The residential transformation of St Kilda Road is set to continue into with more new apartment plans for the sought-after boulevard.

Wing Tai Asia has lodged plans for a major residential tower at 464-466 St Kilda Road, replacing the former VACC House with an 18-storey mixed-use development designed around a retained heritage podium and a sculpted contemporary tower.

The proposal, prepared under Victoria’s Significant Residential Development with Affordable Housing pathway, would deliver 325 apartments and ground-floor retail across the prominent 4,653 sqm boulevard site in Melbourne’s St Kilda Road North Precinct.

The project centres on the adaptive reuse of the site’s heritage-listed VACC Building, an eight-storey office designed by Bernard Evans that has occupied the address for decades. Planning documents state the development would involve “carefully dismantling and conserving off-site the original metal fabric of the podium visible from St Kilda Road,” before reinstating it as the defining frontage of the new scheme.

Above the restored podium, Wing Tai is proposing a curvilinear residential tower. The scheme includes 172 one-bedroom apartments, 63 two-bedroom apartments, 66 three-bedroom apartments, and 24 four-bedroom apartments, alongside two ground-floor food and beverage tenancies fronting St Kilda Road.

The tower has been designed with substantial articulation and variable setbacks to minimise perceived bulk and maintain view corridors along the boulevard. Urbis, which prepared the planning report, said the design “has been significantly articulated through a curvilinear design” with “an interplay with materials, façade expression and depth” to create visual separation and visual interest.

The proposal also includes 254 basement car spaces, landscaped pedestrian links connecting St Kilda Road and Queens Lane, and a biophilic landscape strategy featuring canopy trees, raised planters, cascading greenery and a glass oculus pool overlooking the eastern frontage.

Planning documents confirm the $270.1 million development will contribute 3 per cent of project costs to the Social Housing Growth Fund as part of the application process.

Wing Tai acquired the St Kilda Road property in 2018 alongside Abacus Property Group for $95.38 million, before later consolidating ownership of the site. The property previously served as the Victorian Automobile Chamber of Commerce headquarters for around 60 years.

The transformation of the St Kilda Rd boulevard is already beginning to materialise, with a number of high-profile projects recently completed, launched, or approaching launch as developers continue to back the long-term appeal of the precinct.

Among the most notable recent completions is Louise by Samuel Property Group, just off the strip on Queens Lane, the same pocket Hirsch &amp; Faigen recently launched The Queensbury. Mirvac is too on the same street with The Albertine, which is approaching completion.

Dexus recently secured approval for its slice of St Kilda Road, while Gurner also has approved plans for the precinct.

Joel Robinson

Wing Tai unveils 325-apartment St Kilda Road tower on former VACC House site

Malaysian developer <a href="https://www.apartments.com.au/developers/s-p-setia">SP Setia</a> is the latest to jump into St Leonards booming Transport Oriented Development precinct.

The developer, which has previously delivered Sapphire by the Gardens apartment development in Melbourne, identified the Atchison Street site in 2023. It filed a Scoping Report around 12 months ago, and now has revealed the designs for the new&nbsp;40-storey mixed-use tower.

The State Significant Development Application covers <a href="https://next-portal.urban.com.au/projects/14650/summary">20-22 Atchison Street</a>, a 1,374 sqm site positioned between St Leonards Station and the new Crows Nest Metro station.

Designed by <a href="https://www.apartments.com.au/architects/cox-architecture">COX Architecture</a>, the project would deliver 181 apartments, above a four-storey commercial podium, five basement levels, and new public domain works along Mitchell Street. The apartment mix comprises 35 one-bedroom apartments, 39 one-bedroom-plus-study apartments, 85 two-bedroom apartments, and 22 three-bedroom residences.

The proposal has been lodged as a shop-top housing development under the NSW Government’s TOD planning pathway, which allows increased density around key transport infrastructure. The site sits within the recently rezoned Crows Nest Accelerated TOD Precinct.

<img alt="First look: SP Setia targets St Leonards skyline with 40-storey TOD tower" data-entity-type="file" data-entity-uuid="b799673d-48e2-46b0-801a-0e33a9330100" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/atchinson%20site.png?VersionId=dPh0UfwfaHpbFL1R7H1cbZNbIW0CHbCC" />

SP Setia acquired the Atchison Street site as part of its continued expansion into the Australian apartment market. In comments made to City &amp; Country (The Edge Malaysia) in 2023, SP Setia President and CEO Datuk Choong Kai Wai described the acquisition as “a strategic move” aligned with the group’s post-pandemic market recovery strategy.

“Our target for this exceptional development is local and overseas buyers, including first-home buyers, downsizers and investors,” Choong said.

The tower has been designed as a slender vertical form rising from a mixed-use podium, with COX Architecture positioning the development as a response to the evolving St Leonards and Crows Nest skyline.

“The purpose of the project is to facilitate the delivery of high-quality housing at a strategically located site and deliver a built tower outcome that is consistent with the desired future character of St Leonards and aligns with the TOD controls,” the design report stated.

<img alt="First look: SP Setia targets St Leonards skyline with 40-storey TOD tower" data-entity-type="file" data-entity-uuid="b1a85eee-76f7-436c-a6da-73ba827b9b13" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/atchinson%20entry.png?VersionId=dA9jHGPMcm.dDbwk4QfxqWiY5bfh3UVt" />

The podium would incorporate retail uses fronting Atchison Street, commercial tenancies, landscaped communal areas, and pedestrian improvements along Mitchell Street. Vehicle access and loading would be consolidated via Atchison Lane.

Residents would have access to more than 665 sqm of communal indoor and outdoor spaces, while the development proposes 96 parking spaces across five basement levels.

The proposal also includes a commitment for 10 per cent of residential floor space to be allocated toward affordable housing through a monetary contribution.

COX said the tower form responds directly to the emerging high-density character of the precinct while seeking to maximise solar access, cross ventilation, and outlook from apartments.

<img alt="First look: SP Setia targets St Leonards skyline with 40-storey TOD tower" data-entity-type="file" data-entity-uuid="2163f85c-f63b-4be3-aafa-f8763976cec5" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Article%20Feature%20Image%20%28Grid%29_5.png?VersionId=WiAmtIKJ6.ZQ41EtYEQ1fol7AeorKBlL" />

“The building is orientated towards north,” the Apartment Design Guide compliance report noted, adding that the tower’s slim form was driven by the constrained inner-urban site dimensions.

The design also incorporates landscaped setbacks and communal open space at podium level, intended to soften the interface with surrounding streets and improve pedestrian amenity.

The project adds to a growing wave of redevelopment proposals reshaping St Leonards and Crows Nest following the opening of the Sydney Metro City line and the NSW Government’s push for higher-density housing around major transport nodes.

Last week Stockland filed plans just down the road. They want to build a <a href="https://www.apartments.com.au/new-apartments/601-pacific-highway-st-leonards-nsw-2065">52-storey tower on Pacific Highway</a>.

Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-stockland-plans-52-storey-538-apartment-st-leonards-tower">First look: Stockland plans 52-storey, 538-apartment St Leonards tower&nbsp;</a>

First look: SP Setia targets St Leonards skyline with 40-storey TOD tower

<a href="https://www.apartments.com.au/developers/urban-property-group">Urban Property Group</a> has revealed plans for a new mixed-use tower at 10 Dangar Street, Wickham, advancing a proposal that would reshape the southern gateway to Newcastle’s city centre with one of the city’s tallest residential buildings.

The State Significant Development proposal, now on exhibition, seeks approval for a <a href="https://www.apartments.com.au/new-apartments/bowline-10-dangar-street-wickham-nsw-2293">43-storey tower</a> immediately adjacent to the Newcastle Interchange. The project would deliver around 200 apartments, including 42 affordable housing dwellings, alongside 99 co-living units, a 171-room hotel, retail space, and new public domain integrated through the site.

The scheme marks a significant escalation of plans previously approved for the site. Urban Property Group took over the prominent 2,904 sqm parcel, where excavation and demolition had already commenced under an earlier consent for a 14-storey mixed-use development.

<img alt="First look: Urban Property Group unveils Newcastle’s next supertower at Wickham interchange" data-entity-type="file" data-entity-uuid="58a96dd9-407f-4d20-86b4-94e4bfeef74b" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/wickham%20podium.png?VersionId=LGlf08pdFGAZDzvx_CXC4XakHNZRuEE0" />

Designed by <a href="https://www.apartments.com.au/architects/sjb-architects">SJB</a>, the tower has been conceived as a landmark transit-oriented development anchored to the Newcastle Interchange precinct. The proposal includes 245 build-to-sell apartments across a mix of one, two, and three-bedroom residences, as well as two penthouses. Fifteen apartments and one operational unit are earmarked for NDIS housing. The co-living component would add a further 99 units, while the podium would accommodate retail uses and hotel facilities.

SJB said the site presents “a valuable opportunity to anchor the precinct by setting the standard for design, active ground planes and character at the key southern gateway.”

The architecture responds directly to the site’s position beside major transport infrastructure and within one of Newcastle’s fastest-evolving urban renewal precincts. The tower form sits above a sculpted podium designed to frame new public spaces, including a through-site pedestrian link connecting Station Street to Hannell Street, landscaped plazas, and activated retail edges.

<img alt="First look: Urban Property Group unveils Newcastle’s next supertower at Wickham interchange" data-entity-type="file" data-entity-uuid="a7bd6ff0-f7db-4ce8-a6dc-ea56e72c6149" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/wickham%20lanne.png?VersionId=xzf39VADyhj7zBQY2I9fx9vI62u2tuSb" />

The design report describes the project as part of the broader transition of Wickham into “a vibrant, high-quality mixed-use urban precinct” that leverages proximity to the station, open space, and regional connectivity.

A detailed public art strategy has also been prepared for the development. The strategy positions the project as “a transit-oriented development of state significance at the gateway to Newcastle’s city centre” and outlines a series of integrated artworks responding to Newcastle’s industrial and transport heritage.

Creative Road’s curatorial framework for the project, titled Unveil, draws on “stratified surfaces, carved volumes, and light-filled apertures” while referencing Newcastle’s transformation from an industrial city into a contemporary education and technology hub.

<img alt="First look: Urban Property Group unveils Newcastle’s next supertower at Wickham interchange" data-entity-type="file" data-entity-uuid="77a882bb-14b1-4d28-99ff-9438e39508c0" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/wickham%20site.png?VersionId=cevgo_vN0eKPK78P8YcEu3mKPLkpFqE7" />

The proposal is being advanced through the NSW Housing Delivery Authority pathway after being declared State Significant Development in June 2025. The accompanying scoping report states the development aims to “maximise the site’s proximity to the Newcastle Interchange by delivering transit-oriented development” while increasing housing supply and affordable housing provision within the Newcastle LGA.

Urban Property Group’s plans align with the long-term strategic vision established under the Wickham Master Plan, which identified the interchange precinct as suitable for substantial uplift in height and density. The current proposal would significantly intensify that vision, positioning the tower among the tallest developments proposed for Newcastle.

The site sits immediately north of the Newcastle Interchange, bounded by Dangar Street, Hannell Street, and Charles Street. It is surrounded by a rapidly growing cluster of residential towers and mixed-use projects that have emerged following the completion of the light rail and transport interchange.

First look: Urban Property Group unveils Newcastle’s latest tower at Wickham interchange

Bottega House has completed settlement of a landmark riverfront site in Macquarie Street, St Lucia, representing its first major Brisbane development.&nbsp;

Positioned on the banks of the Brisbane River, the <a href="https://www.apartments.com.au/new-apartments/180-macquarie-street-st-lucia-qld-4067">premium site at 180 Macquarie Street</a> features uninterrupted river frontage in one of Brisbane’s most tightly held residential precincts.&nbsp;

The proposed development, currently under assessment with Brisbane City Council, has been designed by <a href="https://www.apartments.com.au/architects/plus-studio">Plus Studio</a> with interiors by <a href="https://www.apartments.com.au/interior-designers/mim-design">Mim Design</a> and will deliver a boutique collection of premium residences positioned specifically for owner occupiers and downsizers.&nbsp;

The residences are set to redefine luxury apartment living in the area, with a focus on architectural quality, refined finishes, landscape integration and elevated amenities including curated wellness facilities, resort-style pools and recreation spaces rarely seen in the local market.&nbsp;

Exclusive sales for the project will be led by Keenan &amp; Byrne, ahead of an anticipated launch later this year.&nbsp;

Bottega House Managing Director Nick Malloch said the project reflects the group’s ambition to deliver a highly curated residential offering within one of Brisbane’s most tightly held precincts.&nbsp;

“This is an incredibly rare riverfront opportunity and one we have approached with a long-term perspective,” Malloch said.&nbsp;

“Our vision from the outset was to create a boutique collection of residences that feel more like private homes than traditional apartments, with generous proportions, refined finishes and exceptional amenity throughout."

Malloch says there is a&nbsp;lack of premium owner-occupier stock of this quality in the market, particularly for downsizers wanting space, privacy and a true lifestyle offering without compromise.&nbsp;

"Demand is expected to be strong given the scarcity of premium riverfront opportunities of this nature within Brisbane’s inner-west."&nbsp;

Bottega House secures landmark riverfront site in St Lucia 

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The arrival of the first piling rig officially marks the commencement of construction at SIERA’s new beachside apartment development, Exhale, in Northcliffe.

<a href="https://www.apartments.com.au/new-apartments/exhale-surfers-paradise-8-enderley-avenue-surfers-paradise-qld-4217">Exhale</a>, a glass-encased tower featuring 54 large-scale apartments at 8 Enderley Avenue, is SIERA’s third Gold Coast development. It follows the recently completed PIPIS Bilinga beachfront project, which achieved suburb-record prices, and the soon-to-be-completed Chevron Island development, Tapestry.

[smartcode_project:default project_id=112661 project_image_fid=359603]

<a href="https://www.apartments.com.au/developers/siera">SIERA</a> Founder and Managing Director Brent Thompson said the arrival of the piling rig represented a significant milestone for the development, which is scheduled for completion in late 2028.

Over the next month, around 260 piles are expected to be installed as work progresses on the basement structure. The building is anticipated to rise above ground level early next year, before unveiling its sculptural glass curtain wall, developed in collaboration with specialist façade engineers.

“The façade was designed to maximise panoramic coastal views while creating a distinctive architectural identity,” Thompson said.

[smartcode_project:default project_id=112661 project_image_fid=355935]

Designed by BDA Architecture, Exhale will comprise just 54 two- and three-bedroom residences across 26 levels, a level of low-density living rarely delivered in this beachside pocket between Surfers Paradise and Broadbeach.

The project has been conceived as a resident-only building, with no short-stay accommodation permitted. SIERA says the model is intended to appeal to long-term owner-occupiers rather than transient holiday demand.

[smartcode_project:default project_id=112661 project_image_fid=361052]

Residences have been designed with large-format layouts and expansive glazing, with most apartments featuring more than 30 metres of glass frontage to maximise natural light and ocean views.

The amenity offering spans two levels and centres on wellness and lifestyle, including a heated magnesium pool, sauna, yoga and Pilates studio, gymnasium, private dining facilities, cinema lounge, and dedicated surfcraft storage.

[smartcode_project:default project_id=112661 project_image_fid=359607]

More than half of the apartments have already sold. SIERA has also opened a sales gallery for Exhale at its Chevron Island commercial premises, near its Tapestry tower and the site of its second Chevron Island apartment development, which is slated to launch in early 2027.
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[smartcode_project_cta:default project_id=112661]

SIERA kicks off construction at Northcliffe tower Exhale

Wages Growth

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EXPERT OBSERVATION
Greater Sydney leads the way in the wages growth test tube, with its annual average unemployment rate falling to the lowest level since 2008, at just 4½ per cent in April 2018. 
Total employment in Sydney has exploded an ear-splitting +128,600 higher over the past year alone to a record high of 2¾ million.  
Just to put that in some perspective, only three years earlier total employment in Sydney was 2½ million, so the harbour city has been creating jobs at a truly thunderous rate. 
From an unemployment rate perspective Adelaide now takes out the most improved award, although the underlying labour force metrics in the South Australian capital are a tad uninspiring at best. 
<a href="https://1.bp.blogspot.com/-_j_1zgWgnfg/WwYbYRUTOCI/AAAAAAAAqL0/uvZVa8OylMI3l5Wrt6HEPKM9YBPoNL8CgCLcBGAs/s1600/A1.jpg"><img src="https://1.bp.blogspot.com/-_j_1zgWgnfg/WwYbYRUTOCI/AAAAAAAAqL0/uvZVa8OylMI3l5Wrt6HEPKM9YBPoNL8CgCLcBGAs/s640/A1.jpg" width="640" height="368" data-original-height="816" data-original-width="1413"></a>
In somewhat brighter news for employment hunters, the median duration of job search has improved very steadily over the past year, and that now includes for Greater Perth, after a very lean run.
<a href="https://2.bp.blogspot.com/-hUe7QaB3LSI/WwYbYOfBusI/AAAAAAAAqLw/s2rvw9dAuRs81kh1LcEN_GEQ9pxjG6eZgCLcBGAs/s1600/A2.jpg"><img src="https://2.bp.blogspot.com/-hUe7QaB3LSI/WwYbYOfBusI/AAAAAAAAqLw/s2rvw9dAuRs81kh1LcEN_GEQ9pxjG6eZgCLcBGAs/s640/A2.jpg" width="640" height="376" data-original-height="813" data-original-width="1379"></a>
Finally for today, S&amp;P's Prime SPIN mortgage arrears came in at 1.18 per cent in March 2018, broadly unchanged from 1.16 per cent in February (and from 1.16 per cent a year earlier). 
<img src="https://3.bp.blogspot.com/-nI-KATQcaLI/WwYevbne3QI/AAAAAAAAqMc/9WVlNyzJbGMvR_TyUvhzBSvAmOIXsI8TwCEwYBhgL/s640/S%2526P%2Bactual.jpg" width="640" height="380" style="font-size: 12.16px;" data-original-height="810" data-original-width="1360">
From a macro perspective, then, nothing meaningful to report in terms of mortgage stress. 
Around the traps, only the figures Western Australia (2.37 per cent) revealed any actual signs of mortgage stress, with arrears either benign or falling in most states and territories. 
<a href="https://4.bp.blogspot.com/-2YBJy0jghMQ/WwYd_try7VI/AAAAAAAAqMU/c9lwxxF1AvAAIWCG2mQSDxyxLcCne0WvgCEwYBhgL/s1600/sanp%2Bpicture.jpg"><img src="https://4.bp.blogspot.com/-2YBJy0jghMQ/WwYd_try7VI/AAAAAAAAqMU/c9lwxxF1AvAAIWCG2mQSDxyxLcCne0WvgCEwYBhgL/s400/sanp%2Bpicture.jpg" width="400" height="370" data-original-height="1483" data-original-width="1600"></a>
 
Source: S&amp;P Global 
Stress at the margin 
There's a lot of debate about mortgage stress at the moment, with some people seemingly almost willing the figures to run higher. 
The truth is the picture is quite mixed around the regions.  
For most homeowners that have been in the market for some years, stress is very low with mortgage rates hitting some of the lowest levels in living memory, and this is reflected the unprecedented level of mortgage buffers that we saw in 2017.
But there are some parts of the country, including Perth, Gladstone, and a number of others, where employment opportunities have either been sparse or very sparse. 
Accordingly there have been some marked shifts in internal migration, as workers relocate to cities where employment growth has been stronger, most notably Melbourne in recent times.
In some cases, where households are in negative equity this may not be possible, and in it's in these situations where mortgage stress can become punishing. 
Fortunately there are relatively few pockets of Australia where negative equity is widespread, with many of the underperforming high-rise apartments owned by investors (including non-resident investors). 
Overall, while the picture remains mixed around the country, it has been consistent with a steadily improving labour market.
PETE WARGENT is the co-founder of AllenWargent property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank">blogger</a>.
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pwargent-M4siyDbqQY

Sydney leads the country in wage growth: Pete Wargent

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GUEST OBSERVER 
December quarter wages growth in Australia was a stronger than expected 0.6% quarter on quarter which lifted the annual pace of wages growth to 2.1%, its strongest in 18 months.
This was above market expectations for a 0.5% quarterly gain.
Underlying wages growth may be bottoming, but its premature to conclude that its starting to lift: as the stronger than expected December quarter gain likely reflects a continuing flow through of last year’s minimum wage rise (which appeared to impact less than expected in the September quarter); adjusting for the minimum wage rise leaves underlying wages growth still stuck around its low of just 1.9% year on year; and the acceleration in quarterly wages growth was only driven by the public sector with private wages growth stuck at 0.5% quarter on quarter.
Click here <a href="https://www.propertyobserver.com.au/images/2018/2/21/wages.jpg" target="_blank">to enlarge.</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/2/21/wages.jpg" alt="">
 
Meanwhile, wage increases in new enterprise bargaining agreements have been tending to be lower also suggesting there has been no real lift in underlying wages growth and spare capacity in the labour market remains very high.
So our view remains that its premature to conclude that the long awaited lift in wages growth is upon us and so we see no reason for the RBA to change its conclusion that the lift in inflation towards target will be gradual and we continue to expect that the RBA won’t be raising rates until late this year at the earliest. So the Australian dollar was right to give up its initial bounce after the wage data was released.
<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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jrobinson-rf4aSBido9

No rate rise as December quarter wages growth not strong enough: Shane Oliver

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<div>Wages grew by just +0.48 per cent in the September 2017 quarter, to be +2.01 per cent higher over the year.</div>
<div> </div>
<div>Superficially this looks like a bit of an improvement, and at least it can be said that wages are growing a bit ahead of the rate of inflation. Just. </div>
 
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<div>And including bonuses the annual increase was a slightly more upbeat +0.7 per cent for the quarter, and +2.2 per cent for the year. </div>
<div> </div>
<div>However, the result this quarter was pumped up by the minimum wage increase, and you can see in the chart below that a number of industries (such as accommodation &amp; food) how this inflated the quarterly numbers. </div>
<div> </div>
<div>Over the year the industries with the most robust wage price growth included healthcare &amp; social assistance (+2.7 per cent), arts &amp; recreation services (+2.7 per cent), and education &amp; training (+2.4 per cent).</div>
<div> </div>
<div>On the other hand wages growth in the mining sector (+1.2 per cent) remains very low, as it does in professional, scientific, &amp; tech services (+1.5 per cent). </div>
 
<div class="separator"><img src="https://3.bp.blogspot.com/-qz-oEw4ScZk/WgveKUMf7-I/AAAAAAAAnBA/i1VE8nK3RLUV97PLMfKJ4ALyFwYD8NJjACEwYBhgL/s640/Q5.jpg" width="640" height="398" data-original-height="831" data-original-width="1335"></div>
<div class="separator"> </div>
<div>Annual wage price growth in the private sector remains super-low at just +1.86 per cent, with wage price growth in the public sector some way higher at +2.37 per cent. </div>
<div> </div>
<div>The public sector index has outpaced the private sector since the peak of the resources construction boom. </div>
<div> </div>
<div class="separator"><img src="https://3.bp.blogspot.com/-AsixGPHs0-4/WgveMQ-G2WI/AAAAAAAAnA8/Sk0v0wmiKGk7QWwu0qw-Sr1NzkzLaeVSgCEwYBhgL/s640/W3.jpg" width="640" height="392" data-original-height="834" data-original-width="1361"></div>
 Resources states slow
<div> </div>
<div>At the state level Queensland, Victoria, and Tasmania each recorded wages growth of +2.2 per cent, while New South Wales (+2.1 per cent) also recorded reasonable growth. </div>
<div> </div>
<div>However, there were considerably weaker results in Western Australia (+1.3 per cent) and the Northern Territory (+1.4 per cent). </div>
<div> </div>
<div class="separator"><img src="https://3.bp.blogspot.com/-t5Uo7NdC0C8/WgveJMlBj1I/AAAAAAAAnAs/60BC3Bn-sUQWDuK1PRht2vH1chUljsgYQCLcBGAs/s640/W1.jpg" width="640" height="384" data-original-height="814" data-original-width="1355"></div>
 
<div>Western Australia recorded the fastest pace of wages growth through the mining boom, but is now coming back to the pack. </div>
 
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 The wrap 
<div>Overall, while it's positive to note annual wages growth moving a bit higher and ahead of the rate inflation, in reality this was a very soft result which missed expectations, having been puffed up by the minimum wage increase. Not much in the way of pre-Xmas cheer to be found here! </div>
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Wages growth at snail's pace: Pete Wargent

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Remuneration in the property industry has grown better than the general workforce, according to a recent report by remuneration consultant Avdiev.
The latest Avdiev Remuneration Report 2017 is a product of a formal Australia-wide survey of property, investment, development and construction employers and design and building consulting companies, finds that junior staff have been the winners in the pay stakes again.
It also reflects improving business conditions. There has been a significant expansion of pay rise ranges, with salary rises in the Property Investment and Funds Management market sector ranging from 1.8% to 12% and 1.5% to 16% in Property Development. Even the Retail sector, enduring challenging times, had to give rises to its productive and successful staff, especially in leasing.
This is in contrast with the 1.8% increase for the year to May 2017 (ABS) for the general workforce and a CPI uplift of 1.9% to June 2017.
“You can’t keep a busy property industry down” said Rita Avdiev, managing director of The Avdiev Group, remuneration consultants.  
“It’s getting better all the time, but good times bring with them talent shortages, headhunter attacks on desirable recruits with outrageous offers to move. Both old and young are targets. Loyalty flies out the window when you’ve been left behind and a 20% pay rise is on offer with a rival.”
The benign business conditions are industry wide. Only 3% of subscribers reveal doing very badly, and only 5% worse than last year. 
The others report ongoing stable business conditions doing well.
The median annual pay rises have varied since last year by seniority of staff. 
Juniors are ahead, being tech savvy, energetic, open to new ideas, systems and processes.
Following the push for gender equity in the industry women are at last being recognized as valuable employees with contributions and skills to match and complement their team members. There is a shortage of women recruits, and companies are going to great lengths to get them on board. But gender pay equity and early promotion are still scarce.
“What comes next?” asks Rita Avdiev. Every year the forecast for the next pay review remains modest and subdued.
But reality bites with the prospect of team dislocation and continuity disruption. NSW building and construction staff are prime targets. “Sourcing young talent from competitors has become a blood sport” she says. 
“When you are faced with making counter offers to staff being lured away by headhunters with promises of mega rises in salaries and ready or not promotions, the threat loosens purse strings and the pay goes up.” 
All sectors are targeted. Companies with foresight have already raised salaries and bonded their staff into competent and productive teams where the sense of achievement is a significant part of the reward.
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jonathanchancellor-7SQnKwU6yx

Property industry remuneration grew at strong pace: Avdiev

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GUEST OBSERVER
Does the falling household saving ratio help to reconcile the disparity in consumer and business confidence?
A solid gap has opened up between business and consumer sentiment.  A falling saving ratio, which has supported household consumption in the face of declining wages growth, looks to be one of the important factors contributing to the disparity in confidence.  It may also help to explain why investment growth is soft despite strong business conditions and confidence.  
Overview
Confidence can be a powerful force. The sentiment of households and businesses regularly plays a role in shaping economic activity. Economists and policymakers often look at measures of reported confidence as forward looking indicators of consumption and investment. Right now, however, the surveys of business and consumer sentiment are sending conflicting signals. 
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<img src="https://www.urban.com.au/images/2017/07/21/Screen%20Shot%202017-07-21%20at%208.19.39%20AM.png" alt="">
A solid gap has opened up between business confidence (and conditions) and consumer sentiment (chart 1). The NAB business survey suggests that business conditions are at their highest level since 2008 while confidence is at an above- average level. In stark contrast, the WBC/MI consumer sentiment report indicates that household confidence is fragile.
In the past, there have been disparities in how consumers and businesses feel. But these divergences tend to be ‘ironed out’ over time and the results converge. This time around the disparity has persisted for an unusually long time.
In this note we attempt to reconcile why business confidence has been so buoyant despite consumers feeling downbeat. On the surface it’s easy to understand why consumers don’t feel good.
Real wages have fallen, household income growth is weak, debt levels are high and the labour market still has plenty of slack in it. As we covered last week, per capita measures of the economy suggest that there hasn’t been a lot a joy for households since the downturn of the mining investment boom.
We won’t go through the details again in this note other than to say that there is nothing unusual in the persistently weak monthly readings of consumer confidence. But what looks surprising, at least on the surface, is the reported high levels of business confidence. After all, non- exporting industries are selling goods and services to domestic households. And generally speaking, pessimistic consumers are bad for businesses because they  reign in spending.
We postulate that a falling saving rate, which has supported consumer spending, has helped to prop up business confidence and profits despite the household sector feeling gloomy and doing it tough. If we are right then the disparity can only persist until the saving rate hits a floor. At which point business confidence is likely to soften without a lift in household income growth. 
Why is business confidence high?
The two headline figures in the NAB Survey that relate to business conditions and confidence have posted strong outcomes in 2017 (chart 2). Business conditions hit a post-GFC high in June. And business confidence, which was a little softer, came in well above its long-run average level. According to the survey, there’s broad-based strength in the numbers because most industries have been performing well.
Some of the recent “hard” data helps to explain why businesses have had a much 
better time than consumers of late. The big lift in national income over the past year has largely been confined to the corporate sector as profits rather than spilling over to employee wages and salaries.
And unit labour costs are low because wage growth is weak (chart 4). This has kept a lid on the single biggest operating cost that businesses face.
Growth in labour market supply has facilitated this.
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<img src="https://www.urban.com.au/images/2017/07/21/Screen%20Shot%202017-07-21%20at%208.20.57%20AM.png" alt="">
 
Furthermore, the global economy has improved, which provides a boost to demand for Australia’s exporters. What is unusual, however, is that sales growth has been decent while the household sector struggles.
Why is consumer confidence weak?
It’s not hard to see why consumer sentiment is stuck in the pessimistic zone. Our note looking at the Australian economy on a per capita basis spoke to the heart of the matter. Namely that growth in living standards has stagnated and for some sections of the resident population, in particular younger people, it has gone backwards.
The trends in the data on wages (chart 5), real household income per person (chart 6), debt to income, and labour market spare capacity suggest that consumer pessimism is unlikely to lift in the near term. In fact, real wages growth may fall further into the red zone when the sharp lift in electricity prices finds its way into the headline CPI. This will naturally weigh on the consumer.
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Can the saving rate helps to explain the disparity?
The saving patterns of households can be a big driver of economic activity. The proportion of income saved influences household consumption which is worth 57 per cent of GDP.
In Australia, the saving rate1 has been falling since mid- 2012. This means that expenditure growth over that period has outpaced income growth. As chart 7 shows, household consumption growth has been pretty stable in Australia despite falling wages growth because the saving rate has come down.
There are two reasons, broadly speaking, why the saving rate may fall. First, consumers may feel good about the future and their personal finances which means they feel comfortable reducing the amount of income that is saved each period.
Alternatively, the saving rate may be falling so that households can maintain a constant level of consumption in the face of declining income growth.
The evidence suggests that it is the latter situation driving the recent decline in the saving rate. We know this because over the recent past, household income growth has slowed while consumption growth has remained broadly flat. And on top of this, consumer sentiment has been mired in the pessimistic zone all year.
We can therefore infer that businesses, at an aggregate level, have benefited from falling unit labour costs but relatively constant sales growth thanks to a falling household saving rate.
That means stronger profit growth, which lifts business confidence, all else equal. In the context of the above, we now have a better insight into the disparity between consumer and business confidence.
Of course there are other factors like firmer commodity prices which have boosted resources profits. But given the broad-based strength of the NAB business survey we think that the fall in the saving rate has played an important role in explaining the disparity.
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What does it mean for the outlook
If the savings rate stops falling, and it must hit a floor at some point, then household income growth and consumption growth will converge. Some of the consumer pain will then be felt by the business sector unless a meaningful lift in wages growth arrives that can propel consumer spending higher.
We don’t envisage that happening in the near term given the level of spare capacity in the labour market (chart 8).
Historically business confidence tends to be a good gauge of investment intentions. Higher levels of confidence are usually a precursor to a lift in capital spending. In this case, however, the strong confidence and conditions numbers have not generated a commensurate lift in investment. Again, we suspect that the consumer is playing a role here.
Many businesses will be aware that household budgets are stretched and that a falling saving rate has supported consumption. There has also been a lot of coverage recently on the level of debt that the Australian household sector is carrying.
As a result, it may be the case that expectations of future consumer demand are too low to justify a lift in investment at this point in time despite positive levels of confidence and conditions.
The upshot of this means that our monetary policy call looks more aligned with the consumer sentiment figures than what the NAB business survey is suggesting.
As such, we continue to see the RBA on hold well into 2018 despite a more optimistic tone in the July Minutes.
Gareth Aird is economist at Commonwealth Bank and can be contacted <a href="https://www.propertyobserver.com.au/https://au.linkedin.com/pub/gareth-aird/14/790/905">here</a>.
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mick.cee-iDmgDDAmu8

Solid gap between business and consumer sentiment: Gareth Aird

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GUEST OBSERVER
There has been a marked improvement in the Australian labour market with a lift to total employment, of which the largest share has been full-time, and a drop in the unemployment rate.
Despite a clear tightening in labour market conditions we are yet to see a lift in wage inflation.
Firms do not appear to be under pressure to lift wages to attract staff while rising underemployment and relatively high unemployment expectations suggest household are not confident enough to bargain for stronger wage rises.
Since 2015 wages have underperformed the historical relationship but this underperformance is less clear in Victoria. The relationship is still broadly holding in SA.
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It is not yet clear if we have seen a shift in the curve or a breakdown in relationship. Regardless, we expect any lift in wage inflation to be modest and gradual. 
A meaningful improvement in the labour market conditions.
The Australian labour market went through a soft patch from August to November in 2016 when the average gain in employment was a paltry 2.2k per month. So far in 2017 there has been a distinct uplift in employment. In the three months to May, total employment gained 141.1k, or an average of 47k per month, lifting the annual pace from 0.9%yr to 2.0%yr. Employment growth is now more in line with our preferred leading indicators, the various business survey’s and household demand.
Taking the Labour Force data at face value, you could argue there has been a material tightening in labour market conditions. The quarterly unemployment rate peaked at 6.2% in 2015 Q3 then fell steadily to average 5.7% for the three months to May 2017, pointing to a material tightening. And it is not just unemployment that is pointing to an improvement.
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We have also seen a recovery in full-time employment. Through 2016, full-time employment fell 35k as part-time employment rose 127k. In 2016, all of the growth in total employment came from the significant lift in part-time employment. In the year to May 2017, full-time employment rose 148k for a 1.8%yr pace, so full-time employment growth is now exceeding growth in the working age population, the first time it has done so since February 2016.
And yet wages continue to languish at record lows.
Normally when you observe a tightening in the labour market, you would expect to see an increase in wage inflation. But we have not seen this with wage inflation, as measured by the Wage Price Index (WPI), holding at a historical low of 1.9%yr. One measure of tightness is to compare the unemployment rate to the rate unemployment would be if the economy was at full employment.
The RBA estimates a NAIRU, or Non-Accelerating Inflation Rate of Unemployment, to be currently around 5.0%. So while there is still a gap, the unemployment rate has moved closer to the NAIRU representing a tightening of the labour market.
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Westpac uses a labour gap which is the difference between unemployment and trend unemployment. Historically the labour gap had a two quarter lead to wage inflation. In the year to the June quarter, the labour gap averaged +3ppts; the last time it was this positive was back in September 2012 when wage inflation (as measured by the Wage Price Index) was running at a 33⁄4%yr pace. Wage inflation printed 1.9%yr in the March quarter of 2017.
Employers do not feel under pressure to bid up wages.
Another measure of slack is the “is labour easy or hard to find” question from the Westpac/Australian Chamber business survey. However, whereas from early 2016 the labour gap was pointing to a tighter labour market conditions, this index suggested labour was still relatively easy to find. While it may have become bit harder since, it is still consistent with a neutral response (neither easy nor hard to find) and as such it does not appear that employers are under any pressure to bid up wages.
Underemployment has lifted as job insecurity holds a relatively high level.
Could employees’ employment insecurity have a role to play? Since late 2014, unemployment expectations from the Consumer Sentiment survey has been relatively weaker than its historical relationship with unemployment so maybe workers aren’t confident enough to bid up wages.
There does appear to be some basis for this relatively high level of job insecurity. The ABS has an alternative labour market measure known as underemployment, which is the share of labour that while employed are willing and able to work more hours. From 2015 H2, while the underemployment rate fell from a peak of 6.1% to 5.5%, the underemployment rate rose from 8.3% to 8.8%, with an 8.9% peak in early 2017.
The RBA noted in the February Statement on Monetary Policy that since the 1980’s, the upward drift in underemployment can be explained by the rising share of part-time employment. It also noted that “underemployment rates are higher among groups that have a higher share of part-time employment, such as females, younger workers and older workers”, so as their share of employment rises so too does underemployment.
We would, however, counter with two observations.
Firstly, in the year to May, full-time employment growth accelerated while part-time employment eased, yet underemployment lifted from 8.4% to 8.8% suggesting a genuine broadening in underemployment rather than a compositional shift.
Secondly, combining unemployment and underemployment generates underutilisation, the broadest measure of labour market slack. We have found that this measure has a better relationship with wage inflation than either unemployment or underemployment by themselves. But this still leaves the observation that, since 2015 there has been an underperformance of wage outcomes to underutilisation.
State data reveals some interesting divergences from the national average.
How long can we divert from this historical relationship? To answer we turn to the state labour markets. In NSW the unemployment rate in May was just 4.8%, well below the national average and below the RBA’s estimate of the NAIRU. From the end of 2015, NSW’s unemployment fell from 5.3% to 5.1% (March quarter average) and yet underemployment lifted from 7.5% to 8.0% boosting underutilisation from 12.8% to 13.1%. However, even this softening in underutilisation does not explain the on-going weakness in private sector wage inflation, which printed just 2.0%yr in the March quarter. If wage inflation held the historical relationship with underutilisation, it would just under 3.0%yr.
We should also note that NSW also has the lowest participation and employment to population ratio for any mainland state outside of SA. These factors put into perspective the fact that NSW low unemployment is not a strong indicator of the overall tightness of a labour market.
Compare this with Victoria, where wages have kept something of a tighter relationship with underutilisation. At 15%, underutilisation suggests wage inflation should be running at just under 21⁄2%yr. The state’s WPI printed 1.9% in March which is a smaller wedge to underutilisation than in NSW. Victoria also has a higher rate of unemployment than NSW (6.1% vs. 4.7%) and underemployment (8.6% vs. 8.0%) but that does not necessarily mean Victoria has a weaker labour market.
Total employment has grown just under 4%yr pace in Victoria while in NSW it has grown less than 1%yr. The higher rate of underemployment and unemployment in Victoria reflects that states faster rate of population growth combined with a higher rate of participation (for both males and females). Victoria is also the only state where you can observe a trend rise in male participation since 2014. Other states may show something of a levelling out, or a recovery, since late 2016 but all declining male participation preceding. It has also recently seen the largest jump in female participation for any state.
In Qld, wages are below the curve with an underutilisation rate around 14% pointing to wages growth of at least 3.0%yr. Wages in that state are currently growing at 1.8%yr, a significant wedge to historical outcomes. Male participation has started to lift again in Qld so even if we do see the underutilisation/wage relationship return to the curve, will it be driven by rising wages or rising underutilisation due to rising participation?
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WA is interesting in that while wage outcomes since 2015 are clearly below the longer run relationship with underutilisation, the shape of the relationship still holds - that is it appears that the curve has shifted downwards since 2015. This suggests that while the historical underutilisation/wage relationship would put wages growth around 2%yr (for a 15% underutilisation rate) actual wages growth of just under 1% appears to be holding a shorter term relationship since 2015.
Of all the states SA is holding the tightest long-term relationship for underutilisation/wages. An underutilisation rate of around 17% would normally see wages grow at 21⁄2%yr; the WPI rose 2.0% in the year to the March quarter. We have been watching the relative out performance of wages in SA despite the relatively high rates of unemployment (and underemployment) and wonder if this reflects the relatively more significant contribution manufacturing makes to that state's economic activity compared to the other states.
It is not clear if curve is shifting or breaking down.
The significant underperformance of NSW wage inflation does raise questions not just on the specification of a NAIRU but whether the NAIRU is still a useful concept. It is possible that the breakdown in the NAIRU is due, at least in part, to the Australian economy’s shift away from goods production to services provision, which is more dominate in NSW than it is in Vic and SA, and as such the breakdown may be temporary.
The downward shift in the WA curve suggests this may be the case as that state has seen it economy experience a rapid and significant shift away from the resources sector. But the significantly different participation rates between the states may also point to something more structural. As such, to assume that a falling unemployment rate will drive an uptick in wages may lead to an overstatement of the outlook for wages, household income growth and thus inflation and consumption. Currently Westpac is taking a cautious view that while wage inflation may have found a base, any uptick will be modest and gradual. 
Justin Smirk is ‎senior economist, Westpac Group and can be contacted <a href="https://www.westpac.com.au/about-westpac/westpac-group/">here</a>.
 
 
 
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jchancellor-FAypfDUnLy

Australian wages underperforming current labour market conditions: Justin Smirk

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GUEST OBSERVER
The weekly ANZ/Roy Morgan consumer confidence rating eased from 112.4 to a 5-week low of 111.8 in the week to June 25.
Engineering work lifts: Work done rose by 2.8 percent in the March quarter to $20.3 billion.
Outstanding work: The value of engineering work still to be completed stood at a 71⁄2-year low of $59.8 billion at the end of March.
Consumer confidence data is important for retailers.
The data on engineering construction is important for builders, building material and construction-dependent companies.
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What does it all mean?
Consumer confidence remains just OK. Most Aussie consumers are still grappling with the new reality that annual wage growth will now be closer to 2 percent rather than 3-4 percent as in the past.
Still, what is lost on most is the fact that wages are growing at a faster rate than household inflation. And the job market continues to improve with the jobless rate at 4-year lows.
While business confidence is near 7-year highs, consumer confidence is merely trending sideways. The hope is that with profits at record highs and real unit labour costs falling, more jobs will be created, thus leading to a tighter job market and serving to push wages higher.
The mining construction boom continues to unwind. The value of outstanding engineering work has fallen to 71⁄2- year lows around $60 billion, but the value of work yet to be done has scope to fall further to get to the levels existing before the mining boom commenced.
The new economic driver in the next few years will be broader economic and social infrastructure building, especially that progressed by state and federal governments.
What do the figures show?
Consumer sentiment
The weekly ANZ/Roy Morgan consumer confidence rating eased from 112.4 to 111.8 in the week to June 25. Confidence is down 4.3 percent over the year and below the average of 113.1 since 2014.
Three of the five components of the index fell in the latest week:
<ul>
<li>The estimate of family finances compared with a year ago was unchanged at a reading of zero;</li>
<li>The estimate of family finances over the next year was down from +23 to +21;</li>
<li>Economic conditions over the next 12 months was up from -6 to -3;</li>
<li>Economic conditions over the next 5 years was down from +4 to +3;</li>
<li>The measure of whether it was a good time to buy a major household item was down from +41 to +38:</li>
</ul>
Engineering construction
Engineering construction work completed in the March quarter (activities like roads, bridges, pipelines and railways) rose by 2.8 percent in real terms. 
Work done was down 12.5 percent on a year ago. But while work done for the private sector was down 22.4 percent over the year, work done for the public sector was up by 10.2 percent.
The value of engineering work yet to be done stood at $59.8 billion at the end of March with private sector work standing at $56 billion and public sector work at $3.8 billion. 
While outstanding work is at 71⁄2-year lows, the value of the projects is still double the level that prevailed a decade ago in December 2006, just before the Chinese-driven mining construction boom. 
Characteristics of Exporters 
The total number of exporters of goods and/or services in 2015/16 was 53,350, an increase of 2,454 (5 percent) from 2014/15.
The number of goods exporters increased by 2,611 (5 per cent) and the number of services exporters decreased by 136 (-4 percent).
The increase in the number of exporters was across the board, except for large goods exporters (over $100m) and services exporters.
The number of goods exporters increased in each of the main industry divisions, except for Mining. 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.
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The Australian Bureau of Statistics provides detailed estimates on Engineering Construction each quarter. The data is valuable in gauging activity levels across the sector. 
The Australian Bureau of Statistics provides insights on Australian exporters each year to highlight trends. 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. The mining boom is over, but home building is at record levels and public infrastructure construction is about to ramp up. The economy is poised to enter a new phase.
Consumers aren’t super-optimistic, but neither are they super-pessimistic. Basically they are just taking stock of the changing landscape. Unfortunately political wrangling isn’t helping to boost consumer sentiment, despite some favourable influences such as strong job growth and lower petrol prices. 
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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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cjames-5S2v74qSNK

Wages growing at a faster rate than household inflation: Craig James

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The gap between average incomes and average home prices in Australia continues to widen, according to a new report by PowerHousing Australia and CoreLogic. 
According to the report, The Australian Affordable Housing Environmental Scan 2017-18, the outlook for low-income earners will remain bleak while property prices continue their double-digit growth march while wages can’t keep up. 
The report, by PowerHousing Australia and CoreLogic, looks at the key metrics for housing affordability across the country and presses upon the urgency to implement new measures, such as those announced in the recent Federal and NSW state budget to improve access to the housing market. This is especially important for those on lower incomes such as first home buyers, key workers, seniors and social housing tenants.
“The indicators of housing affordability in Australia show that there is an increasing gap between average incomes - particularly those in the lowest two quintiles - and the price of an average home,” PowerHousing Australia CEO Nicholas Proud said.
Even RBA Governor Philip Lowe said earlier this year that the combination of record high household debt to income when wages were growing slowly was a “sobering combination”.
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“The report shines a light on just how acute the housing market participation challenge is for low- income earners, for both renters and those looking to become homeowners. The situation for first home buyers is particularly dire today,” said Proud. 
First home buyer rates have continued their two-decade-long downward trend. Over the past five years, the average loan they take out has increased by less than $9,000, while the average dwelling price has gone up by $120,000 nationally and $317,300 in Sydney over this period, she added.
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However, CoreLogic head of Research Tim Lawless noted some encouraging indicators on the affordability front but said risk factors remain. 
“Low interest rates, strong lending finance, a surge in building approvals and subsequent record high dwelling commencements and completions are all positive signs for affordability,” Lawless said. 
“Australia has never built as many homes as the number being built today, however there needs to be a sustained level of building over and above the 10-year average rates for there to be a consistent and meaningful improvement in housing affordability, particularly in Sydney.”
Sydney incomes are on average higher than other parts of the country but home prices are more than eight times the median income in Greater Sydney, he said. 
For a mortgage with an 80 per cent loan to valuation ratio, families need to set aside 45 per cent of their annual gross household income to service the loan. 
In Sydney, only 3.5 per cent of houses sold over the 12 months to February 2017 transacted for less than $400,000 – this figure was 25.8 per cent of all annual home sales in Sydney five years ago. 
He attributed strong population growth, driven by high net overseas migration and the ongoing strength of household formation rates has created strong demand for housing which contributes to price rises.
“In Sydney, it is now almost 13 times more likely for a house to sell for more than $1 million than to sell under $400,000 and it is 2.3 times more likely for a unit to sell for more than $1 million than to sell for less than $400,000. For houses, there are also more sales over the past year above $1 million than below $400,000 in Melbourne and Canberra. Sydney has more units selling above $1 million than those below $400,000,” Proud said.
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The report indicates that policy levers available to governments can and do have a major impact. The Federal Budget measures for housing announced in May promise to provide some respite for those in rental stress or struggling at the higher percentage end of the mortgage-to-income ratio scale. 
“In the late 1990s we saw negative gearing and capital gains tax changes drive investor activity, first home owner grants in 2009 saw first home owners reach 30 per cent of all lending finance and foreign investment changes in countries such as Canada contributed to record levels of foreign investment into countries such as Australia,” said Proud. 
“It is clear that housing policy can influence and drive activity into areas of the housing market and boost the provision of housing.” 
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Income and home price growth disparity to continue, says new report

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GUEST OBSERVER
Our model suggests that private sector wages growth is a little lower than it should be given the degree of labour market slack.
Nonetheless the current level of labour market underutilisation is consistent with wages growth of just above 2 percent.
Our model suggests that a steady decline in the underemployment rate to around 7 percent, would see wages growth return to normal in early 2019.
For Q1 2017, the model points to an outcome of 0.5 percent, which would see the annual rate tick up to 1.9 percent.
Private sector wages growth has been on a downward trend for the past four years. Wages growth was just 1.8 percent over the year to QIV, which was the lowest result in the history of the series. It is lower than would be expected given the level of the unemployment rate and the strong gains in commodity prices over the past year.
There are many explanations for low wages growth, including rising spare capacity in the labour market, heightened job security concerns, low inflation rates and declining commodity prices from the peak in 2011.
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Spare capacity in the jobs market has been rising since early 2011. While the unemployment rate has come down a little over the past year, there has been a steady increase in the underemployment rate. Underemployment measures people that have a job but would like to work more hours. The underemployment rate is now at a record high of 8.7%. Job security concerns also remain elevated. The combination of underemployment and job security concerns means that people are unwilling to push their employers for a pay increase.
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Slowing inflation rates have also contributed to low wages outcomes. While we typically think of low wages contributing to low inflation outcomes the reverse is also true. That is because low inflation outcomes can result in a drop in expectations about future inflation. And inflation expectations impact on actual inflation outcomes. Also, many wages are set with the CPI outcome in mind. Awards and minimum wage outcomes set by the Fair Work Commission are heavily influenced by the CPI. And the RBA has said that two-thirds of the firm’s in their liaison program have indicated that the CPI was a primary determinant in wage-setting.
Wages growth is also correlated with movements in commodity prices. The decline in commodity prices from the peak in 2011 until QII 2016 reduced company profits and constrained wages growth. The sharp lift in commodity prices since mid 2016 would suggest that wages growth should be picking up by now. However previous commodity price booms have typically occurred alongside rising mining investment. And this time mining investment is still falling, not rising.
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We estimate a Phillips curve (PC) model to explain wages growth. This relates wages inflation to labour market utilisation. Higher labour market utilisation should lead to higher wage inflation and vice versa. We use the underemployment rate to measure labour market utilisation as the unemployment rate has not fully captured the degree of spare capacity in recent years.
We include the quarterly change in the underemployment rate. And also the inverse of the underemployment rate. This allows the underemployment rate to have a larger effect on wages as it gets lower. We also include the lagged value of wages growth, as wages growth is related to it past values. We also estimate the model including lagged values of the CPI or inflation expectations but find that these variables don’t improve the fit of the model.
The model captures the trends in wages growth well. However it suggests that over the past few years wages growth has been a little lower than would be expected given the amount of spare capacity in the economy. Nonetheless the model points to annual rate of wages growth of just above 2% in the December quarter, which is well below the long run average.
RBA research says that recent low wages growth in Australia appears to be only partly explained by spare capacity in the labour market, the decline in inflation outcomes and the fall in the terms of trade from the 2011 peak. Using micro-level data on wages they also find that since 2012 wage increases have been less frequent than in the past. They have also found that wage growth outcomes have become more similar across jobs. This explains why wages growth is also weak in NSW and VIC, the States where the jobs markets are the strongest (see here for our note on labour market slack by State).
Wages growth in Q1 2017
We already have the underemployment rate for Q1 so we can use our model to forecast wages growth for the March quarter. The model is pointing to a 0.5% rise in private sector wages. This would see the annual rate of growth tick up to 1.9%.
When will wages growth return to normal?
We can also use our model to forecast the future path of wages growth. Our forecasts are for the unemployment and underemployment rates to fall gradually from here. A steady decline in the underemployment rate to around 7% in early 2019 would see wages growth returning to its 10 year average of 3%. It would take a sharp drop in the underemployment rate to around 5%, from its current value of 8.7%, to see wages return to a 3% growth rate this year.
These projections line up with the RBA’s forecasts, which show inflation only slowly returning to target. The Bank’s central forecast is for underlying inflation to remain below the bottom of its 2-3% until 2019. And the RBA is not expecting wages growth to begin to recover until late 2017.
Despite these forecasts, the RBA is unlikely to lower interest rates any further in this cycle. And that is because of financial stability concerns stemming from the rising level of household debt and strongly rising house prices in Sydney and Melbourne. The RBA would prefer to see a slow return of inflation to its target rather than cut rates and see inflation rates increase but household debt rise even further. The RBA have expressed some concern around these issue since late last year. And the rhetoric is getting stronger, with an acknowledgement in the latest Meeting Minutes that “there had been a build-up of risks associated with the housing market.” 
Kristina Clifton is economist, Commonwealth Bank, and can be contacted <a href="https://www.commbank.com.au/">here</a>.
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Where to for wages growth? CBA's Kristina Clifton

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GUEST OBSERVER 
The latest business investment report was certainly a mixed bag.
A sizeable drop in actual quarterly investment and expectations of future investment for 2016/17 and 2017/18 were weaker than a year ago. However the focus should be on the breakdown of investment, which was largely due to an ongoing slide in mining investment. In fact investment in the non-mining space rose by 1.9 percent in the December quarter. The improvement in commodity prices may help to soften the weakness in mining activity.
In addition investment rose in five of the eight states and territories, with the weakness more dominated in Queensland and Western Australia. In contrast the Northern Territory, ACT, and Tasmania recorded a double digit lift December quarter investment.
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More importantly the near term shift in expected investment plans was also encouraging. The fifth estimate for investment in 2016/17 came in at $112.6 billion, up 4.6 percent on the fourth estimate and up almost 22 percent in the past nine months.
Encouragingly the lift in investment plans over the last couple of quarters, suggests that a shift in momentum is taking place. Certainly the lift in business conditions in recent months may be supportive of a lift in investment plans – especially in light of the surge in commodity prices and improvement in the global economy. No doubt the rebalancing across the economy is also being supported by the weaker Australian dollar – an outcome that should garner further traction in coming quarters. But as we have seen in the past, business may plan for future investment but then mothball projects if the economic landscape doesn’t improve.
Business spending looks like continuing to be a weight on Australia’s economic growth performance in the medium term. The Reserve Bank could cut rates again, but it is far from certain that this would have a measurable impact in further lifting business spending. The Reserve Bank is more forward-looking and is likely to maintain its neutral bias on a more upbeat medium term growth outlook. 
As highlighted yesterday by the wage price index, wage growth at present is modest. Wages are still growing, and out-pacing inflation. The “average worker” has an extra $1,711 in the pocket compared with a year ago, equating to almost an extra $33 week. Real wage growth exists, while higher home prices, subdued petrol prices and lower borrowing costs are also supporting spending power.
While modest real wage growth causes consumers to price-check more often, the modest growth in earnings restrains the wage bill of employers, leaving them inclined to maintain or boost employment – as indeed has been happening. Modest wage growth is one reason why the unemployment rate in at 26-month lows in trend terms.
Overall policymakers will keep a close eye on how business investment evolves over the coming year. The forward looking indicators suggest activity levels are lifting and we believe that interest rates are likely to remain unchanged.
What do the figures show?
Private business investment 
Overall: Business investment (spending on buildings and equipment) fell by 2.1 per cent in the December quarter after falling by 3.3 per cent in the September quarter. Spending on buildings fell by 4.1 per cent in the quarter while spending on equipment rose by 0.4 per cent. Investment is down 15.5 per cent over the year with buildings down by 25.5 per cent while equipment was up by 1.5 per cent.
Sectors: Mining investment fell by 9.3 per cent in the December quarter (tenth straight decline), while manufacturing spending rose by 3.2 per cent, spending by “other selected industries” rose by 1.8 per cent.
States: In seasonally adjusted terms investment fell in five of the eight states and territories in the December quarter. Investment rose the most in the Northern Territory (up 16.1 per cent), followed by the ACT (up 11.1 per cent), Tasmania (up 10.8 per cent), NSW (up 2.3 per cent), Victoria (up 2.0 per cent). Investment fell the most in Queensland (down 6.1 per cent) followed by Western Australia (down 3.7 per cent), and South Australia (down 2.9 per cent).
Prices: The overall deflator for investment goods rose by 0.3 per cent in the December quarter after falling by 0.2 per cent in the September. The cost of buildings and structures rose by 1.1 per cent while the cost of equipment fell by 0.7 per cent. Over the year, the cost of investment goods fell by 0.7 per cent – the largest fall in just shy of 5 years. The cost of buildings rose by 1.1 per cent while the cost of investment equipment fell by 3.4 per cent.
Forecasts: The fifth estimate for investment in 2016/17 is $112.55 billion, down 9 per cent on the fifth estimate for investment made for the previous (2015/16) financial year. However the investment expectation is up 4.6 percent on the fourth estimate made for the current 2016/17 financial year.
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The first estimate of investment in 2017/18 is $80.625 billion and is 3.9 per cent lower than the first estimate for 2016/17 – the smallest decline for a first estimate reading in five years.
Average Weekly Earnings:
Average weekly ordinary time earnings rose by 1.1 per cent in the six months to November 2016 to be 2.2 per cent higher than a year ago. Male wages rose by 1.8 per cent over the year while female wages rose by 3.2 per cent. 
Average weekly total earnings rose by 2.2 per cent over the year.
The average wage in November 2016 was $79,737.
Wages rose most over the year in Arts and Recreation services (up 5.8 per cent), Information, Media and Telecommunications (up 5 per cent), and Electricity, Gas, Water and Waste services (up 5.4 per cent).
Wages were weakest over the past year in Manufacturing (down 1.5 per cent), Retail trade (up 0.6 per cent), Public Administration &amp; Safety (up 1.5 per cent) and Finance &amp; Insurance (up 1.7 per cent).
Across states &amp; territories, we have calculated average annual wages as follows: NSW $79,862, Victoria $78,005, Queensland $77,069, South Australia $75,192, Western Australia $88,566, Tasmania $69,945, Northern Territory $85,202 and ACT $90,844.
The highest average wage can still be found in the Mining sector at $133,765 per year. Next highest is Finance &amp; insurance services ($95,706) followed by Information media &amp; telecommunications ($95,082), and Professional, scientific &amp; technical services ($92,851).
The lowest average wage is obtained by workers in the Accommodation and food services sector ($57,632), followed by Retail trade ($58,963), “Other services” ($63,554) and Administrative and Support Services ($67,844).
What is the importance of the economic data?
“Private New Capital Expenditure and Expected Expenditure” is released quarterly by the Bureau of Statistics. The figures show both actual and expected spending by businesses on tangible assets such as new buildings, machinery and office equipment. The figures are obtained after sampling 8,000 private business units.
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The ABS publishes the Average Weekly Earnings (AWE) series on a six-monthly basis. While the Wage Cost Index allows analysis of wage movements from quarter-to-quarter, the AWE series is best seen as a measure of actual dollar figures for wages. But average weekly earnings figures can be distorted by changes such as the relative growth of high-paid to low-paid jobs and the cashing out of bonuses in ordinary earnings.
What are the implications for interest rates and investors?
The great unwinding of mining investment continues although the lift in commodity prices may result in more of a soft landing in coming quarters.
The latest data confirms that wages are only growing modestly. In broad terms, wages are modestly ahead of prices, with the simple conclusion that inflationary pressures are contained. The Reserve Bank should be in no rush to move interest rates in any direction. 
Savanth Sebastian is an economist for <a href="https://www.commsec.com.au/" target="_blank">CommSec</a>.
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