="https://theconversation.com/vital-signs-if-it-looks-like-a-bubble-and-sounds-like-a-bubble-75050" target="_blank">said here before</a>, one of the worries is interest-only loans.
Around A$360 billion of these loans are due to be rolled over over the next three years. If they are not, they will convert to principal-and-interest loans, which are much more expensive to maintain.
Given that only about 15% of loans currently issued are interest-only, down from 40% in recent times, that means a lot of people are starting to pay the more expensive principal and interest. For some, the jump in repayments will be as high as 40%.
That’s scary enough. But <a href="https://www.rba.gov.au/monetary-policy/rba-board-minutes/2018/2018-10-02" target="_blank">this week’s minutes of the October Reserve Bank board</a> meeting point to another concerning possibility – an old-fashioned credit crunch.
The bank put it this way:
Members discussed the release of the interim report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry… Members observed that while the regulators had already overseen a tightening of lending standards, and a degree of tightening of lending standards had been implemented by banks in anticipation of the Commission’s findings, it was possible that banks could tighten lending conditions further given the issues raised in the report. Members noted that it would be important to monitor the future supply of credit to ensure that economic activity continued to be appropriately supported.
Translation: the banks have stopped lending as much, and might lend even less; this could be bad for the economy.
Could it blow up the housing market?
Well, possibly. Here’s how.
<h2>Here’s how it would happen</h2>
If the amount of housing credit available is significantly reduced, it is hard for people to buy properties.
That means it becomes hard for people to sell – or even move from one property to another. A market with fewer buyers and sellers in it (what economists call a “thin market”) means more volatile prices.
This turns the price someone gets from selling a property into more of a lottery. There’s a decent chance the seller gets much less than she thought.
Worse still, most people are highly leveraged in residential property – often putting down a deposit of just 10% to 20%.
<h2>Owners would get hit rather than their banks</h2>
All the drop in the selling price hits the owner, because the bank gets paid back no matter what.
So a 10% drop in price can wipe out all the seller’s equity in the property.
Even if the owner has paid down, say, half the loan, that’s a big hit.
It’s the prospect of this that causes people not to want to sell. If an owner can hold on, they will.
So which properties end up on the market? Precisely those of the people who really need to sell.
<h2>They would sell because they had to</h2>
Knowing this, and without much competition, buyers turn the screws, pushing down prices still further and exacerbating the problem.
Of course, for that to happen people need to sell.
Why might that be? There are are number of reasons. Their repayments could rise because of rates rising. Even without an official rise in the cash rate by the RBA, banks can, and recently have, raised rates because of their funding costs in money markets.
A borrower might need to change cities because of their job, or might lose their job and be unable to meet repayments. Or a borrower might have an unexpected expense, perhaps relating to health care. The list goes on.
<h2>We can’t be sure it won’t happen</h2>
It is hard to predict whether any of those things will happen to people in sufficient numbers to cause a meltdown.
But that’s the whole point – it is hard to be confident that it won’t happen.
And if it does occur then the consequences could be huge.
<h2>Game theory suggests it might</h2>
It might seem perverse that the big four banks could voluntarily cut back on lending and cause a collapse in prices that craters their own loan books. Yet that’s exactly the lesson from the work of <a href="https://www.nobelprize.org/prizes/economic-sciences/1994/press-release/">John Nash</a>, who won the 1994 Nobel Prize in economics for his work on game theory. In a strategic setting, what is best for the individual might not be best for the group.
If individual banks don’t cut back their lending but others do, they will get stuck with the worst loans.
Avoiding that fate might mean creating market conditions that hurt all existing loans.
It’s the paradox at the heart of game theory.
<h2>But I’m hoping for the best</h2>
I’m still betting on the residential property market deflating slowly, rather than popping.
But unfortunately you don’t need to get too creative to imagine scenarios that involve a very loud pop – for property owners, the banks and the economy more generally.<img src="https://counter.theconversation.com/content/105137/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;">
<a href="https://theconversation.com/profiles/richard-holden-118107" target="_blank">Richard Holden</a>, Professor of Economics and PLuS Alliance Fellow, <a href="http://theconversation.com/institutions/unsw-1414" target="_blank">UNSW</a>
This article is republished from <a href="http://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/vital-signs-the-housing-market-might-deflate-but-it-might-pop-heres-how-105137" target="_blank">original article</a>.
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How the housing market might pop: Richard Holden

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<a href="https://www.propertyobserver.com.au/http://www.abs.gov.au/ausstats/abs@.nsf/mf/5206.0" target="_blank">Wednesday’s GDP figures</a> were good. Growth was up 0.9% in the June quarter and 3.4% over the past 12 months.
As they say in baseball: “You can’t boo a home run.” But you can ask how likely the batter is to do it next time. The detail behind the figures raises further questions.
<h2>How good were they really?</h2>
Even before we get to that, it’s worth noting than GDP per capita was up 0.5% in the quarter, amounting to a 1.8% increase over the year. That’s good, but half as much as headline growth. Per capita growth is what drives living standards.
Even on an annual basis per capita growth bounces around. The following chart shows it is usually less than 2% and only occasionally reaches 3%, but never too far from zero – even excluding the GFC.
<iframe style="border: none;" src="https://datawrapper.dwcdn.net/M9J5L/1/" frameborder="0" width="100%" height="400"></iframe>
Growth per capita is volatile in no small part because immigration is volatile.
Standard economic theory tells us that in the long run immigration has very little impact on GDP per capita unless it drives a shift in the population’s mix of skills.
But in the short run it depresses GDP per capita because the fixed capital (such as buildings and machines) has to be shared between more workers.
Since immigration is somewhat lumpy, and the skill mix is neither obvious nor constant, there can be pretty substantial swings in GDP per capita in a high-immigration economy. At 1.6% per annum, Australia’s population growth is roughly double the OECD average, so it’s best not to get too hung up on the quarterly numbers.
<h2>Good for how long?</h2>
The larger and more pressing question in whether this quarter’s good numbers will last.
There are reasons to be sceptical. First, household expenditure was a key component of the recent growth numbers. As ABS chief economist Bruce Hockman put it:
Growth in domestic demand accounts for over half the growth in GDP, and reflected strength in household expenditure.
We’ve been sustaining strong household expenditure by saving less, but that’s unlikely to continue.
<div>Infographic currently not available</div>
In an economy in which heavily indebted households face mortgage rate hikes from three of the big four banks (likely to be four soon) despite no official increase in interest rates, household spending will come under pressure.
Wages growth is still languishing at around 2% (<a href="https://www.propertyobserver.com.au/http://www.abs.gov.au/ausstats/abs@.nsf/mf/6345.0" target="_blank">the most recent wages price index came in at 2.1%</a>), meaning that households aren’t earning much extra income.
<iframe style="border: none;" src="https://datawrapper.dwcdn.net/ZF9Ok/1/" frameborder="0" width="100%" height="400"></iframe>
Add to this a lower Australian dollar putting pressure on the price of imports –such as mobile phones, iPads and computers, to name a few – and it seems brave to predict continued robust consumer spending.
<h2>Special for how long?</h2>
It is also worth being a bit cautious about the case for Australian exceptionalism. Yes, we’ve had a run of 27 odd years of continuous economic growth. Yes, we weathered the financial crisis better than most.
But we are also part of a global economy that is yet to see the full effects of the Trump trade war. And we are subject to the same sort of pressures that other advanced economies are facing: stubbornly low wages growth despite historically low unemployment, inflation that won’t grow, and an uncertain outlook for China – our most important trading partner.
<iframe style="border: none;" src="https://datawrapper.dwcdn.net/E8STr/3/" frameborder="0" width="100%" height="400"></iframe>
Can we really return to the trend growth rates of the 1990s while the countries we compare ourselves with struggle? I hope so, but I doubt it.
The newly minted treasurer, Josh Frydenberg, couldn’t help but take credit for this week’s good news. Fair enough. But he might want to be cautious. Quarterly numbers have a habit of reversing themselves. And with an election not too far away it’s politically risky to tie oneself too closely to the vagaries of the macroeconomy in general and the forecasts of Treasury and the Reserve Bank in particular.
Reserve Bank Governor Phil Lowe might have mentioned that to Frydenberg in their much photographed recent meeting.<img src="https://counter.theconversation.com/content/102717/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;">
<a href="https://theconversation.com/profiles/richard-holden-118107" target="_blank">Richard Holden</a>, Professor of Economics and PLuS Alliance Fellow, <a href="http://theconversation.com/institutions/unsw-1414" target="_blank">UNSW</a>
This article is republished from <a href="http://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/vital-signs-national-accounts-show-past-performance-no-guarantee-of-future-results-102717" target="_blank">original article</a>.
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j.ballantyne1990-6AQqhLzZaK

Past performance of national accounts no guarantee of future results: Richard Holden

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Expert observer.
Unfortunately for the RBA, the health of the economy is not measured on the Geologic Time Scale
This week: Interest rates remain on hold as the RBA talks up employment growth, green shoots remain in manufacturing, and China strikes back in the Trump-led trade war.
<hr>
<img src="https://images.theconversation.com/files/213330/original/file-20180405-189824-p0txhe.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="">
On Tuesday, the RBA left official interest rates unchanged at 1.50% for the 18th consecutive meeting, tying their all-time record. They will break that record next month when they do the same thing.
And the <a href="https://www.rba.gov.au/media-releases/2018/mr-18-07" target="_blank">official statement</a> by governor Philip Lowe sounded like it came from a guy who had gone from crossing his fingers to crossing his toes as well. For example:
“The Australian economy grew by 2.4 per cent over 2017. The Bank’s central forecast remains for faster growth in 2018.”
Um, why? The same macro model that got 2017 wrong is now going to get 2018 right?
Or this one:
“The unemployment rate has declined over the past year, but has been steady at around 5½ per cent over the past six months. The various forward-looking indicators continue to point to solid growth in employment in the period ahead, with a further gradual reduction in the unemployment rate expected.”
But a few months ago, those same forward-looking indicators were saying the plateau in the unemployment rate wouldn’t happen.
And finally (but only because I have space constraints):
“Notwithstanding the improving labour market, wages growth remains low. This is likely to continue for a while yet, although the stronger economy should see some lift in wages growth over time.”
If “over time” is read analogous to “life in the Mesazoic Era evolved over time” then I suppose that may be right.
Unfortunately for the RBA, the health of the economy is not measured on the Geologic Time Scale. Stubbornly low inflation, persistently hopeless wage growth, and with the <a href="https://www.propertyobserver.com.au/http://www.abs.gov.au/AUSSTATS/abs@.nsf/mf/3101.0" target="_blank">Australian population growing at 1.6% p.a.</a>, that 2.4% GDP growth number looks pretty weak. The real question is whether the RBA is not cutting rates because it thinks monetary policy is ineffective at this level, or because it’s scared of fuelling (further fuelling?) a (the?) housing price bubble.
<a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/8731.0Main+Features1Feb%202018?OpenDocument" target="_blank">ABS data</a> released Wednesday showed a drop in building approvals in February. Total dwelling approvals were down 6.2%, driven by a 16.4% drop in apartments, compared to a 1.9% rise in houses. For the 12 months to February 2018, that puts the total down 3.1%, again driven by a large (14.8%) drop in apartments and a rise (6.1%) in houses.
This is all evidence that demand – often from offshore – has dried up in one important sector of the market: apartments. It is still too early to know what the fallout will be, but this is exactly the kind of pattern one sees in property markets when the music has stopped.
The Australian Industry Group’s <a href="https://www.aigroup.com.au/policy-and-research/economics/economicindicators/" target="_blank">Performance of Manufacturing Index</a>, released this week, hit a record high of 63.1 index points for March. Perhaps more importantly, the survey indicated that capacity utilisation was at a record high of 81.2%. This matters because it suggests stronger employment and wage growth in the sector.
On the other hand, manufacturing is about 6.5% of GDP, so even strong growth in the sector has a relatively modest overall effect. But, as they say in baseball, you can’t boo a home run.
US jobs figures continued to impress, with payroll processor ADP releasing figures Thursday Australian time that the economy added 241,000 jobs in March. The official figures from the BEA come out Friday US time, with market expectations at an addition of 185,000. So if the official figures line up with ADP, this will be further evidence of strong employment growth.
<h2>Trump trade war update</h2>
This week, China struck back, again. The Trump administration recently instituted roughly US$50 billion worth of tariffs on steel, cars, automotive and aircraft parts, consumer products like televisions, and other goods. Almost immediately, China responded with tariffs of a similar value on 106 types of American goods.
Those 106 types of goods include soybeans and others produced in the Trump heartland. This was a cleverly designed, targeted measure, designed to hurt Trump politically.
His response:
That reveals his mercantilist view of trade: that it’s a zero-sum game rather than something that increases the size of the economic pie and makes both countries better off. But hey, maybe he has a big reading backlog and isn’t up to 1817, when David Ricardo pointed this out with his theory of <a href="https://www.investopedia.com/terms/c/comparativeadvantage.asp" target="_blank">“comparative advantage”</a>.
<img src="https://counter.theconversation.com/content/94405/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">Let’s hope it does, and President Trump gets the message that he needs to knock this off. All he is doing is making America poorer. And the game theory of it is worse. Tariffs beget tariffs.
<a href="https://theconversation.com/profiles/richard-holden-118107" target="_blank">Richard Holden</a>, Professor of Economics and PLuS Alliance Fellow, <a href="http://theconversation.com/institutions/unsw-1414" target="_blank">UNSW</a>
This article was originally published on <a href="http://theconversation.com" target="_blank">The Conversation</a>. Read the <a href="https://theconversation.com/vital-signs-australias-stubborn-growth-problems-are-moving-at-a-geologic-pace-94405" target="_blank">original article</a>.
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Australia’s stubborn growth problems are moving at a geologic pace: Richard Holden

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The Australian Bureau of Statistics <a href="http://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/5609.0Main%20Features1January%202018?opendocument&amp;tabname=Summary&amp;prodno=5609.0&amp;issue=January%202018&amp;num=&amp;view=" target="_blank">housing finance figures</a> released Tuesday reveal a modest increase in the total value of dwelling commitments, up an overall 0.7% for the month of January on a seasonally adjusted basis. The investor segment (up 1.1%) was stronger than owner-occupied housing (up 0.5%).
Yet the overall rise in value masked the fact that the number of dwellings purchased fell. Purchases of established dwellings was down 4.7% on the month, and new dwellings down 1.5%. 
On the other hand, construction of new dwellings was up 3.1%. Now we can’t tell too much by a single month’s data, but if those kind of numbers were part of a broader pattern then there would be reason to be concerned.
Banks have tightened their underwriting standards and the Australian Prudential Regulation Authority has cracked down on interest-only loans. So housing credit is harder to come by – although it’s still ridiculously easy to obtain. 
However, the construction sector works on a bit of a time lag. So there are a bunch of projects underway that were premised on the loose credit of recent years.
When they are finished there will be a lot of properties for sale and a relative paucity of buyers. That would have a price impact, spook potential buyers and their bankers further, and could lead to a sharp pullback in the construction sector. A sector which constitutes 8% of GDP and 9% of employment.
As the kids say, “sad face emoji”.
Now this scenario is not for certain. But it’s definitely something to keep and eye on in coming months.
The closely watched <a href="https://business.nab.com.au/nab-monthly-business-survey-february-2018-28876/" target="_blank">NAB Business Conditions Survey</a> hit all time highs in February. The business conditions index was up three points to 21 index points, the highest level since the monthly survey began in March 1997. Yet business confidence was down two points to nine.
NAB chief economist Alan Oster pinpointed the reason for the divergence in the two measures, saying:
The fall in confidence may reflect the turbulence seen in international financial markets in early February, but confidence remains above average, suggesting that the impact was relatively limited.
The survey also showed that forward orders were strong, rising from three index points to 11, which seems to bode well for future economic growth. It also confirmed the recent trend of strong employment growth, with 400,000 jobs added in 2017.
<a href="https://theconversation.com/profiles/richard-holden-118107" target="_blank">Richard Holden</a>, Professor of Economics and PLuS Alliance Fellow, <a href="http://theconversation.com/institutions/unsw-1414" target="_blank">UNSW</a>
This Vital Signs column was originally published on <a href="http://theconversation.com" target="_blank">The Conversation</a>. Read the <a href="https://theconversation.com/vital-signs-five-economic-red-flags-to-watch-for-in-2018-87851" target="_blank">original article</a>.
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Pullback in construction sector could emerge: Richard Holden

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In a radically unsurprising decision on Tuesday the Reserve Bank of Australia left official interest rates unchanged at 1.5%.
<a href="https://www.rba.gov.au/media-releases/2018/mr-18-05" target="_blank">In their announcement</a> there was plenty of what amounts to copy-and-paste from previous rate decisions.
For instance:
“Employment grew strongly over the past year and the unemployment rate declined… Notwithstanding the improving labour market, wage growth remains low. This is likely to continue for a while yet, although the stronger economy should see some lift in wage growth over time.”
And on inflation it’s still low with the consumer price index (CPI) and underlying inflation (inflationary pressures in the economy that are predominantly due to market forces like supply and demand), below 2%.
<iframe src="https://datawrapper.dwcdn.net/5TxE0/3/" frameborder="0" scrolling="no" width="100%" height="449"></iframe>These are the key factors that make raising rates unlikely. Indeed, perhaps the only thing preventing a cut in rates is the fear of a housing bubble.
On that front the RBA seemed to report progress, saying:
<blockquote>
“[the Australian Prudential Regulation Authority] APRA’s supervisory measures and tighter credit standards have been helpful in containing the build-up of risk in household balance sheets, although the level of household debt remains high.”
</blockquote>
Little wonder that markets are not predicting an increase in rates this year.
On the labour market front, <a href="http://www.media.anz.com/phoenix.zhtml?c=248677&amp;p=irol-jobad&amp;nyo=0" target="_blank">the ANZ job advertisements survey</a> revealed that the strong growth in ads from previous months was largely maintained. Although for the month of February ads were down 0.3%, the robust growth in previous months means that ads are still up 13.3% on the previous 12 month period. It seems that the strong employment growth from last year is set to continue, but there is still no real sign of this translating into wage growth.
The global puzzle of why employment growth is strong while wages growth is weak endures. And, as the RBA comments reveal, it is weighing on the minds of central bankers.
The volatile <a href="http://www.abs.gov.au/ausstats/abs@.nsf/latestProducts/8731.0Media%20Release1Jan%202018?OpenDocument" target="_blank">building approval data</a> jumped around again in January, with approvals up 17.1% in January, following a 20% fall in December. Approvals for apartments jumped a massive 42.2% in January. That’s an interesting figure for two reasons.
The strong growth in supply of apartments is one factor that is (slowly) helping housing affordability. In cities like Sydney, with geographic constraints on all sides, the only place to go is up in terms of building new dwellings.
And less happily, sharp increases in supply are typically how bubbles burst. An important question is who is going to buy all these new apartments, and how speculative are those purchases.
There is scant evidence on this point, but <a href="http://www.news.com.au/finance/real-estate/flipping-properties-to-be-debt-free/news-story/6a426435d073784bd0b10d1798be7ff5" target="_blank">plenty of anecdotal fears</a> about people purchasing off the plan with significant leverage in the hope of flipping at a quick profit. The apartment market is a key indicator to watch in 2018.
<a href="http://www.abs.gov.au/ausstats/abs@.nsf/latestProducts/5206.0Media%20Release1Dec%202017?OpenDocument" target="_blank">National accounts data</a> showed the Australian economy grew at the same rate in 2017 as is did in 2016, with GDP growth coming in at 2.4%. This points to one of the big, unresolved macreconomic questions of our time.
Is the “new normal” for economic growth something like 2% ? (This would put GDP growth per capita well below that.) Or was the great recession a damaging and long, but ultimately a temporary lull, and that we will return to 3%-plus growth sooner or later. I have consistently said I think its the former, but again it is too early to tell.
<a href="https://www.propertyobserver.com.au/http://www.abs.gov.au/ausstats/abs@.nsf/mf/5368.0?OpenDocument">International trade data</a> released Thursday showed Australia’s trade balance at A$1.1 billion, up slightly from the previous month.
Speaking of trade, the biggest economic news of recent weeks was <a href="https://theconversation.com/americas-allies-will-bear-the-brunt-of-trumps-trade-protectionism-92735" target="_blank">the Trump administration’s announcement</a> that it would impose significant steel and aluminium tariffs (25% and 10% respectively). This has the potential to trigger a global trade war and tank economies around the world, although such a cataclysm is a fair way off yet.
Make no mistake, this is terrible policy. The worry is that its not just another cunning and cynical move by Trump, but that he actually believes in it. He has railed against trade deficits for 20 years, revealing the poverty of his understanding of economics.
<img src="https://counter.theconversation.com/content/92829/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">For now its wait-and-see, but the fact that National Economic Council director Gary Cohn resigned in the wage of the announcement suggests that Trump might not flip-flop on this issue - and that there is more bad news to come.
<a href="https://theconversation.com/profiles/richard-holden-118107" target="_blank">Richard Holden</a>, Professor of Economics and PLuS Alliance Fellow, <a href="http://theconversation.com/institutions/unsw-1414" target="_blank">UNSW</a>
This article was originally published on <a href="http://theconversation.com" target="_blank">The Conversation</a>. Read the <a href="https://theconversation.com/vital-signs-the-one-thing-holding-back-an-rba-rate-cut-92829" target="_blank">original article</a>.
Vital Signs is a weekly economic wrap from UNSW economics professor and Harvard PhD Richard Holden (<a href="https://twitter.com/profholden" target="_blank">@profholden</a>).
Vital Signs aims to contextualise weekly economic events and cut through the noise of the data affecting global economies.
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The one thing holding back an RBA rate cut: Richard Holden

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There was plenty of news in Australia this week.
The influential NAB Monthly Business Survey had a smiley face (literally) on it for the first time since mid last year, with the index up 5 points to +11.
Business confidence itself was unchanged at +6.
It reported that there had been “a reprieve from the steady moderation in business conditions seen late last year”.
Yet retail, manufacturing and mining performed poorly, with wholesale picking up the slack. Retail was now the weakest sector in the survey.
Translation: consumer confidence is bad. And when you think that consumer spending accounts for nearly 75% of GDP that is certainly cause for concern.
Private sector credit was up 0.7% in December for a 5.6% annual rate of growth, according to the Reserve Bank.
How does one square that with my claims about consumer confidence?
Easy, the credit expansion was chiefly due to a growth in investor loans, which were up at an annual rate of 6.2%.
In fact, over the last three months that rate was edging toward the Australian Prudential Regulatory Authority “speed limit” of 10% – coming in about 1% below.
This raises thorny questions for APRA. Does it impose tighter constraints on banks lending to investors – like even higher deposit requirements?
What if growth goes over 10% – do they shift the goalposts?
<a href="https://www.propertyobserver.com.au/images/2017/02/07/Screen%20Shot%202017-02-07%20at%2012.54.53%20pm.jpg" target="_blank">Click 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/2017/02/07/Screen%20Shot%202017-02-07%20at%2012.54.53%20pm.jpg" alt="">
We are used to thinking of central banks as having to perform a balancing act with monetary policy where they don’t let the economy get too hot or too cold, and have to be worried about an interest rate rise causing a sharp contraction/recession.
Perhaps APRA faces an analogous, though new, problem.
If it tightens so-called “macroprudential” standards – like deposit requirements – it risks causing a sharp contraction in housing prices.
And that could lead to forced selling, and pretty soon it could amount to a fire sale.
Or, if you like, a macroprudentially-induced housing run.
Australia’s trade surplus came in at a record A$3.51 billion in December, beating estimates of around A$2.2 billion. This seems like good news. And as they say in baseball “you can’t boo a homerun”.
But the record figure came on the back of a sharp rise in commodity prices, once again highlighting how dependent our economy is on cyclical movements in prices of things we dig out of the ground.
And the RBA will not be pleased at the accompanying leap in the Aussie dollar, which surged past US76 cents on the news.
The RBA puts a lot of emphasis on a lower Aussie dollar in that it helps exporters, and US76 cents is getting outside their comfort zone.
Although I have expressed scepticism about their thinking many times before in The Conversation.
Over the pond, the US Federal Reserve kept interest rates steady, in the band of 0.5%-0.75%, after its December hike of 25bp.
In its press release the Fed said, “the labor market has continued to strengthen and that economic activity has continued to expand at a moderate pace.
Job gains remained solid and the unemployment rate stayed near its recent low.
Household spending has continued to rise moderately while business fixed investment has remained soft.
Measures of consumer and business sentiment have improved of late.
Inflation increased in recent quarters but is still below the Committee’s 2 percent longer-run objective.”
Other than business investment being soft, that sounds like everything is going according to plan. And so far it is.
But then there is President Trump.
We have yet to see the impact Trump will have on consumer and business confidence, let alone what happens if he starts a series of trade wars.
Or if he convinces Congress to introduce his cash-flow-based tax plan.
I will provide more detail on that in future columns, but it is a dangerous attempt to provide preferable tax treatment for exporters over importers.
It has the very real prospect of causing huge disruption, and a large increase in the prices of many staple goods like textiles and food.
<a href="https://theconversation.com/profiles/richard-holden-118107" target="_blank">Richard Holden</a> is a Professor of Economics and PLuS Alliance Fellow at UNSW and author for <a href="https://theconversation.com/au" target="_blank">The Conversation</a>.
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