What Happens to Mining Towns After The Boom?

I am working on a gas project, with the closest town being Onslow. Construction is coming to an end.

I believe that the project owners are being a bit more mindful of what effect they have on the local market. We have built a humongous (biggest food hall in the southern hemisphere humongous) camp for the 7500 or so workers required during construction. We had a little bit of overflow and a caravan park bought in some transportable accommodation to cover this.

There's a new housing estate built (gas company partnered with a builder) with a couple people moving local to run the plant... The project maybe wasn't as big as what happened in Karratha.. but to me it looks like they kind of curved that insane price/rent growth here. It's hard to get statistics on a town with 700 people, admittedly.

Maybe the insane growth in future will be stifled with temporary construction camps like this place?

 

totally agree,
its the people, their wages and the demand that brings the people in and hence the prices rise

this means that even if the prices of coal etc rise, if no people are in the area or if the mine doesnt operate it wont change,

so my understanding is that even if there is a resurrgence and the mine starts to operate there will never be as many people as during the consctruction phase,

and since the construction has already been completed, unless there is a huge find or something like that,

the prices will never recover for a long time

so from my amateur viewpoint, buying once the boom has passed is just silly?

 

Pretty much. Once a mine is operational it has to employ a certain amount of people to keep it running. That's like the baseload population for local communities. If coal prices go up, the mine will be under pressure to maximize production, so you might see the baseload population increase a little. If coal prices go down, the mine will be under cost pressure, and you might see some redundancies/restructuring, and the baseload population will decrease a bit.

Construction of a mine usually requires about 10x the workforce. The flow goes like this:

Baseload - Town is running happily as it does, and rental vacancies might be ~2% (for argument's sake), then mining company announces a new mine is to start in the next few months.

1. When the constructors come to town, they take up all the available rental places and hotels that they can get.. and rents and beer all shoot up in price too.

2. More housing is built by investors to accommodate this influx and to take advantage of the 10%-15% gross yields.

3. While investors are building houses, the constructors are building camps to accommodate even more workers that are going to come in the middle of construction.

4. Camp is finished and can hold the entire construction workforce. Workers are moved out of housing and into camp, where it's easier to feed and transport the workers to and from site.

5. Housing vacancies increase (because workers moved out), but is somewhat mitigated by other consultants and contractors who are supporting the construction project. Rents start to slide a bit, and house prices back off some.

6. Project finished. Construction workers go to next project or back to their home base. Vacancies go from 2% to 5% because of all the extra housing built.

7. Rents drop dramatically, as investors try and keep their properties occupied.

8. Falling rents and falling demand for property results in a fire sale as investors run for the exits.

9. Now with the camp accommodation built, any future construction team has somewhere ready to stay.. they won't need to rely on housing so much. (A lot of camps are transportable now, but if there's no new projects, there's no reason to move the camp)

10. This means that natural population increases will be required to reduce vacancies, and that rents and prices are unlikely to move much until the next housing shortage.

From an investor's perspective I think it's unwise. Naïve at best, foolish at worst to expect to snap up a bargain with the expectation of making a quick return. PPOR hunters can go for their lives though, the best time for them to buy is when sentiment is super low.

 

I do not know that it is that bad, depends probably on location and town, such as is it next to the coast ? is it normally a decent size without mining booming.

Seems same as anywhere else, buy when not so many are interested, buy at a regular town type price, buy with view to normal rental income and vacancy, and if demand goes through the roof, enjoy it while it lasts, or sell out.

As opposed to a small hick town inland in middle of nowhere.

Some people must have never traveled and seen the many abandoned places here when the mines shut. Instead of being an investor and building brick and mortar, probably would have been better investing in a Kenworth, trailers and a portable home business.

 

Australia’s worst performed property market has turned the corner. The average home rental price
in Port Hedland, the heart of the world’s seaborne iron ore industry, has ended its near five-year slide in a clear sign of a growing belief that today’s stronger iron ore prices may just be more sustainable than thought.

The fortunes of Port Hedland rise and fall with the iron ore sector, and investors in the town’s property sector have known nothing but pain since the iron ore giants ended their big expansion
projects and began slashing jobs throughout their businesses.

But official figures released yesterday by the Pilbara Development Commission show that the average advertised rental price in Port Hedland climbed by $10 a week to $506 in the last three
months of 2016.

 

One of the concerns for a tax percespective is that if a owner occupied property is put on the market as a rental (ie because of redundancy or the owner needs to seek worse elsewhere) then there are two tax laws to be aware of:

1. 6 year CGT absence rule which may all the property to be exempt for a period of UP TO 6 years after they move out. However in such a case this may mean the loss is not available if its sold within 6 years sometimes; and otherwise if that rule isnt used then
2. s118-192 requires (it not a option) that the market value on the date it first produces rent becomes the costbase for CGT. I reckon thats really unfair...The market value may have fallen below cost. So a owner may end up paying MORE CGT than would have occurred if they had just listed it for rent from day one. - assuming the price recovers

 

Still would not touch it

House prices in mining towns are surging again after the end of the boom sparked a huge crash - ABC News (Australian Broadcasting Corporation)

 

Me either. Not because you can't make money, but rather it's way out of my risk profile parameters.

 

Yes its early days imo

 

I'd also have concerns that most mining companies have leaned up since the downturn. Less staff required to run the same operations. Construction phases that result in peak jobs growth tend to be short lived and artificially drive short term rents (assuming no purpose built camps). I've met some 'truck drivers' in central qld mines who work from their office Brisbane CBD. Whole new world...

 

Real people and real towns get screwed.......that’s what happens when “investors” buy in, then before you know it they sell out and don’t give two f......ks about what they have done to the towns and the people that were born and raised there

 

All I can make out is that this surge is possibly just temporary and best case scenario is that prices plateau to be the new mid term base

 

??
not following the logic

investors lose money too

its the councils who are to blame , they allow the over development to.happen,.
all they can see is the $ signs

 

The Perth Property Show podcast just did a regional WA market update this week, focusing heavily on the Pilbara. Quite interesting, they bring up the salient point that it costs about $800K to build (house and land) up there, which suggests there will not be any new supply until prices are up toward those levels. So I guess reasonable growth and yields are sustainable IF local population growth continues at sufficient levels. I also tend to agree with the sentiment that Karratha area is the place to buy if anywhere in the Pilbara, since it at least has a little economic diversity (gas and iron ore lol) and is actually a nice place that people want to live. Places like Newman and Port Hedland are too speculative and volatile for my liking, though you could probably clean up if you time the market right and have an appetite for risk.