PILBARA HOUSING MARKETS HAVE FELT THE FULL FORCE OF UNPRECEDENTED ECONOMIC ACTIVITY, BUT NOW ARE STARTING TO NORMALISE AS MINING CONSTRUCTION INVESTMENT EASES
WA Nationals leader Brendon Grylls called the Pilbara the ‘epicentre of economic growth in the world’. The world is a stretch, but the Pilbara has definitely driven economic growth in Australia, particularly WA.
In 2011/12 the Pilbara (on and off shore) was responsible for AU$84b of minerals and petroleum production. According to the Pilbara Development Commission, this represents 5.5 per cent of Australia’s total GDP, 50 per cent of New Zealand’s GDP, and is greater than the individual GDP of 123 of the 185 nation states studied by the IMF.
The Pilbara has been a key driver of economic activity, and labour force and population growth. But the Pilbara has also been a victim of its own investment boom.
The most prescient observers did not expect the price of the region’s key commodity – iron ore – increasing more than 1000 per cent in a mere 10 years. And they didn’t expect the unprecedented investment that would come with it.
Housing supply was unable to keep pace with demand generated by the rapidly expanding mining operations in the region, and both prices and rents surged.
The influx of transient workers combined with strong resident population growth saw median rents in both Hedland markets and in Newman doubled over the five years to 2012, exceeding $2,000 per week.
Speculators and investors were also jumping at the opportunity to take advantage of strong yields that were not available elsewhere. The median house price in the Pilbara increased 8.6 per cent per annum from 2007 to a peak of $900,000 in the September quarter last year, with the largest increases in the Hedland region (up 15.1 per cent p.a.) and Newman (13.4 per cent p.a.), whilst median prices in Karratha rose by 3.1 per cent per annum.
This level of growth was unsustainable and the state government recognised – albeit belatedly – the serious social and economic problems this could and was leading to.
The Pilbara Cities scheme was introduced in 2010 and this was always about stabilising the property market through more land releases and infrastructure investment. But as much as the government would like to take credit for the heat coming slightly out of the market, existential factors played a big part.
Tipping point
The first of these factors out of the government’s direct control was the easing of unprecedented resource-related investment in the region. And this was sparked by a sharp fall in iron ore prices in 2012, which lost over a third of its value in five months.
The sharp fall in the iron ore price combined with labour and capital shortages that had driven up costs substantially, led a number of large and small resource companies to reassess their investment intentions. An estimated $75 billion of mining projects was removed from the potential investment pipeline over 2013-2016, according to a recent ANZ analysis.
(These downgrades have subsequently been partially offset by the addition of some new projects aimed at adding capacity, as well as cost upgrades to existing projects. But at this stage, Fortescue’s decision to resume work on its Kings deposit ($1.6b) is the only major deferred iron ore project to have been reinstated.)
Resource companies’ decisions to defer projects had a direct impact on expected future labour demand in the region and are already being felt in a number of resource towns with rental vacancy rates rising and rental price growth easing or going backwards.
Rental market eases
The Port Hedland rental market has eased over the last six months with the number of advertised rental properties up 40 per cent and average rents down 20 per cent. The number of properties advertised for rent in South Hedland has nearly doubled since September last year, however, average rental costs have only marginally declined over this period.
In Karratha, the number of properties advertised for rent has quadrupled from mid-2011 lows. The glut of properties has put downward pressure on prices, with the average rental cost declining more than 30 per cent. The easing of the Karratha rental market coincided with the end of construction of Woodside’s $15b Pluto project.
The Newman market has been more resilient, with the rental market the tightest of all four Pilbara markets and average asking rents at just under $2,200 per week for a three bedroom dwelling.
Property owners spooked
A number of investors and property owners have been spooked by predictions of resource investment, and thus house price growth, peaking. Throughout the last 12 months, listings have risen rapidly and sales volumes have trended down.
On the other hand, the Perth property market has been heading in the other direction with turnover increasing and listings declining over the past 12 months.
Prices still high
To give you an idea of the price growth that has occurred in the Pilbara over the last decade, below is a table detailing the median price of houses sold in 2012 – by comparison, Perth’s median house price in 2012 was $490,000.
| Town/Suburb | House Sales | Median Price |
|---|---|---|
| South Hedland | 190 | $860,000 |
| Baynton | 61 | $1,050,000 |
| Port Hedland | 52 | $1,253,000 |
| Newman | 50 | $860,000 |
| Bulgarra | 42 | $760,000 |
| Nickol | 32 | $848,000 |
| Dampier | 26 | $865,000 |
| Pegs Creek | 25 | $745,000 |
| Tom Price | 20 | $655,000 |
| Millars Well | 16 | $753,000 |
| Onslow | 16 | $918,000 |
| Roebourne | 10 | $428,000 |
New dwelling supply hits the market
Easing rental conditions have also been driven by a notable increase in supply. A number of developers and the state’s Department of Housing have become increasingly active in the Pilbara over the last number of years – particularly the last 18 months.
In South Hedland, for example, Cedar Wood’s Elements project will deliver more than 130 lots over the next 12 months. And joining it is a major urban renewal initiative at The Osprey Estate (a joint venture between Jaxon and the Department of Housing) that will add more than 500 lots.
Whilst in Karratha it hasn’t just been broad-acre land coming onto the market. Finbar is adding to the 114 unit Pelago West apartment tower, with Pelago East expected to be completed late this year. Construction is also likely to begin soon on a $65 million Hilton Hotel which was given planning approval in March.
Although mining construction investment has likely peaked and will decline – possibly sharply – in coming years, there is confidence in the sustainability of the region.
The Pilbara Cities scheme continues to fund social, health, education and basic service provision upgrades and this – combined the supply of affordable housing which will continue to put downward pressure on rents and prices – will support greater levels resident populations.
The Pilbara Development Commission estimates that the residential population of the Pilbara will increase by 40,000 by 2020 based on calculations additional operational staff required for new and proposed resource projects, a percentage for FIFO and how many residential workers can be estimated.