One of Australia’s leading economists has warned against drawing predictions for the broader Australian market from the recent performance of mining towns.
AMP Capital chief economist Shane Oliver used a recent update to reassure investors that collapsing mining town property markets are not a sign of what’s to come for cities like Melbourne and Sydney, arguing that these markets are driven by very different dynamics.
Declining workforce levels, and a related dip in accommodation demand, are the principal reasons behind price reversals in regions like Karratha, WA and cities such as Perth and Darwin, according to Mr Oliver.
“Some seem to think that because property prices in mining towns like Karratha are now crashing, this is a sign that other cities will follow. This is nonsensical. Property prices in mining towns surged thanks to a population influx that flowed from the mining boom. This is now reversing. Perth and Darwin are also being affected by this but to a less degree,” Mr Oliver said.
The dramatic price rises experienced in Sydney and Melbourne over the past few years were largely the result of favourable interest rates, with both cities having experienced previous high-growth periods that predated the mining boom.
“By contrast, the surge in property prices in cities like Sydney and Melbourne that occurred into early last decade predated the mining boom, and their latest gains largely occurred because the end of the mining boom allowed lower interest rates."
Mr Oliver’s comments followed weeks of speculation surrounding the future of Australian property values, largely triggered by a 60 Minutes report that focused on predictions by US researcher Jonathan Tepper that property values would dip by as much as 50 per cent, citing high debt-to-income ratios and overvalued properties as the reasons.
The story of failed investor Kate Moloney, who purchased multiple properties in coal mining-focused Moranbah, Queensland, featured as a case study in the report.
The program, and Mr Tepper’s predictions, have been heavily criticised by members of the property industry including director of Empower Wealth and chair of the Property Investment Professionals of Australia, Ben Kingsley.
“Google Moranbah, go and look at it on a satellite map and you will see it as a speck in the desert. Anyone who thinks that that’s sensible investing and putting all your eggs in one basket... [It was a] one-trick pony, and that trick didn’t deliver. I feel sorry for those people who were coaxed into going into these particular locations but it comes back to fundamentals. It didn’t pass the lifestyle test and if there’s no jobs out there and the economy falters, guess what? You’ve got a ghost town,” Mr Kingsley said.
“Media look for these types of sensational stories and I’m disappointed in 60 Minutes,” he added.