AUSTRALIA’s mining and energy sectors are keeping the nation’s economy ticking over and buffering it against unstable global financial markets. While propping up the economy, they have also had substantial impacts in other areas,
including property prices.
According to Real Estate Institute of Western Australia (REIWA) president David Airey, the mining boom has had a flow-on effect on Australia’s residential markets, particularly in WA and Queensland.
Prices in Perth surged between 1994 and 2007, mostly driven by the iron ore boom in the state’s north. Reports from REIWA show that in WA in 2004, the average residential property price was about $250,000. Thre years later, the average had risen to more than $450,000.
In conjunction with property price rises, rental figures also leapt during the period, as overseas and interstate migration into WA was encouraged.
This triggered rising demand for rental accommodation between 2004 and 2007, and pushed the vacancy rate below the 3 per cent equilibrium level as mean rents increased from about $155 per week to about $425 per week.
With migration into WA escalating further from 2010, the state’s rental vacancy rate plummeted to below 2 per cent by December 2011. This has made it harder for people to find rental accommodation and has subsequently driven up rental prices.
“There is no question that mining and resource exploration has underpinned the Western Australian economy. It has resulted in increased employment,” Mr Airey said.
“If you owned an investment property you would’ve seen your rents rising probably 10 to 15 per cent in the last year alone, which has definitely been underpinned by the enormous demand for rentals following the inward immigration into WA from both interstate and overseas.
“In [the past] five months, [the WA housing market] has been exceptionally strong, up in sales transactions 25 per cent on last year.
To put that in numbers, [about] 800 to 850 houses a week [are being sold]. A year ago it was 600 to 650. If we go back just six months ago it was 750.” Mr Airey said that demand for housing was far outstripping supply and there was little being done to alleviate the problem.
“Residential property [developments are] an absolute trickle. In fact, there is more going than coming in because a lot of older investors have been selling properties and many of those are being picked up by the first homebuyer market.
“The sales market has taken a lot of the rental stock out of the general rental availability and there has been very little in the way of private sector housing development, if at all, for the last several years.
“The demand for rental properties isn’t going to diminish. People are coming into Western Australia – more so than other states, so I think there will be continued pressure on rentals.
That pushes prices up.” Port Hedland, WA
The most extreme example of the mining boom’s effect on property is in Port Hedland in northern WA, where a shortage of sales and rental stock has caused prices to skyrocket.
According to Port Hedland-based Jan Ford Real Estate principal Jan Ford, Port Hedland is more than 100 years old and began as a very small pastoral town.
“In the 1960s, the government allowed iron ore to be exported and Port Hedland had a fabulous port, able to be used as the port of choice for iron ore to go out to the world markets,” Ms Ford said.
“The town of Port Hedland had about 300 houses at that time and there had been a bit of growth with manganese throughout the ‘60s, butit was iron ore that really put the town on the map and the town grew from 300 houses up to 5000 houses in the next decade.
“Over that time, iron ore exports went up to 10 million tonnes per annum.” Ms Ford said that iron ore exports continued to multiply and in the last 10 years, exports surged from 100mtpa to 220mtpa.
Large construction projects were undertaken in order to facilitate the increase in exports, and this created the need for a local workforce.
The influx of workers to the town and surrounding mines fuelled demand for housing in Port Hedland and surrounding towns.
“When all of this expansion really ramped up [in 2000], the average house [price] was about $150,000.” Ms Ford said. “We were selling houses in the port part of Port Hedland, which is on the ocean, for about $180,000 to $200,000,
and houses in our inland suburban satellite town of South Hedland were selling at an average price of $80,000.
The cheapest was $48,000. “Over the last 12 years, those houses have gone to around about $2 million in Port Hedland and the brand new homes that we are building in South Hedland are about $1 million and $1.2 million. The older houses that are left over from the 1970s are selling for around about $700,000 to $900,000.”
Meanwhile, rents have risen from about $300 per week in 2000 to about $3000 per week today.
“A small, two-bedroom unit [rents] for about $1500 [per week]. Some of the older [units] are around $1200 [and] one-bedroom units are around$1000 a week. The big, four-bedroom homes are around $3000 a week and probably rent for about $800 [per week] in most [Australian] cities.”
Ms Ford added that with more than $100 billion worth of approved projects and expansions underway in the region the pressure on suitable accommodation would increase.
“That means $500 million worth of labour for those projects to be completed.
“The expansion projects that have been approved for this port [Port Hedland] will take the export capacity from 220 million tonnes per annum up to 495 million tonnes per annum.
“They are not proposed projects: they are approved, which means they will be built over the next three to four years.
“We have 6000 dwellings in town and we’ve had that many for probably about 30 years, so the demand for housing and construction for that… work is quite phenomenal.
“We already have 12,000 local people. We have about 16,000 to 18,000 fly in, fly out workers.” Ms Ford said that the expansion work would result in a population increase to about 30,000 people in the region by the end of 2012, rising to 45,000 within the next two years.
In addition to current developments, there is a proposal underway to increase Port Hedland port’s capacity to 1 billion tonnes per annum.
“If that goes ahead it will commence probably at the beginning of next year, and will be another $20 billion worth of construction,” Ms Ford said. She added that the associated population increases would place even more pressure on an already constrained housing market.
According to the Real Estate Institute of Queensland (REIQ), the residential markets in the state’s resource centres continued to experience strong buyer demand, particularly in Gladstone, Central Queensland.
“Gladstone appears to have plateaued this quarter [March 2012 quarter]; albeit after posting a median house price increase of 16.5 per cent over the year ending March ,” REIQ’s Market Monitor report stated.
“After a very strong period of price growth and sales activity, the outlook for the region’s property market remains bright. The high confidence levels among buyers and vendors [is] likely to underpin property price growth and sales activity [as it] continues along at healthy levels.”
REIQ reported that Gladstone experienced growth in employment, industry and population in the last three years.
Further growth is expected during the next three years as major LNG, coal and aluminium projects transition from being in development to operational. For example, Gladstone has the potential to produce more than 50mtpa of LNG once the largest projects in the region start up.
REIQ stated that it anticipated new projects would bring more jobs and revenue into the region.
As Gladstone’s boom is more recent, the government has had more time to plan for the associated population surge and has mapped out new residential developments across the city.
However, while property prices in most other areas around Australia have stagnated and even dipped in the past 12 months, the median house price in Gladstone has soared 16.5 per cent, from $395,000 in March 2011 to $460,000 in March 2012.
“Queensland’s resource centres continue to experience strong demand from buyers,” REIQ reported in a May media release.
In comparison to Gladstone’s price surge, Brisbane city recorded a price drop of almost 5 per cent from $535,000 in March 2011 to $510,000 in March 2012.
“Historically, it has been our resource centres that have held the charge during Queensland property cycles, closely followed by Brisbane [and] then our tourism centres, and this pattern does seem to be repeating,”
REIQ chief executive officer Anton Kardash said.
Causes and possible solutions According to Ms Ford, federal and state governments are doing little to alleviate the stress on housing and rental accommodation in mining centres.
“We’ve had lots of surveys and lots of studies undertaken by government, and I have been involved with [government] since 1998,” she said.
Ms Ford said that despite governments being aware of projects and expansions, there had not been any good or solid plans for providing water, power, roads and infrastructure, and ensuring that land was ready for developers to build houses and units in the Pilbara region.
“That has been a lot slower than what the expansion has been, hence the massive increase in prices: massive demand and shortages in supply,” she said.
“I think planning could have been done in collaboration back in 2000, but government was a bit slow in understanding the effects on these regional towns. We are seeing it all through the north of Australia, where [government] thinks that the market will just magically provide surplus properties.”
Ms Ford added that the Australian taxation system, in particular the Fringe Benefits Tax (FBT), had discouraged workers from permanently relocated to mining centres.
“I have seen the effects on country Australia with the introduction of the Fringe Benefits Tax during the 1980s, which [essentially] prevented mining companies and all sorts of businesses from having their workforce living in regional areas. We saw a massive move back to the cities when tax incentives were wiped out from [staying] in country areas. We saw a big collapse in regional Australia,” she said.
“For example, a mining company can send a fly in, fly out worker to live in a mine for round about $50,000 a year and it will be tax deductable straight off the profit, whereas if a miner is living in a town then it becomes a capital expenditure.”
Capital expenditure is taken into account after profits have been taxed.
“If it’s coming out of pre-tax dollars and it is an expense [then] it is short-term thinking, but it promotes short-term thinking and it promotes transient towns,” Ms Ford said.
“[Mining companies] are forced into this fly in, fly out workforce accommodation because there is no alternative.” Ms Ford said the problem could be alleviated by eradication of the FBT or altering the taxation system to encourage mining companies to permanently relocate workforces to regional areas. This would in turn persuade young families to settle in the region.
She added that if governments and mining companies collaborated, much needed infrastructure and residential housing stock could be developed; thereby easing housing shortages and price fluctuations in regional Australia.
With workers and their families encouraged to move to regional mining centres, the squeeze in property markets in the city could also be assuaged.