Parramatta Lord Mayor, Cr Lorraine Wearne, is encouraged by the State Government’s positive response to the development of a light-rail network in Sydney and calls for it to be expanded as part of a solution to Western Sydney’s transport problems.

Media reports today indicate the NSW Government is in favour of the development of a light-rail system in the Sydney CBD, with tertiary connections.

Parramatta City Council had met with Infrastructure NSW late last year to discuss its own light-rail proposal, which would boost public transport, alleviate traffic congestion and support the population growth of one of Australia’s fastest growing regions.

“When you consider that within the next 20 years, the majority of Sydney’s population will be in the west, we need solutions that recognise the growth of labour markets outside of the City CBD,” Cr Wearne said.

“A light rail or metro system is a viable option for Western Sydney. It is more reliable than buses, cheaper and quicker to implement than heavy rail and can facilitate faster, more regular services,” she added.

Council has already developed a concept for a Western Sydney light rail/metro network and has applied to the Federal Government’s Liveable Cities Program for funding to undertake a two-part feasibility study.

Stage one of Council’s proposal will see the Carlingford Line extended to connect to Rydalmere, Parramatta North and Westmead.

The light rail system planned is to be highly segregated from the existing road and train networks, like Sydney’s tram with virtually no sharing of road space.

The proposal would improve access to employment in Westmead, Parramatta city centre, Macquarie Park and have links to the University of Western Sydney and Macquarie University.

“An efficient public transport system such as the proposed light rail network would connect the rapidly expanding Western Sydney population to employment and education opportunities closer to their homes,” she said.

“Council has had some positive discussions with the State Government over the past three months and I’m looking forward to continuing to work with all levels of Government to ensure Parramatta is well-positioned to support NSW’s ‘engine room’ – Western Sydney.”

The RBA has cut the official cash rate for the second consecutive month, dropping the rate by 25 basis points to 4.25 per cent.

Last month the Reserve Bank cut the cash rate from 4.75 per cent to 4.5 per cent.

“Growth in the global economy has moderated this year after a strong performance in 2010,” Glenn Stevens, RBA governor, said today in a statement.

“Financial markets have experienced considerable turbulence, and financing conditions have become much more difficult, especially in Europe.

“The sovereign credit and banking problems in Europe, to which European governments are still seeking to craft a full response, are likely to weigh on economic activity there over the period ahead.

“This, together with precautionary behaviour by firms and households, means that the likelihood of a further material slowing in global growth has increased. Commodity prices have reflected this, declining further over recent months and taking pressure off CPI inflation rates.

“CPI inflation on a year-ended basis remained above the target at the latest reading, due to the effects of weather events last summer, but is now starting to decline as production of key crops recovers,” he continued.

The Board’s decision to cut rates for the second month in December was to surprise economists, with most forecasting another rate cut.

RP Data’s Cameron Kusher said he was not surprised by the rate cut, particularly given everything that has been happening in the housing market.

“The rate cut should not come as a surprise from a housing market perspective, considering the soft market conditions that first became evident in June of last year have created no inflationary pressures and have persisted,” he said.

“In fact, capital city home values are down four per cent from their December 2010 peak and rental rates have increased by just 4.6 per cent over the 12 months to September.

“The successive improvements to debt servicing positions borne through the two interest rate cuts over the last two months will be a welcome improvement to anyone with a mortgage.

“The primary benefit from the rate cut is likely to be seen in a continued improvement in consumer sentiment which should lead to an uplift in housing transaction volumes which are currently tracking about 10 per cent below the five year average nationally.”

The RBA Board now breaks for a month, with the next Board meeting scheduled for February.

Aspiring first time buyers as well as investors have been dealt a blow following the NSW government’s decision to remove stamp duty exemptions for first home buyers.

As of January 1, 2012, first home buyers in NSW will no longer be able to claim stamp duty exemptions on homes valued up to $600,000. Instead, only first home buyers purchasing new homes will be eligible for the concession.

We already have a major shortage of rental properties in NSW and this is not going to help young people jump off the rental market treadmill and into their own homes.

It will also price many first timers out of apartment markets closer to the city and will put even more pressure on overworked infrastructure in outer Sydney suburbs.

While this may encourage some first home buyers waiting on the sidelines to enter the market this spring, this measure in reality presents another barrier to many first home buyers looking to get their foot in the door.

It also represents an opportunity missed. The critical need to improve housing supply remains, particularly in Sydney, however this would better be achieved through a focus on removing the planning red tape and reducing the associated costs of development.

While the changes are obviously bad news for aspiring buyers, they could also hurt investors, as first home buyers rush to beat the deadline and push up demand for property, competition, and ultimately, prices.

“It is inevitable that as first home buyers scramble to beat the 1 January deadline, we will see prices increase as demand exceeds supply,” said Real Estate Institute of NSW president Wayne Stewart.

APM economist Andrew Wilson echoed similar concerns.

“We have this sort of sunset clause, that it’s [stamp duty concessions] going to be taken away as of 1 January. This means we’ll probably get a bringing forward of demand which just might cause some short term heat in the market place as first home buyers look to take advantage of the window of opportunity over the next 4 months.”

Urban Taskforce chief executive Aaron Gadiel said the $1 billion revenue measure was a sensible step that would help boost NSW’s supply of new housing.

“This reform will remove the current scheme’s inflationary impact on home prices, and will make more housing available to more people,” Mr Gadiel said.

“NSW’s housing supply has been heavily constrained by the planning system and high development levies,” he said.

“In our supply constrained home market, the existing first home buyer stamp duty concessions inflate home prices across the board.

“But this hasn’t addressed the high cost of supplying newly built homes to the market.

“By tying stamp duty concessions exclusively to new housing, the inflationary impact on existing housing will be removed, and brand new homes will be more attractive to home buyers.”

Since the cuts, monetary policy has been tightened with seven increases to November 2010 of 1.75 percentage points. The RBA has left official interest rates unchanged at its last eleven monthly meetings.

The RBA’s stance has been pre-emptive to curb inflationary risk and keep inflation within the 2-3 percent target range. The outlook for the Australian and global economies would suggest that the RBA has achieved its objective with regard to the Australian economy and inflationary pressures and that it is now time for a rate cut. The following factors support this conclusion:

“The RBA’s stance has been pre-emptive to curb inflationary risk…”

The RBA measures of underlying inflation have been within the target range since March 2010. Recent surveys show that inflationary expectations are falling; underlying inflation is expected to lie within the RBA target band.

• Uncertainty over the global outlook continues; uncertainties over sovereign debt failures over the Eurozone continue and are generating volatility in global financial markets. The International Monetary Fund (IMF) has recently downgraded its forecasts for growth.

• Recent labour force statistics point to a weakening labour market in Australia and these conditions are likely to last for a while. The latest ABS statistics show that the national unemployment rate increased to 5.3 per cent in August from 5.1 per cent in July and 5.0 per cent in June

• Forecasts for Australian GDP growth are being revised downward. The IMF has revised its forecast for real GDP growth in Australia to 1.8 per cent for 2011/12. This compares to actual growth of 1.9 per cent for 2010/11.

• Consumers are spending less and saving more. The impact of this is particularly acute for the retail sector where year on year trade figures for July show declines in clothing and footwear (-7.5 per cent), department stores (-2.2 per cent) and household goods (-0.3 per cent).

Since the RBA began tightening monetary policy the number of finance commitments has declined by 27 per cent. The impact has been most pronounced for first home buyers as shown in the graph to the right. During the last decade the proportion of all finance approvals to first home buyers has been both declining and extremely variable.

The downward trend was arrested in October 2008 with the introduction of the boost to the First Home Owners Grant and a drop in interest rates.

In June 2009, 27.9 percent of all finance approvals were to first home buyers. The latest available data, for August 2011, has the percentage of first home buyers at 15.3 per cent. This is well down on the average since July 1991 of 20.1 per cent. Whilst the reasons for this drop are manifold and cannot be attributed to a single factor, the part played by interest rates is crucial. When official interest rates go up the proportion of first home buyers declines and vice versa.

All the economic indicators point to the RBA reducing interest rates.
“Uncertainty over the global outlook continues…”
This article is brought to you by REIA Manager Policy, Jock Kreitals.

Community Atlas
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State of the City 2009
New Chief Executive Officer of Parramatta City Council, Dr Rob Lang, outlined the challenges facing Sydney’s second CBD if it is to transform into a major metropolis and the key commercial, cultural and tourism hub of Western Sydney

• Parramatta State of the City Address 2009 Media release
• State of the city report (1.5Mb)
• State of the city report – Executive Report Card (517Kb)
• State of the city presentation (4,4Mb)

According to figures released by BIS Shrapnel, the national average yearly rental growth is forecast to be 5.8 per cent, resulting in rental households passing an extra $1.9 billion to landlords each year. The average rental rate for Sydney is expected to grow by 7.1 per cent on average annually between next year and 2012.

In an update to its Residential Property Prospects 2009 – 2012 report, BIS Shrapnel said a reduction in the construction of new medium and high-density housing was responsible for the rising rental rates.

Starts of only about 30,700 medium and high-density housing units are expected in 2009, representing an annual decline of 30 per cent.

And the decline in supply has been exacerbated in recent months by tighter lending restrictions imposed by the majors.

Jason Anderson, an economist at BIS Shrapnel, said he was uncertain as to how long it would be before lending restrictions eased.

“Even if some improvement were to occur in the near future, it would be some time before supply improves as most projects take 12 to 18 months to complete,” he said.

The rush to buy a first home was another factor adding to the pressure on rental markets.

“A first-home buyer moving out of the family home, and purchasing a former investment property, will have actually reduced the available rental stock,” Mr Anderson said.