The real estate market in a few key mining towns is providing some insight as to how close we are to the end of the mining investment boom.
With a limited supply of housing and an ongoing influx of workers to these regional towns, asking rents and house prices literally soared during the investment phase of the boom. These trends have been reversing for the better part of 2013 and appear to be accelerating to the downside over the last 3-6 months. This is despite the current growth in National house prices.
I’ve only covered a small range of the major mining towns across three main mining states to get a broader overview of mining than just iron ore mining. Falling asking rents and house prices are evident across a range of mining industries & states. All of the data for this post comes courtesy of SQM Research (www.sqmresearch.com.au), unless otherwise stated. There are any number of postcodes you can investigate by going to the SQM site and searching the free statistics.
The mining investment boom has been a major source of income, investment and economic activity for Australia. Whilst mining hasn’t employed a large proportion of the workforce, incomes have been very high. The suburbs of northern Sydney and inner Melbourne used to record the highest concentrations of wealth and personal income. But according to the Census 2011, the top 13 regions for the highest median personal income were in WA. The towns with the highest median income are located in the Pilbara region (I’ve covered only 3 main towns here), with median incomes higher than $2,000 a week (source: ABS). Broadly speaking, as the investment phase of the boom fades, the focus will shift to efficiency and cost cutting to maximise profits from the export phase.
Karratha, WA – 6714
This is one of three major settlements in the Pilbara – along with Port Hedland and Newman. The Pilbara is known for its petroleum, natural gas and iron ore deposits.
For the most part, the residential vacancy rate in Karratha has been extremely low or zero. Since late 2011, the vacancy rate started to climb. In the last 3 months, the vacancy rate has gone from approx. 4% to 6.7% in November 2013. According to SQM Research, a vacancy rate of 3% is around “equilibrium”. The vacancy rate in Perth is 1.7%.
The previous tightness in the rental market is reflected in asking rents – reaching a peak of $2,000/week (houses). With a growing vacancy rate, asking rents across houses and units have declined by up to 50% from their respective peaks. The start of this decline in asking rents is consistent with the growing vacancy rate, starting all the way back in late 2011.
This weakness is not limited to the rental market. There has also been an increase in unsold stock on market. This appears to have impacted asking prices mostly since mid-2012, although prices have declined over the last 3 years as well. For the 12 months to November 2013, asking prices for houses and units have declined by 12% and 15% respectively, with 2 bedroom units down as much as 27%.
Port Hedland, WA – 6721
The situation in Port Hedland is similar, but most of the weakness looks to be showing up in the rental market.
The residential vacancy rate has shown quite a seasonal pattern over the last 2-3 years, regularly fluctuating between zero and 2%. The vacancy rate in Port Hedland has now reached 5.8%.
Asking rents are well off their peaks, with rents falling by 19% and 39% for houses and units respectively over the last 12 months.
Whilst stock on market has increased steadily since 2011, it does appear to have stabilized over the last several months.
Asking prices have also declined from their respective peaks and are down 15% and 10% for houses and units over the last year alone. But small pockets of strength remain. For example, the asking price of 3 bedroom houses has grown by 10% over the last year.
Newman, WA – 6753
The trend changes in Newman appear to be a more recent phenomenon. The residential vacancy rate has gone from a low of just above zero at the start of 2013 to a high of 5.8% in November 2013.
The fall in asking rents has only occurred since the middle of 2013. Asking rents are down 10% and 6% for houses and units respectively over the last 12 months. Asking rents are still relatively high compared to history, which suggests prices may still have a way to go down.
Housing stock on market for sale has seen a marked increase since the start of 2013. Most of the increase has been in the number of houses (as opposed to units) hitting the market. Interestingly, asking sale prices have moved only modestly during the shorter time period.
Moranbah QLD, 4744
This is a coal mining town in QLD and in 2011 was ranked as the most expensive place to live in QLD.
It’s interesting that the growing vacancy rate is not just limited to WA. Over time, there has been a distinct and consistent seasonal pattern to the vacancy rate in Moranbah, fluctuating between zero and 3%. Since early 2012 though, the residential vacancy rate has gone from sub 1% to 7.7% at November 2013. The vacancy rate in Brisbane is 2.4%.
This large move has been matched by large declines in asking rents since mid-2012 as well. The declines over the 3 year period are also substantial – 46% for houses and -37% for units.
Interestingly, housing stock on market for sale has been declining – it’s well below GFC highs and in a very clear down trend. But at the same time, asking prices have also declined substantially. Over the last 12 month period, asking prices are down by 25% for houses and 33% for units. Substantial declines are also evident across more recent time frames of week, month and quarter.
Dysart QLD, 4745
This is another coal mining town in QLD. The main mine in town, the Norwich Park Mine, closed on 11th April 2012 after 32 years. It was reopened in Saraji Mine 26km north of the town. But a more recent event has caused the residential vacancy rate to rise quickly. It’s now at 11%, which is actually well down off its highs of almost 20% earlier in the year.
Asking rents have also fallen over the last several years with houses recording a -52% decline and units a -40% decline in asking rents. Prices appear to have stabilized over the last year.
Stock on market reached its peak in late 2012 and has stabilized in 2013. So whilst no further stock was building up on the market, the current levels aren’t clearing either. At the same time, asking sale prices have experienced reasonably high declines of around 17% for both houses and units over the last year. The decline in asking sale prices has stabilized more recently.
Emerald QLD, 4720
The final town I wanted to cover in QLD is Emerald. This is the main services town for a large number of industries in the region – mostly coal mining, but also cotton and other agricultural industries.
Similarly in Emerald, the residential vacancy rate has increased very quickly over the last eight months. It’s gone from virtually zero at the start of the year to 7.4% in November. The rise has been striking from one month to another (March to April) – which seems an unusual move. But asking rents are confirming that there has been growing vacancies with asking rents declining by 35% for houses and 37% for units over the last year. Prices appear to have stabilized over the last month and quarter though.
Further evidence of a soft housing market is the growing volume of unsold stock on market. There has been a reasonably substantial increase since late 2012. But at the same time, asking sale prices are only down by 4% for both houses and units over the last year.
Roxby Downs SA, 5725
This is the site of the Olympic Dam mining centre producing copper, uranium, gold & silver. Plans to expand the mine by BHP Billiton were postponed indefinitely in August 2012 pending investigation of a “new and cheaper design”.
It’s not a surprise to see the residential vacancy rate go from almost zero prior to that, to now over 8%. The vacancy rate in Adelaide is only 1.4%. At the same time, asking rents have seen a substantial decline over the last year, falling by 33% for both houses and units. Prices over the last month appear to have stabilized somewhat.
Unsold stock on market has seen a steady increase since mid-2012, but levels are still below that of the GFC period. Asking sale prices have seen only a very small (compared to other mining markets) decline over the last year of -6% for houses and units. The weakness appears to be more in the rental market at this stage.
In the context of the current level of housing activity in capital cities and other urban areas, it’s shocking to see growing vacancy rates and declining rent and house prices in these mining centres. Although we are talking about small markets, the implications for the economy are large. Falling demand for housing in these centres indicates a shift away from the more labour intensive investment phase of the boom. This wouldn’t be a worry if overall business investment was poised to take the place of mining investment activity. But it’s not and this is precisely the issue that the RBA has been hoping to address by easing interest rates.